Nachfolgend habe ich dir ein Text zur Verfügung gestellt. Du sollst mithilfe dieses Textes folgende Fragestellung bearbeiten: Kannst du mir einen ausführlichen Überblick über die Herausforderungen und den Wettbewerbs- und Kostendruck in der Industrie geben? Gehe dabei bitte auf die Einflüsse neuer Marktteilnehmer, die Etablierung neuer Märkte, Veränderungen in Geschäftsmodellen und Technologien sowie die Rolle der Informations- und Kommunikationstechnologien ein. Erwähne auch die Auswirkungen der Globalisierung auf die deutsche Industrie, insbesondere die Automobilindustrie, und erläutere die Bedeutung der Lohnstückkosten im internationalen Vergleich. Wie wirkt sich die Produktivitätsentwicklung auf die Wettbewerbsfähigkeit der deutschen Industrie aus und welche Maßnahmen müssen Unternehmen ergreifen, um diesen Herausforderungen zu begegnen?"
Beachte: Prüfe zunächst, ob die Fragestellung überhaupt mit nachfolgendem Text beantwortet werden kann. Wenn ja, beantworte sie, soweit dies mit dem nachfolgende Text möglich ist. Bitte belege deine Aussagen mit dem im Text verwendeten Quellen und erstelle anschließend ein Literaturverzeichnis. Hier der Text: 
                                                                                                             
Global Value Chain-Oriented Industrial Policy:
The Role of Emerging Economies
Gary Gereffi
Duke University
ggere@soc.duke.edu
and
Timothy Sturgeon
Massachusetts Institute of Technology
sturgeon@mit.edu 
March 6, 2013
Forthcoming in Deborah Elms and Patrick Low (eds.), Global Value Chains in a 
Changing World. Published by the World Trade Organization, in collaboration with 
the Fung Global Institute and the Temasek Centre for Trade and Negotiations.
Acknowledgements: The authors would like to thank Jessie Anderson, Jackie Xu, and Ezequiel 
Zylberberg for their research assistance on this paper, and Gary Thompson for his help in 
preparing the tables. Appreciation also goes to Patrick Low and Penny Bamber for their 
insightful comments on an earlier draft of this paper.
1
1. Introduction
In the past two decades, profound changes in the structure of the global economy have
reshaped global production and trade and altered the organization of industries and national 
economies. The geographic fragmentation of industries, where value is added in multiple 
countries before products make their way to consumers, has been accompanied by vast 
improvement in the functional integration of these far-flung activities, creating what have come 
to be known as Global Value Chains, or GVCs. As supply chains become global in scope, more 
intermediate goods are traded across borders, and more imported parts and components are 
embodied in exports (Feenstra, 1998). In 2009, world exports of intermediate goods exceeded 
the combined export values of final and capital goods for the first time, representing 51% of 
non-fuel merchandise exports (WTO and IDE-JETRO, 2011: 81). Governments and international 
organizations are taking notice of the effects of GVCs on global trade and development (OECD, 
2011; WTO and IDE-JETRO, 2011; UNCTAD, 2013; World Economic Forum, 2013).
The rise of GVCs occurred in a period of falling trade barriers, the rise of the World 
Trade Organization (WTO), and the policy prescriptions associated with the “Washington 
Consensus” – i.e., governments had only to provide a strong set of “horizontal” policies (such as 
education, infrastructure, and macro-economic stability) and be open to trade to succeed. Of 
course, many observers noted that the fastest growing emerging economies did much more 
than this through a set of industrial policies that targeted key domestic industries for growth, 
either behind protectionist walls, known as import-substituting industrialization (ISI), and/or 
increased market access through export promotion, known as export-oriented industrialization
(EOI). The goal of these “domestic industrial policies” was to nurture a set of fully blown 
national industries in key sectors that could eventually compete head to head with the 
industrialized nations (Baldwin, 2011). 
Today, despite a growing list of signatories to the WTO, industrial policy is on the 
upswing. WTO accession often comes with allowances for selective industrial policies (e.g., 
trade promotion, local content rules, taxes, tariffs, and more indirect programs that drive local 
production) to remain in force for specified periods. Bilateral trade agreements can supersede
what has been agreed to under WTO rules, and a handful of relatively large and advanced 
emerging economies (such as those in the G-20) have more clout in the institutions of global 
governance and are using it to create greater leeway to engage in activist industrial policies. 
Still, the fragmentation of global industries in GVCs complicates industrial policy 
debates. In this chapter we argue that there can be no return to the ISI and EOI policies of old. 
Domestic industries in both industrialized and developing countries no longer stand alone and 
compete mainly through arms-length trade; instead, they have become deeply intertwined 
through complex, overlapping business networks created through recurrent waves of foreign 
2
direct investment (FDI) and global sourcing. Companies, localities, and entire countries have 
come to occupy specialized niches within GVCs. Because of this, today’s industrial policies have 
a different character, and generate different outcomes than before. Intentionally or not, 
governments currently engage in GVC-oriented industrialization when targeting key sectors for 
growth. In this paper we develop the notion of GVC-oriented industrialization through a 
comparison of seven emerging economies and a case study of Brazil’s consumer electronics 
industry. 
