- October 7, 2020
- Posted by: prerna
- Category: Feed
Global value chains (GVCs) are the lifeblood of the world’s economy, accounting for more than two-thirds of global trade. GVCs have been one of the primary driving forces behind an economic escalator that has delivered many of the past century’s most extraordinary gains. Complex, multiechelon GVCs have grown exponentially since the 1990s and, today, are an essential engine of global economic development and GDP growth.
Globalization has resulted from the increasing cross-border flow of ideas, people, capital and goods, weaving relations of interdependence between countries. Today, however, new dynamics of globalization are substantially reconfiguring GVCs and the global production system.
Currently, a “perfect storm” of economic, social and environmental dynamics is reshaping production and GVCs:
- Widespread environmental degradation and a climate crisis profoundly affect GVCs through
increasing risks to supply, impacts on resources availability, and actions to address climate change.
- Trade tensions and resulting policy uncertainty are further disrupting GVCs.
- Emerging technologies are reducing the importance of economies of scale, facilitating the location of production closer to consumers, and enhancing transparency between producers and consumers.
Progress in poverty reduction and global demographic trends are creating huge opportunities for business expansion in developing economies, most notably in economic hubs across Asia. Demand and supply gravitate to the South – The growing and increasingly urbanized middle class within India, Indonesia, Thailand, Malaysia, Philippines and South America – coupled with policies to support domestic demand – have made these countries more significant contributors to the global economy.
Recent studies show that developing countries (excluding China) are projected to represent 35% of global consumption by 2030, while emerging markets overall will represent nearly 60% of global
demand for manufactured goods in 2025. In parallel to shifts in global demand, the distribution of production nodes has widened and “fragmentation in dynamic regions and sectors have matured”, with many developing countries, led by China, moving to produce finished products closer to the consumer.
Consumer attitudes will likely become more important as the next generation dedicated to conscious consumption will represent the majority of consumers by 2030, and as the demand for sustainable production and value-chain transparency becomes increasingly prominent beyond Europe and North America. Some changes are already visible: Vegetarianism and veganism are on the rise, and large food manufacturers are self-imposing sustainability targets. Danone, for example, is aiming to transform its value chains into 100% regenerative agriculture, while McDonald’s aims to produce deforestation-free beef by 2030.
Consumers and governments are increasingly challenging companies to recognize their responsibility to contribute to environmental and social well-being. This sustainability pull becomes increasingly urgent as the mega-trends loom over GVCs. From an environmental perspective, businesses need to exploit their scale and capabilities to mitigate and, wherever possible, reverse the current climate crisis. With this in mind, businesses should develop business plans with more ambitious sustainability targets and invest in circular economies.