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Organizing the Global Value Chain: a firm-level test

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  • Davide Del Prete

    (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome (Italy).)

  • Armando Rungi

    (IMT Lucca (Italy).)

Abstract

In the last two decades, technological progress and a decrease in trade barriers fostered the formation of global value chains, in which different sequences of production stages, previously performed in close proximity, can now be unbundled globally. In this contribution we test at the ?firm level the optimal allocation of ownership rights along a productive sequence, as in the framework set by Antras and Chor (2013). For this purpose we exploit an own-built dataset made of 4,214 parents which have acquired or established at least one affiliate in the period 2004-2012. Overall, they control 104,720 affiliates and operate in 185 countries. Assuming a technological orientation of the value chain from the final consumer upwards, we positively test that incentives to integrate suppliers vary systematically with: i) the relative upstream or downstream position of the affiliate with respect to the parent; ii) the elasticity of demand faced by the parent. Further, we ?find new insights for firm-level heterogeneity along supply chains, as more productive and bigger parent companies are more likely to choose affiliates next to the final consumer. Once controlling for the complexity of the internal supply chain at the moment the investment decisions occur, we find that bigger internal chains show a lower propensity to integrate at the margin, probably discount increasing coordination costs. Results are robust after different specifications. However, we detect some non-linearities over ?firm-level distributions, when integrated affiliates approach the bottom of the supply chain, next to the ?final consumer, after the VIII decile of the affiliates' downstreamness. In this case we presume that a horizontal rather than a vertical integration strategy could prevail.

Suggested Citation

  • Davide Del Prete & Armando Rungi, 2015. "Organizing the Global Value Chain: a firm-level test," Working Papers 2/15, Sapienza University of Rome, DISS.
  • Handle: RePEc:saq:wpaper:02/15
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    Cited by:

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    2. Pisch, Frank, 2020. "Managing global production: theory and evidence from just-in-time supply chains," LSE Research Online Documents on Economics 108488, London School of Economics and Political Science, LSE Library.
    3. Laura Alfaro & Pol Antràs & Davin Chor & Paola Conconi, 2019. "Internalizing Global Value Chains: A Firm-Level Analysis," Journal of Political Economy, University of Chicago Press, vol. 127(2), pages 508-559.
    4. Riccaboni, Massimo & Wang, Xu & Zhu, Zhen, 2021. "Firm performance in networks: The interplay between firm centrality and corporate group size," Journal of Business Research, Elsevier, vol. 129(C), pages 641-653.
    5. Rungi, Armando & Del Prete, Davide, 2018. "The smile curve at the firm level: Where value is added along supply chains," Economics Letters, Elsevier, vol. 164(C), pages 38-42.
    6. Giuseppe Berlingieri & Frank Pisch & Claudia Steinwender, 2018. "Organizing global supply chains: input-output linkages and vertical integration," CEP Discussion Papers dp1583, Centre for Economic Performance, LSE.
    7. Armando Rungi & Loredana Fattorini & Kenan Huremovic, 2020. "Measuring the Input Rank in Global Supply Networks," Papers 2001.08003, arXiv.org, revised Sep 2020.
    8. Berlingieri, Giuseppe & Pisch, Frank & Steinwender, Claudia, 2018. "Organizing global supply chains: input costs shares and vertical integration," LSE Research Online Documents on Economics 91706, London School of Economics and Political Science, LSE Library.
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    11. Davide Del Prete & Armando Rungi, 2020. "Backward and Forward Integration Along Global Value Chains," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(2), pages 263-283, September.
    12. Davide Del Prete & Giorgia Giovannetti & Enrico Marvasi, 2017. "Global value chains participation and productivity gains for North African firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(4), pages 675-701, November.
    13. Liu, Mengxiao, 2021. "The missing option in firm boundary decisions," European Economic Review, Elsevier, vol. 132(C).
    14. Loredana Fattorini & Armando Rungi & Zhen Zhu, 2017. "The Organization of Global Supply Networks," Working Papers 08/2017, IMT School for Advanced Studies Lucca, revised Nov 2017.
    15. Dimitrios Exadactylos & Massimo Riccaboni & Armando Rungi, 2019. "Talents from Abroad. Foreign Managers and Productivity in the United Kingdom," Working Papers 01/2019, IMT School for Advanced Studies Lucca, revised Dec 2019.
    16. Torres Mazzi, Caio & Foster-McGregor, Neil, 2021. "Imported intermediates, technological capabilities and exports: Evidence from Brazilian firm-level data," Research Policy, Elsevier, vol. 50(1).
    17. Dey, Bidit L. & Babu, Mujahid Mohiuddin & Rahman, Mizan & Dora, Manoj & Mishra, Nishikant, 2019. "Technology upgrading through co-creation of value in developing societies: Analysis of the mobile telephone industry in Bangladesh," Technological Forecasting and Social Change, Elsevier, vol. 145(C), pages 413-425.
    18. Wilhelm Kohler & Marcel Smolka, 2018. "Productivity and Firm Boundaries," CESifo Working Paper Series 7214, CESifo.
    19. Kukharskyy, Bohdan, 2020. "A tale of two property rights: Knowledge, physical assets, and multinational firm boundaries," Journal of International Economics, Elsevier, vol. 122(C).
    20. Armando Rungi & Francesco Biancalani, 2019. "Heterogeneous Firms and the North–South Divide in Italy," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 5(3), pages 325-347, October.
    21. Chun, Hyunbae & Hur, Jung & Son, Nyeong Seon, 2021. "Global value chains and servicification of manufacturing: Evidence from firm-level data," Japan and the World Economy, Elsevier, vol. 58(C).
    22. Kohler, Wilhelm & Smolka, Marcel, 2021. "Productivity and firm boundaries," European Economic Review, Elsevier, vol. 135(C).
    23. Emanuele Brancati & Raffaele Brancati & Dario Guarascio & Andrea Maresca & Manuel Romagnoli & Antonello Zanfei, 2018. "Firm-level Drivers of Export Performance and External Competitiveness in Italy," European Economy - Discussion Papers 2015 - 087, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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    More about this item

    Keywords

    global value chains; vertical integration; property rights theory; multinational enterprises; downstreamness; business groups.;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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