The roots of GVCs extend back to the experiments with global sourcing by a handful of 
pioneering retailers (e.g., JC Penny, Sears, Kmart) and manufacturing enterprises (e.g., IBM, 
General Motors, Volkswagen) that set up production in East Asia, Mexico, and a handful of 
other locations around the world in the 1970s and 1980s with the explicit purpose of lowering 
production costs and exporting finished goods back to home markets (Fröbel et al, 1980; 
Dassbach, 1989; Gereffi, 1994; 2001). 
After 1989, the opening of China, Russia, India and Brazil (the so called “BRIC” countries) 
added huge product and labor markets that had been all but outside the capitalist trading 
system, nearly doubling the field of play for international companies (Freeman, 2006). Faced 
with slow growth at home, large “lead” firms in GVCs rushed to set up operations in BRIC 
countries, especially China, in an effort to carve out brand recognition and market share in 
rapidly expanding consumer markets and to cut costs on goods produced for export back to 
home markets. This greatly accelerated the globalization process, since these giant economies 
offered seemingly inexhaustible pools of low-wage workers, increasingly capable manufacturing 
and trade infrastructures, abundant raw materials, and huge underserved domestic markets
with incipient middle classes. 
Over time retailers and branded manufacturers in wealthy countries became more 
experienced with international outsourcing. In response, developing countries acquired the 
infrastructure and capabilities needed to sustain larger scale operations, and suppliers 
upgraded their capabilities in response to larger orders for more complex goods (Hamilton and 
Gereffi, 2009). In the 1990s, the most successful U.S.- and Europe-based manufacturers quickly 
became huge global players, with facilities in scores of locations around the world (e.g., 
Siemens, Valeo, Flextronics), and a handful of elite East Asian suppliers (e.g., Pao Chen, Quanta, 
Foxxcon) and trading companies (e.g., Li & Fung) also took on more tasks for multinational
affiliates and global buyers. These firms expanded production, not only in China, but also in 
other Asian countries and more recently in Africa, East Europe, and Latin America as well. As 
the resources in the global supply-base improved, more lead firms gained the confidence to 
embrace the twin — and often intertwined — strategies of outsourcing and offshoring. 
3
In the 2000s, the industries and activities encompassed by GVCs grew exponentially, 
driving trade in finished goods and customized intermediates (e.g., components and 
subassemblies), spreading from manufacturing into energy, food, and a growing set of services
previously considered to be “untradeable,” ranging from call centers and accounting, to 
medical procedures and R&D (Dossani and Kenney, 2003; Engardio et al., 2003; Engardio and 
Einhorn, 2005; Wadhwa et al., 2008; Cattaneo et al., 2010; Staritz et al., 2011). The impact of 
these changes was felt most strongly in a handful of countries. China became the “factory of 
the world,” India the world’s “back office,” Brazil had a wealth of agricultural and primary 
commodities, and Russia possessed enormous reserves of natural resources plus the military 
technologies linked to its role as a Cold War superpower. For goods that require shorter supply 
lines such as “fast fashion” apparel and automobiles, the countries of East Europe joined more 
traditional “export processing” locations such as Mexico and North Africa.
The rapidity of these changes left the scholarly community struggling to catch up. 
Beginning in the early 2000s, the GVC concept gained popularity as a way of framing and 
characterizing the international expansion and geographical fragmentation of contemporary 
supply chains (Gereffi et al., 2001; Dicken at al., 2001; Henderson et al., 2002; Gereffi, 2005; 
Feenstra and Hamilton, 2006; Gereffi and Lee, 2012). Much of this research and theoretical 
work has focused on how “lead” firms in specific GVCs have driven this process in various ways. 
Decisions about outsourcing and offshoring are, after all, strategic decisions made by managers. 
But such decisions are not made in a vacuum. The policies and programs of countries and 
multilateral institutions set the context for corporate decision-making, and we have seen an 
evolution in the form and effects of industrial policy along with the evolution of the business 
networks that comprise GVCs. 
Today the organization of the global economy is entering a new phase, what some have 
referred to as a “major inflection point” (Fung, 2011), which could have dramatic implications 
for both emerging and industrialized countries, firms and workers. As world trade rebounds
from the 2008-2009 economic crises, emerging economies have become a major engine of 
growth. Slow growth in the global North since the mid-1980s was dampened further by the 
latest crisis, whereas demand is quickly growing in the global South, particularly large emerging 
economies like China, India and Brazil (Staritz et al., 2011). Over the period of 2005-2010, the 
merchandise imports of the European Union and the United States increased by 27% and 14%, 
respectively, while emerging economies expanded their merchandise imports much faster: 
Brazil (147%), India (129%), China (111%) and South Africa (51%). These differences 
represented more than an acceleration of previous global sourcing arrangements, they 
represented a shift in end markets to the developing world: in 2010, a full 52% of Asia’s 
manufactured exports were destined for developing countries (WTO, 2011).
