How GVC Analysis Can Benefit a Country
Global Value Chain (GVC) research can play an important role in addressing key development and competitiveness issues. It allows one to understand where, how, and by whom economic, social and environmental value is created and distributed. Various stakeholders can use the results of a value chain analysis to devise industrial policies and strategic plans, both at the firm and country level. Different government agencies and players in Costa Rica can attest to this, as the below story explains.
Prior to 2013, Costa Rica wanted to improve and consolidate its information inputs to better understand how it was faring in different global value chains. It wasn’t possible to benchmark how Costa Rica was doing in comparison to other countries. There was limited information for the country to design efficient and effective policies for upgrading. This was how Gabriela Llobet, former Director General of CINDE (Costa Rican Investment Promotion Agency) assessed the situation.
“We really didn’t have the data documented in one place that we could then use to benchmark how Costa Rica was doing in comparison to other countries,” she said.
Gabriela Castro, formerly the Minister’s Chief of Staff and currently the Director of the Directorate of Investment at COMEX (Ministry of Foreign Trade of Costa Rica), added that prior to 2013, “Costa Rica was just beginning to study GVCs and make them a priority in our trade and investment policies in general. We had a good track record of attracting foreign direct investment to the country, but the fact is that we hadn’t studied these GVCs in a systematic way so we had desegregated insights on which policy actions to pursue.”
To address this gap, Costa Rica collaborated with the Duke University Center on Globalization, Governance & Competitiveness (Duke CGGC) on a series of four different global value chain studies across the following industries: Medical Devices, Electronics, Aerospace and Offshore Services. These value chains were selected because of their key importance to Costa Rica. The project involved collaboration with COMEX, as well as with CINDE and PROCOMER (Costa Rica’s Export Promotion Agency).
“Our expectation was to see a set of recommendations that would help inform policy measures to upgrade in those value chains,” said Anabel Gonzalez, Senior Director of the Trade and Competitiveness practice at the World Bank and previously Costa Rica’s Minister of Foreign Trade (when the Duke CGGC studies were published).
Duke CGGC’s Approach
In total, five different members of the Duke CGGC team took part in the writing of five different reports (four industry focused; one overview). The team used the GVC framework to highlight the current position of each industry in each chain as well as opportunities for upgrading. Analysis was based on multiple sources including reviews of the literature, statistical analysis and field research in Costa Rica, including interviews with firms and government stakeholders related to this project.
“We found the GVC framework to be a very valuable and robust tool to analyze our industry position in the GVCs” said Francisco Monge, Deputy Director General of COMEX. “It is a very well structured and organized tool that effectively mixes the qualitative and quantitative elements.”
Understanding GVCs is important for a country’s sustainable development, trade governance, resilience and successful integration into the global economy. The problem is that understanding the complexities of GVCs can be a challenge for policymakers.
As part of the reports, the Duke CGGC research team highlighted different examples and best practices from other countries that also participated in the same global value chains. This competitive benchmarking with appropriate comparator countries is essential for Duke CGGC to develop the range of cases for its upgrading trajectories in each GVC. For example, the medical devices report highlighted the challenges and opportunities of Baja California (Mexico) and Ireland in that same industry.
“We had discussions around Ireland’s experience in upgrading and strengthening linkages with domestic firms,” said Gonzalez. “I think it is a good to have a reference to other countries that are participating in the same value chain, but are positioned in a different segment of that value chain. It is enlightening for policy recommendations.”
Different actors in Costa Rica have used the insights and recommendations from the reports to take on new initiatives and policies. “The framework helped us structure where to dedicate resources to improve our overall business environment. In addition, it provided clarity on where and when to go deeper into efforts for improving human capital formations, devising incentives for investors and creating capacities to link our local economy to the international economy,” said Castro.
Here is an overview of some of the actions taken:
1. Promotion agency. The Ireland example highlighted in the medical devices study provided a frame of reference on how to think through Costa Rica’s positioning and value proposition in the MedTech sector. This led to CINDE revising and reformulating its promotional approach towards the Life Sciences sector which has led Costa Rica to become the second largest exporter of medical devices in Latin America by amount. Medical devices became the country´s number one industrial export product in 2016.
2. Competitiveness and innovation. Using the Duke CGGC studies as a reference point, Costa Rica’s Institution for Science, Technology and Communication promoted a more purpose-based innovation system as part of broader country strategy focused on supporting a knowledge-based economy. The institute created the Presidential Council on Competitiveness and Innovation to bring together the government and private sector to discuss innovation. The Council monitors the advancement of initiatives that improve human capital and its capacity for innovation, key themes highlighted in the studies.
“The studies were an impetus to promoting a dialogue within the government and the private sector,” said Gonzalez.
3. Human capital. The “Enhancing the Potential to Develop Human Resources of Companies in Costa Rica’s Free Zones” was introduced. This program allows the government to assist companies in free-trade zones in training employees (or potential employees) in skills that have been identified as gaps. The committee includes COMEX, the Ministry of Labor, the National Training Institute (INA), CINDE, PROCOMER and the private sector. The group agreed on a streamlined process for companies to apply and take part in the training program. This initiative was introduced as a pilot program in 2016 to one specific company and will be rolled out to an unlimited number of companies in the future.
4. Workforce development. CINDE strengthened its International Strategic Academic Alliance Program (ISAA) as a means of addressing the theme of talent development upgrading highlighted in the reports. Through this program, CINDE has been able to develop specific complementary curricula in medical devices and services through alliances with foreign partners including Rice University, University of Wisconsin and Georgia Tech. CINDE promoted an alliance between University of Minnesota and Costa Rica´s Technical Institute which led to the opening of the first Master´s Degree Program in Medical Device Engineering in Latin America. This alliance’s key focus areas are engineering, quality assurance, cyber security and big data, business intelligence and microbiology, among other disciplines.
“Companies are coming and growing because of the talent and the productivity of our people,” said Castro. “But we realized there was a gap between the kinds of things our schools were teaching our kids and the types of skills companies needed. The studies helped give us a sense of urgency and showed us how rapidly we needed to evolve in the GVCs. Some of the schools have done a great job in adapting. Others have not. We have to be creative in approaching this in case it takes the education system some time to put in place the necessary programs. We can’t waste time. Alliances with international schools and human capital development are alternative paths in the meantime.”
“We were reaching a point that if we didn’t take policy actions oriented to producing better alignment between the supply and demand for qualified labor, then we were at danger for salary inflation, which would harm our competitiveness in these sophisticated industries,” said Monge.
5. Visibility. “Having a very prestigious and well-reputed institution like Duke studying the case of Costa Rica indirectly helped create widespread awareness within the international community about our case,” noted Monge. “These studies gave the international community visibility to the interesting case of Costa Rica: the top Latin America exporter of information technology services, sophisticated business services and high-technology manufacturing as a share of total manufacturing exports.”
Final Policy Maker Perspectives
Stakeholders involved with this collaboration all felt that they benefited from the new language and tools to understand globalization and economic impact. (As an aside, the application at the country level also applies at the international level, says Gonzalez from her position today with the World Bank. She noted that the framework is a valuable tool to help countries understand where they sit on the value chain at the international level, and then to identify the restraints domestically and how to go about addressing these restraints).
The studies still serve as a valuable reference point, even if it has been a few years since they have been completed.
“Policymakers are always interested in reading these reports because it helps them to understand the process,” concluded Gonzalez. “The studies help bring globalization to a more granular level. Countries are very interested in learning about the experiences of other countries in global value chains. It is difficult sometimes for policymakers to relate the broader analytical work about GVCs with concrete policy actions. These types of reports help policymakers make the connection.”