Infrastructure for Global Value Chains

Mr. Naoyuki Haraoka's picture

The nature of the utilization of global value chains (GVCs) is a key element in determining the type of activity of multinational enterprises (MNEs). At the most primitive stage, trade in agricultural, mineral, or light-industrial products is dominant and relatively slow paced. Thus, there is little time sensitivity. At the second stage, business operations are more sophisticated and time sensitive.

For example, machinery industries using a variety of parts and components require precise delivery timing. Corporate activities are globalized through foreign direct investment and offshoring. Goods are not only traded item across national borders but services, technology, and managerial knowhow, as well. The third stage entails forming industrial agglomerations crucial to utilizing GVCs effectively. The Bangkok Metropolitan Area is one successful illustration. At the final stage, the manufacturing sector is largely dominated by MNEs. Information technology turns GVCs not only into supply chains but also “ideas” chains. MNEs dominant in this stage can create innovation hubs by using GVCs, assuming they can attract high quality human resources. The key to achieving success for MNEs and hosting nations by using GVC is infrastructure raising connectivity with GVCs. At the primitive stage, we do not need so much infrastructure but food value chains. As the stage proceeds, we need infrastructure like ports, airports, and roads that brings high-grade connectivity at the second stage, full scale port and airport and highway system at the third stage to achieve turnpike connectivity among the industrial agglomerations, and finally at the last stage, urban transport and a high quality residential environment with top flight education or medical services that attracts the best human capital to achieve an innovation hub. All the funding entities for infrastructure including the Asian Infrastructure Investment Bank, Asian Development Bank, and China Development Bank need to keep the aforementioned facts in mind.