4
Clearly, developing countries are now in a position to exert greater influence over the 
shape the global order, economically and politically, as the impact of the “Washington 
consensus” as a paradigm for developing countries wanes (Gore 2000). However, no 
overarching alternative development strategy has taken its place. Thus, our analysis of GVCs in 
this new period must take account not only of changes in the organization of production and 
trade on a global scale, but also the role of emerging economies as new markets and 
production hubs in the global economy. 
The remainder of this chapter is divided into four parts. First, we examine the export 
performance of seven of the most significant emerging economies: China, India, Brazil, Mexico, 
Russia, South Korea and South Africa, noting the changing distribution of their exports across 
four broad technology categories between 2000 and 2011. Second, we then examine the kinds 
of industrial policies utilized by these emerging economies, and propose a new typology that 
includes the category of GVC-oriented industrial policies. Third, we illustrate how industrial 
policy intersects with GVCs in the context of the consumer electronics industry in Brazil. We 
conclude with a reprise of GVC-oriented industrial policies and provide some reflections about 
the implications of these trends for the future of the global economy.
2. Emerging Economies in Comparative Perspective
A dynamic set of large emerging economies, initially referred to as BRICs (Brazil, Russia, 
India and China), are becoming significant drivers of aggregate supply and demand in the global 
economy.
1
 In this section, we broaden the focus to a set of seven emerging economies that 
belong to what O’Neill (2011) sees as contemporary “growth economies”: China, India, Brazil, 
Mexico, Russia, South Korea and South Africa. These countries are quite diverse in terms of 
their economic and social characteristics. However, they are all centrally involved in distinct 
types of GVCs in agriculture, extractive industries (mining, oil and gas), manufacturing, and 
services. Together, these seven emerging economies account for 45% of the world’s 
population, 23% of gross domestic product (GDP), and 22% of global exports, and their GDP 
growth rates are nearly double the world average (4.8% versus 2.7%) (see Table 1). 
The specific roles of these seven countries in the global economy vary according to their 
openness to trade and foreign investment; endowments of natural, human, and technological 
 1 Jim O’Neill (2011), the Goldman Sachs executive who coined the term BRIC in 2001 to refer to Brazil, Russia, India 
and China , now argues that there is a much larger number of “growth economies” (BRICs plus 11) that fall into this 
category. These include the MIST nations (Mexico, Indonesia, South Korea and Turkey), and other periodic highperformers such as Bangladesh, Egypt, Pakistan, the Philippines, and Vietnam (Martin, 2012). The original BRIC 
classification was extended to BRICS with the addition of South Africa in 2010. For purposes of this paper, the 
origin of these acronyms is less important than the collective effect of this set of so-called emerging economies, 
which are reshaping both supply and demand in many GVCs.
5
resources; their geopolitical relationships to the world’s most powerful countries; and the 
characteristics of their immediate neighbors. Many have significantly improved their relative 
position in global economy, surging ahead of the advanced industrial countries in terms of 
export performance for example. Between 1995 and 2007, the global export shares of the 
United States and Japan fell by 3.8 and 3.7 percentage points, respectively, while China more 
than doubled its share from 4% in 1995 to 10.1% in 2007, making it the world export leader 
(ahead of Germany, the United States and Japan). South Korea, Mexico, Turkey, South Africa, 
and the former transition countries in central Europe also increased their export shares during 
this period (Beltramello et al., 2012: 9-10). 
Although collectively these seven nations have considerable economic clout, China is 
the global pacesetter of the group. While China and India are the most populous countries in 
the world at 1.3 and 1.2 billion inhabitants, respectively, China is the undisputed export leader 
with $1.9 billion in exports in 2011. China’s export total is equal to that of South Korea, Russia, 
India, Brazil and Mexico combined, while China’s GDP has grown at over 9% per year for over 
30 years. It is now the second-largest economy in the world (trailing only the United States) 
and has overtaken Germany as the world’s largest exporter (Beltramello et al, 2012). 
Notwithstanding China’s rapid economic growth, its GDP per capita is the second lowest among 
the emerging economies in 2011 ($5,445), well ahead of India ($1,489), but less than half that
of Brazil and Russia, and just one-quarter that of South Korea. On average, the GDP per capita 
of these seven emerging economies is about 10% above the world average in 2011 (see Table 
1).
