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Global Value Chains in a Postcrisis World
Box 3.2 Offshoring, Outsourcing, and the Measure of Vertical Integration The recent world economic crisis has important implications because its consequences are not only of an economic and financial nature. There is also a social impact caused by the reorganization of GVCs, which involves the destruction and creation of jobs at different locations. During the 1990s, firms offshored and outsourced—two phenomena that define globalization and are often poorly understood—part of their production and built “global value chains.”a The relevant process in GVCs is “offshoring,” which comprises both offshore-outsourcing and foreign direct investments (FDI). Outsourcing to another domestic firm is not considered. Figure B3.2 gives an overview of the distinction between outsourcing and offshoring.
Figure B3.2 Differences between Outsourcing and Offshoring foreign
domestic
outsourcing
other firms
same company
outsourcing
offshore-outsourcing
in-house production
foreign direct investment
o f f s h o r i n g
Several factors favor the tendency to locate production stages in other countries. First, overall trade costs have decreased in the past two decades; that is, not only have tariffs fallen, but transport and communications costs, as well as the time cost of transport, have also decreased (Jacks, Meisner, and Novy 2008). A second important factor is that through better infrastructure and logistic services, the reliability and timeliness of delivery have improved significantly (Hummels, Ishii, and Yi 2001; Nordås, Pinali, and Grosso 2006). Finally, technological improvements, that is, advances in IT, have made it possible to geographically separate an increasing number of services tasks (Jones and Kierzkowski 1990). This fragmentation of the value chain can be measured using three different methods. Some authors use firm surveys to account for the fragmentation of the value chain. Others use foreign trade statistics and consider, for example, the share of parts and components in trade flows as an indicator for increases