This volume brings together two topics from the forefront of international trade – the proliferation of ‘value chains’ or ‘supply chains’ in the global economy, and the global restructuring of trade associated with the ‘great trade collapse’ of 2008–2009. The literature on both value chains – through which the process of production and trade of a single good is fragmented over a number of countries (USITC 2011) – and the trade collapse (Baldwin Reference Baldwin2009) has attempted to associate these two topics. It has been suggested that increased vertical specialization in trade contributed to the collapse in trade, since a reduction of one unit in final goods demand now implies the elimination of many more trade flows involving intermediate goods than under past production patterns in which complex goods were more likely to be concentrated in a single country. Less well known is that the collapse in trade has led to a reorganization of global value chains through a Schumpeterian process of creative destruction. The present volume examines these linkages and their consequences for economic development.

The first half of the book takes a birds' eye perspective on value chains and the crisis. Milberg and Winkler (Chapter 2) find that a secular trend toward consolidation in value chains, as measured by increasing concentration of exports at the sectoral level in a few countries, accelerated during the crisis. They distinguish between vertical consolidation (a reduction in the number of tiers of suppliers) and horizontal consolidation (a reduction in the number of suppliers in each tier). The degree of consolidation varies by sector, and may have been higher for buyer-driven value chains (such as Wal-Mart in apparel) than for producer-driven value chains (such as in automobiles and electronics). Escaith, Lindenberg, and Miroudot (Chapter 3) conduct a detailed examination of the relationship between increasing vertical specialization and the income elasticity of trade during the crisis. They present evidence from available data that the ratio of imported inputs to value added has increased steadily in almost all countries and sectors. While in the long run the trade elasticity should be constant, in the short run (up to four years) this elasticity can deviate from its long-run value. In 2008, the shock to demand was concentrated in manufactures and other tradable goods which are more vertically integrated than average (the composition effect). In tightly organized supply chains, “just-in-time” management practices mean that inventories drop suddenly in a recession, especially if there is also a credit crunch. This “bullwhip” effect, along with the composition effect, means that the observed income elasticity of trade shoots up both in a recession and in the subsequent recovery.

Financial crises associated with the most recent recession imply that growth in the developed countries may be stalled in at least the intermediate run, with accelerated convergence of developing to developed economies. This means that patterns of trade in the future are more likely to be driven by demand patterns in the South, with increased demand for food, timber, metals, minerals, and inputs into infrastructure investments in general, and increased relative prices of commodities. Kaplinsky and Farooki (Chapter 4) examine the implications of this demand shift both for value chains and for the incidence of non-tariff measures. Countries at a middle stage of development, such as China, India, and Brazil, are more likely to be engaged in the labor-intensive stages of intermediate processing. Thus the poorest countries, which historically exported some semi-processed goods to the North, will export less-processed goods to the South in increasing volumes. Since unprocessed goods are less standards-intensive than intermediate goods, the new Southern importers are likely to demand less both in the way of production standards and labor standards from their suppliers than the old Northern importers. Kaplinsky, Terheggen, and Tijaja (Chapter 8) provide evidence for these patterns in case studies of Gabon timber exports and Thai cassava exports. In both cases, increased demand from China has pushed these exporters back into earlier stages of the value chain, while relaxing the level of standards compliance necessary.

The balance of the volume is devoted to studies of the performance of value chains at the sectoral level during the crisis. Gereffi and Frederick (Chapter 5) discuss the global apparel value chain, in which patterns of geographical sourcing have undergone constant transformation due to the phaseout of the Multi-Fiber Arrangement and the proliferation of free trade agreements. In the buyer-driven value chains typical of the apparel industry, firms operate in different tiers, depending on their capabilities. The lowest tier consists of cut, make, and trim (CMT) assemblers that still dominate activity in much of Cambodia, Vietnam, sub-Saharan Africa, and the Caribbean, and which perform labor-intensive manufacturing on imported fabric. Package contractors in Bangladesh and Indonesia have heavier investments in machinery and some capabilities in sourcing and financing inputs. Full-package or original design manufactures (ODM) – as in China, the European Union, Turkey, and India – engage in all steps from materials sourcing to production and design. Finally, service providers, such as Li and Fung in Hong Kong, act as middlemen between global retailers and the rest of the supply chain. The recession placed pressure on buyers to consolidate their supply chain operations into fewer firms with more capabilities, making for greater losses in exports and employment in countries at the lower tiers of the supply chain.

During the Great Recession, the automobile industry was characterized by a wide variety of developed country government interventions aimed at preserving domestic production and employment. Value chains in autos tend to be organized on a regional rather than a global basis, with close relationships between large suppliers and the big auto companies. Van Biesebroeck and Sturgeon (Chapter 6) trace the varying industry experiences in Canada, where suppliers are increasingly asked to follow their US customers into third markets via FDI; in China, where joint ventures between local firms and multinationals coexist with Chinese firms that exploit the increasingly dense network of mid-level suppliers to build cars ‘from scratch’ with contracted-out design capability; and in Mexico, which was exposed to increased risks from the recession as the result of its long-time exposure to the US auto value chain. Electronics, like apparel, features firms in several tiers of the value chain with the most dynamic East Asian producers moving up the chain from assembly into contract manufacturing and design. Sturgeon and Kawakami (Chapter 7) also identify a special feature of global value chains in electronics – “platform leaders” such as Intel, whose chipsets are required by many manufacturers and who have the power to shape the geographical architecture of the value chain to determine where proprietary knowledge stops and open architecture starts. Finally, in the case of services, Gereffi and Fernandez-Stark (Chapter 9) show that global pressure for cost reduction and increasing innovation during the recession caused an increasing variety of services activities to be offshored to developing countries, shifting employment from the North to the South. Developing-country capabilities in service value chains are no longer restricted to call centers and Indian software, but increasingly include human resources management, accounting, finance, procurement, and R&D.

This book is highly recommended both for readers interested in global value chains and for those interested in the impact of the recent recession on the world economy. Anecdotal reports suggest that it is already being widely read in Washington policy circles. The sectoral profiles provide a useful introduction to the industrial organization of value chains. They should remain fresh even after interest in the last recession has waned and are likely to provide new insights for researchers. As one example, the suggestion that the incidence and operation of non-tariff measures is simultaneously determined with the geography of value chains and the Southward shift in the center of gravity of the world economy is likely to lead to fruitful avenues for future research.