An indicator of the roles emerging economies play in GVCs can be found in their export 
profiles, broadly classified by the technological content of their exports. Using a classification 
scheme introduced by Sanjaya Lall (2000) that groups traded goods according to primary
products plus four types of manufactured exports (resource-based, low-tech, medium-tech, and 
high-tech), Table 2 highlights some of the differences between these countries in terms of their 
export profiles. Three of the emerging economies are heavily oriented toward primary product 
or resource-based exports (the first two columns in Table 2): Russia (72%), Brazil (69%), and 
South Africa (59%). Half of India’s exports are resource oriented, with another 40% being low 
tech (primarily apparel products) and medium technology manufactured goods.2 China, South 
Korea, and Mexico, by contrast, are heavily involved in manufacturing GVCs. Over 90% of 
China’s exports are manufactured goods, while a preponderance of the exports by South Korea 
(72%) and Mexico (60%) are medium technology (automotive, machinery) and high technology 
(mainly electronics) exports.
 2 However, Lall’s categories only cover goods, and India is also the world leader in exports of offshore services, 
with 45% of the global total (see Fernandez-Stark et al., 2011).
6
If we look at trends in these export patterns between 2000 and 2011, we see that China 
and India have increased their exports over six fold, Brazil and Russia each increased their 
exports around 360%, and South Africa and South Korea more than doubled their exports 
(Table 2). The fastest growing exports in these countries were primary products and resourcebased manufactures. The boom in primary product exports since 2000 has largely been driven
by China’s imports of the raw materials needed to fuel its industrial growth. At the same time,
low-technology exports declined in all of these emerging economies, reflecting slack consumer 
demand in advanced economies, especially as a result of the 2008-2009 economic recession.
Though such gross export figures do not account for the technological content of 
imported inputs, which new data sets will allow us to determine in future research,3 it is still 
notable that these emerging economies made their most significant gains in exports of high and 
medium-technology products, previously the stronghold of advanced industrial countries. 
While the export of final products provides only a partial picture of the technological 
development of each economy, it does signal that these countries have come to play important 
roles in the GVCs of relatively advanced products in technology-intensive industries, such as 
electronics and motor vehicles. This phenomenon was mainly driven by China, whose share of 
exports of goods in high-tech industries (mainly electronics) soared by 13.5 percentage points 
in the period 1995-2007, moving it ahead of the United States as the world’s largest exporter of 
high-tech products (Beltramello et al., 2012: 10).
In summary, our focus on these seven emerging economies serves two purposes. First, 
we demonstrate that these large, dynamic countries are deeply entrenched in GVCs, but in very 
different ways. Second, given recent changes in the global economy, we believe that the role of 
emerging economies in GVCs is undergoing a number of changes in the post-Washington 
Consensus era, including an increasingly central role for China, a greater emphasis on 
production and upgrading for the domestic market, shifting export markets with a greater role 
for South-South trade, and a new form of industrial policies in emerging economies (Gereffi, 
forthcoming). It is to this latter topic that we now turn.
3. GVCs and Industrial Policy: An Evolving Debate
Twentieth-century debates over the merits of industrial policy as a strategy for 
 3 Two recently announced international databases will permit us to examine the domestic versus foreign 
(imported) content of value added in export production. The first comprehensive effort is the OECD-WTO Trade in 
Value Added (TiVA) database, which presents indicators for 40 countries (all OECD countries, Brazil, China, India, 
Indonesia, Russian Federation and South Africa) covering the years 2005, 2008 and 2009 and broken down by 18 
industries (see http://www.oecd.org/industry/ind/measuringtradeinvalue-addedanoecd-wtojointinitiative.htm). 
In addition, there is the UNCTAD-Eora GVC database, which was launched in February 2013, and it covers 187 
countries during the 1990-2010 period for 25-500 industries, depending on the country (UNCTAD, 2013: 3).
7
economic development occurred before there was broad recognition of the importance of 
GVCs (Amsden, 1989; Wade, 1990; World Bank, 1993; Evans, 1995; Chang, 2002). The GVC lens 
provides some crucial insights into the processes of contemporary economic development. A 
main difference is the potential for vertical specialization, not only at the level of firms, but at 
the level of nations. China might be the “world’s workshop,” but much of the work is in 
producing products designed and developed elsewhere. The central goals of industrial policy in 
the GVC context shift from creating fully-blown, vertically integrated national industries to 
moving into higher value niches in GVCs. 
Industrial policies that take the new realities of GVCs into account include traditional 
measures to regulate links to the global economy, especially regulation of trade, foreign direct 
investment, and exchange rates used in ISI and EOI policies that sought to elevate the position 
of “national champions.” (Baldwin, 2011). Today, GVC-oriented industrial policy focuses to a 
greater extent than in the past on the intersection of global and local actors, and it takes the 
interests, power and reach of lead firms and global suppliers into account, accepts international 
(and increasingly regional) business networks as the appropriate field of play, and responds to 
pressures from international non-governmental organizations (NGOs). Upgrading national 
firms in this context is not an easy task. Because GVC lead firms induce suppliers in different 
countries to compete with each other for orders, and they often choose to work with the same 
global suppliers in multiple locations to reduce transaction costs, states tend to have less 
leverage to demand local content requirements or less scope to develop links to domestic 
suppliers.
In the face of such challenges, some large emerging economies are shifting their 
development strategies inward, and relying more extensively on regional production networks 
buttressed by regional industrial policy. China’s upgrading strategy now operates on a global 
scale because Chinese firms have become such a large foreign investor and buyer of raw 
materials (Kaplinsky et al., 2010). China’s rise as a major global buyer means that South-South 
trade will continue to expand as a share of world trade. While China has instituted policies to 
ensure domestic processing of raw materials from the rest of the world, these are being 
resisted by China’s trading partners.
4
 
One example is South Africa, whose policy emphasizes regional integration as a basis for 
industrial upgrading, focused on mining, agriculture and pharmaceuticals (Davies, 2012). South 
Africa has announced a strategy of additional processing of regionally sourced minerals shipped 
to China in order to drive skill development, higher wages and large profits within Africa. While 
it remains to be seen how other countries in sub-Saharan Africa respond to these ideas since
 4 This is particularly clear in the case of Brazil’s soybean exports to China, discussed in the next section of this 
paper.
8
higher value processes are likely to be concentrated in South Africa, this regional industrial 
policy is based on the view that African companies will have access to more minerals and raw 
materials, greater productive and processing capacity, and larger markets, resulting in regionwide upgrading. 
This suggests that regional integration strategies, including preferential trade 
agreements (PTAs), economic cooperation arrangements and regional production networks, 
will increasingly be based on supply-side strategies, rather than the traditional demand-side
considerations that usually justify regional integration. The demand-side logic of regional 
integration highlights expanding the market size, market access and the possibility of capturing 
FDI and better scale economies by serving this larger market. The supply-side approach uses 
regional integration to create scale and complementarities that can drive more production and 
processing and thus higher value exports from the region. 
Large emerging economies clearly have more options in terms of upgrading within GVCs 
than small economies. They can focus on manufactured exports, as China and Mexico have 
done since the mid-1990s, but they can also reorient their productive capacity to serve 
domestic demand if export markets become less attractive. While both small and large 
countries can pursue upgrading at the regional level by diversifying or adding new capabilities 
that aren’t available at the national level, large countries clearly have more leverage in such 
arrangements. Large countries with high potential for market growth (such as the BRICs) can 
also institute policies to drive FDI in technology- and capital-intensive sectors, such as 
electronics and motor vehicles. 
Small countries have fewer options. Their market size is not large enough to attract FDI 
for the local market, and domestic firms tend to be small-scale and less advanced. However, 
the regional organization of some GVCs has created opportunities for smaller countries to
leverage low costs and proximity to large markets to build export capacities in specialized GVC 
niches (e.g., intermediate goods) in the context of regional production systems. Costa Rica, for 
example, has clear supply-side constraints related to productive capacity and skills, and 
conceivably could partner with Mexico to enhance its training programs and skills development. 
Nicaragua, whose apparel firms have been buying textiles from East Asia, is consciously 
pursuing supply arrangements with textile firms in Honduras and Guatemala. In sum, 
specialization and regional GVC linkages matter for political and economic integration in a way 
that was not the case previously.
In order to view these industrial policies in a more systematic way, we have created a 
typology of the various kinds of industrial policies that characterize the contemporary emerging 
economies (see Table 3). We distinguish three types of industrial policies: “horizontal” policies 
that affect the entire national economy; “selective” (or “vertical”) industrial policies targeted at 
9
particular industries or sectors; and GVC-oriented industrial policies that leverage international 
supply chain linkages or dynamics to improve a country’s role in global or regional value chains. 
“Horizontal” policies focus on the basic building blocks of competitive national 
economies, such as education, health, infrastructure, and R&D expenditures. Although these 
areas all provide attractive opportunities for private investors, the public sector typically plays a 
role in providing widespread access to these factors as public goods. While “horizontal” 
policies are cross-cutting and in principle have economy-wide effects, such policies may also
target particular national industries or GVCs (e.g., tax credits for shale gas or oil investors). In 
these cases, the policy in question could be analyzed in either of the other two categories in 
Table 3.
Domestic industrial policies tend to be “selective” or “vertical” because they are 
associated with prioritizing particular industries at the national level. This has been justified for
various reasons, including the following: (a) these industries are considered strategic in terms of 
natural resources (e.g., oil, natural gas, and minerals in the Middle East and Latin America); (b)
they present exceptional opportunities for forward and backward linkages with domestic 
suppliers (e.g., autos in Mexico and Brazil; electronics in Japan, South Korea, and China); (c) 
they have an impact on national security in terms of defense or critical consumption needs
(e.g., military procurement, essential medicines, basic foodstuffs during famines or droughts); 
and/or (d) the policies support “infant industries” that need temporary protection from larger 
and more established international competitors. In practice, these industrial policies were 
associated with the import-substitution (ISI) development strategies that became popular in 
Latin America, South Asia and other developing regions from the late 1950s through the early 
1980s, and effectively they were disrupted by the Latin American debt crisis of the 1980s and 
displaced by EOI development strategies associated with the rise of East Asia and the 
“Washington Consensus” in the 1990s (Gereffi and Wyman, 1990; World Bank, 1993).
GVC-oriented industrial policies go beyond the domestic economy focus of ISI-style 
policy regimes, which try to recreate entire supply chains within a national territory. Given the
international production networks associated with GVCS, this type of industrial policy explicitly 
utilizes extra-territorial linkages that affect a country’s positioning in global or regional value 
chains. In the global apparel industry, for instance, a good illustration of GVC-oriented industry 
policies were the “triangle manufacturing” networks associated with East Asian economies, 
such as Hong Kong, Taiwan, and South Korea (Gereffi, 1999). In order to deal with the quota 
constraints put in place by the Multi-Fiber Arrangement that regulated apparel trade from the 
1970s through 2005, East Asian textile and apparel manufacturers complemented the strengths 
of their domestic economies in product development, design and textiles by seeking out lowcost apparel suppliers in various regions of the world, and these East Asian middleman firms 
10
would also sell to global buyers (large apparel retailers and brands) using flexible triangle 
manufacturing schemes to improve the competitiveness of East Asian economies in the apparel 
GVC by coordinating the activities of multiple actors across the chain. 
Current examples include efforts to create and sustain regional supply chains that 
provide needed inputs for national export success, such as the East Asian supply base that has 
been created for China’s electronics inputs needed for its exports of smart phones (Xing and 
Detert, 2010; Gereffi and Lee, 2012). Case studies in Central America and sub-Saharan Africa 
showcase efforts to create regional integration arrangements that could strengthen the export
position of countries in each region by sourcing inputs from regional neighbors -- e.g., textiles 
and apparel in Central America or sub-Saharan Africa (Bair and Gereffi, 2013; Morris et al., 
2011), and minerals processing in sub-Saharan Africa (Davies, 2012).
Table 3 highlights the varied industrial policy instruments utilized by the seven emerging 
economies that we focus on. Brazil, China, India and South Korea deploy the most extensive 
array of horizontal or economy-wide policies. In terms of selective domestic industrial policies, 
most of the emerging economies have particular industries that they deem particularly 
important, and these are supported by policies requiring local content, joint ventures, local 
R&D, or other benefits that tend to favor domestic over foreign firms. Finally, there is a third 
and relatively new category of industrial policies that are oriented to improving a country’s 
position in GVCs. These policies recognize that a country’s possibilities for upgrading depend at 
least in part on links across different segments of the value chain, within a regional or global
context. 
While free trade agreements are an enabling factor that permit greater openness to 
GVCs, these are often supplemented by policies that try to induce regional production networks 
in specific industries to facilitate functional upgrading or the opportunity of emerging 
economies to more fully exploit regional economies of scale and scope. In East Asia, China 
benefits from close economic ties with many of its East Asian neighbors that facilitate imports 
of materials and components that go into China’s manufactured export products. In South 
Africa and Brazil, there are policies to limit the restrictions that trade partners (like China) have 
placed on the processing of primary product exports. Thus, GVC-oriented industrial policies 
seek to improve the ability of emerging economies to enhance their upgrading opportunities 
within these chains by facilitating both intermediate and primary goods trade.
4. GVC-Oriented Industrial Policies in Action: The Case of Brazil
Brazil’s development strategy has both similarities and distinctive elements when 
compared to South Africa and China. Although Brazil belongs to Mercosur, a regional trade 
11
agreement that includes Argentina, Uruguay, Paraguay and Venezuela, this does not reflect a 
pan-Latin America vision analogous to that of South Africa’s economic integration plans for 
sub-Saharan Africa (Davies, 2012), nor does it embody the highly efficient regional division of 
labor that China participates in with its East Asian neighbors. Brazil dominates Mercosur by its 
size and level of economic development, and thus it occupies an asymmetric position in terms 
of regional integration. Mutual gains from the long-heralded complementarities between Brazil 
and Argentina in the automotive sector have been weakening. Like South Africa, Brazil is 
concentrated in primary product exports with relatively low levels of processing and is seeking 
to reverse the so-called “primarization” of its export profile (Jenkins, 2012) 
This is not entirely a new situation. ASEAN had been driven in part by Toyota’s and 
Ford’s search for a secure regional production network through complementarity schemes 
(Sturgeon and Florida, 2004). Access to low cost auto parts was also an important 
consideration for the automotive firms that promoted the North American Free Trade 
Agreement. But today, these efforts are proliferating. China is seeking to strengthen the 
regional production system in East Asia, South Africa has announced a regional integration and 
industrial policy to promote upgrading in raw materials production, and Brazil and its Mercosur 
neighbors are broadening their customs union to build regional supply-side capabilities.
As we have already mentioned, a major challenge for some large emerging economies 
that have become primary product exporters based on high demand from China is how to 
increase the technological content of their exports in order to move into higher value activities. 
For example, China is Brazil’s largest trading partner, accounting for about 15% of Brazil’s 
exports and imports in 2010. From a GVC perspective, what is particularly notable is that the 
pattern of Brazil’s exports to China is skewed toward products (both primary commodities and 
manufactured goods) with very low levels of processing. 
The soybean value chain is a good example. About 95% of Brazil’s soybean exports to 
China in 2009 were unprocessed beans. In contrast, there were virtually no exports of soybean 
meal, flour or oil to China. In order to pursue its strategy of promoting the Chinese soybean 
processing industry, China imposed a tariff of 9% on soybean oil imports, while the tariff on 
unprocessed soybean imports was only 3%. Imports of products based on processed soybeans
were also levied a higher value-added tax rate in China than unprocessed beans. Similar 
protectionist policies, including both tariff and non-tariff barriers, have been imposed by the 
Chinese government on other primary and processed intermediate products from Brazil, 
including leather, iron and steel, and pulp and paper (Jenkins, 2012: 28-29).
On the import side, Brazil has also been influenced by China’s structure of international 
trade. In 1996, low-technology products accounted for 40% of Brazil’s imports from China, 
while high-technology products were 25%. By 2009, the pattern was nearly reversed: high-
12
tech products were 41.4% of the total, and low-tech products were 20.8%. If we look at this 
trend in terms of the end use of imports, consumer goods imports from China to Brazil fell from 
44% to 16% between 1996 and 2009, while the imports of capital goods doubled from 12% to 
25%, and parts for capital goods rose from 12% to 25% (Jenkins, 2012: 29-31). Thus, Brazil has 
fallen to the lowest rungs of the value-added ladder in its trade with China in recent decades. 
While the trade relationship with China is the most severe challenge for Brazil, the 
problem is more pervasive. For example, Embraer, a successful Brazilian producer of regional 
passenger aircraft, depends on imports for 100% of its aircraft-grade aluminum, despite Brazil’s 
abundance of the aluminum ore (bauxite) and rare minerals required for aircraft-grade alloys. 
South Africa has had some success in this regard. It is the largest exporter of catalytic 
converters for use in vehicle exhaust systems, products that rely on platinum, a precious metal 
that is abundant in South Africa. 
Leveraging Consumer Electronics GVCs to Build Capabilities in Brazil
An instructive case of how GVCs intersect with national industrial policies can be found 
in Brazil’s recent efforts to leverage its large and growing internal market to build domestic 
capabilities in the consumer electronics sector. A growing middle class in Brazil has begun to 
demand consumer electronics on an unprecedented scale. According to the World Bank (2012), 
Brazil’s poverty rate declined from 41.9 percent in 1990 to 21.4 percent in 2009. As a result, 
mobile phone handset penetration in Brazil has nearly doubled in recent years, from 32 million
units in 2004 to 58 million in 2011 (ABINEE 2012). In addition, Brazil is currently the world’s 
third largest personal computer (PC) market, with 17 million units sold in 2012 (IDC 2011). The 
market is dominated by global lead firms such as Apple, Dell, Hewlett Packard (USA), and 
Lenovo (China), but a local producer, Positivo, has about 25% of the corporate PC market, and it 
recently unveiled several smart phone models based on Google’s Android operating system. 
Demand for tablet computers is also growing quickly. Sales of smartphones and other Internetconnected mobile devices are expected to increase dramatically with Brazil’s hosting of the 
World Cup soccer championship in 2014 and the Olympic Summer Games in 2016, and this will 
drive huge investments in equipment to upgrade Brazil’s already strained infrastructure for 
voice connectivity and data communications.
Because of these changes, Brazil’s overall trade performance in the electronics sector 
recently turned negative. Between 2007 and 2010, consumer electronics exports from Brazil 
declined by 25%, while imports skyrocketed by over 140% (see Table 4). A significant portion of 
this decline can be explained by the shift to smartphones, tablet computers, and notebook 
computers, products that are displacing the feature phones and desktop computers produced 
in Brazil, both for the local market and for export to developing country markets with 
compatible standards. For example, in 2004, before the smartphone market was fully 
13
established, Brazil exported 10 million units per year and imported just 1.3 million units. By
2007, the year Apple computer introduced the first iPhone, Brazil’s feature phone exports were 
valued at more two billion dollars per year. As the market for smart phones took off, export and 
local demand for feature phones plummeted, and by 2011 Brazil was importing 15.7 million
handsets and exporting only 7.4 million (ABINEE 2012). In response, feature phone producers in 
Brazil, such as NEC (Japan) and Nokia (Finland), withdrew from local production.
These rapid market shifts brought a new set of players to the fore, namely Apple and 
the many makers of Android-based smart phone handsets, and the contract manufacturers that 
produce the bulk of these products, such as Flextronics (USA and Singapore) and Foxconn
(Taiwan). Market growth and access to its Mercosur trading partners are providing Brazil with 
the leverage it needs to demand local production and content from consumer electronics and 
communications GVC lead firms, who in turn have put pressure on their key global suppliers to 
make investments in Brazil. To exploit this opportunity, Brazil is bringing to bear a range of old 
and new policies aimed at spurring local production in the electronics sector. The key laws and 
programs to stimulate local production are listed and described in Table 5.
Like the ISI policies of old, Brazil’s current industrial policies consist mainly of tax 
incentives meant to spur local R&D, assembly, and component manufacturing. But because 
GVCs bring new actors and industry structures to the fore, the challenges, opportunities, and 
outcomes related to these policies are different. For example, a centerpiece of Brazil’s strategy 
to increase local production of consumer electronics has been to attract global contract 
manufacturers, known in the industry as electronic manufacturing services (EMS) providers. As 
electronics lead firms such as Apple and Hewlett Packard continue to outsource manufacturing, 
contract manufacturers have become increasingly important players in the component 
purchasing, assembly, test, and after-sale service functions of electronics GVCs. But the 
threshold for new investments is high (large, globally operating contract manufacturers rarely 
open up a new automated circuit board assembly line for orders less than several hundred 
thousand units), and the promise of business from a single customer is rarely enough. 
Seven of the 12 largest contract manufacturers are based in Taiwan (see Table 6). One 
of Taiwan’s most successful contract manufacturers, Foxconn Electronics (Hon Hai Precision 
Industry), has eclipsed its competitors, bringing in almost three times the revenue of the 
second-place contractor, Quanta Computer. However, Foxconn, much like other EMS contract 
manufacturers, suffers from low profit margins (just 2.4% in 2011) and must compete on a 
global level to maintain market share (Mishkin and Palmer, 2012). Foxconn’s close relationship 
with Apple has been its main driver of revenue growth. Contract manufacturers fill an 
increasingly complex role in the electronics GVC; they must not only work closely with lead 
firms to develop products and meet tight production schedules, but also with a worldwide 
14
network of component manufacturers and distributors to ensure that they can meet demand 
and keep their lines operating at, or near, full capacity. 
Thanks to Brazil’s GVC-oriented industrial policies and direct pressure on the company 
from policy-makers, Foxconn has begun to assemble iPhones, iPads and most recently iPad 
minis for Apple in Brazil. While Foxconn currently imports 90-95% of its components, the 
company, which is more vertically integrated than most EMS firms, is likely to begin to 
manufacture components, including displays, in Brazil. Recent negotiations for a fifth Foxconn 
factory in Brazil have included language to suggest that once production is at 100% (projected 
to be 2016), Foxconn will be manufacturing components including cables, cameras, touchsensor glass, LED products, and printed-circuit boards (Wang, 2012).
Hewlett Packard (HP) uses three global contract manufacturers to produce in Brazil
(Foxconn, Flextronics and Jabil Circuit). Products include computers, desktop PCs, notebook 
PCs, workstations, computer servers, single function printers, and multi-function printers. Local 
production accounts for 95% of local sales. HP imports low volume products such as large 
format printers, high-end servers and some high-end portable computers, and makes printer 
ink cartridges in its own plant using a proprietary manufacturing process. Most components 
are imported except RFID chips for printer cartridges, which are developed by CEITEC, a local 
government-supported semiconductor foundry.
But hardware production is only part of the picture. In meeting the requirements for 
local R&D spending (4% of sales), HP Brazil employs 400 engineers and researchers in its lab in 
the south of Brazil and has contracts with another 1,000 collaborators from universities and 
research centers in the country. It also has four software centers working on local customerspecific applications, while contract manufacturers are being used to help meet the R&D 
spending requirement. Two of HP’s research centers have been set up in collaboration with the 
Flextronics Institute of Technology (FIT): the RFID Center of Excellence, which has worked on 
over 100 RFID-related projects with HP; and the newer Sinctronics IT Innovation Center, which 
focuses on environmental compliance and product recycling (Flextronics International, 2012). 
Like manufacturing capacity, the R&D of contract manufacturers can serve multiple lead firms. 
In addition to the work it does for HP, FIT runs research institutes to develop software solutions 
for IBM servers and Lenovo computers. It even conducts R&D on behalf of competitors like 
Foxconn and Compal, which do not have the R&D facilities in Brazil needed to spend their R&D 
quota internally. In other words, Flextronics is been able to develop economies of scale in R&D, 
much like it does through its manufacturing and assembly services. 
The presence of global contract manufacturers in Brazil creates a number of immediate 
advantages. The most obvious is jobs. For example, Foxconn currently employs 6,000 in Brazil 
and could add 10,000 more jobs by 2016 (Luk, 2012). Because contract manufacturers serve 
15
multiple customers, their manufacturing capabilities can satisfy local content requirements for 
multiple brands. Production capacity is generic and flexible enough to effectively pool capacity 
across all high volume segments of the electronics industry. Capacity can be switched toward 
product categories and firms that are successful in the local market and in exporting. The focus 
of Brazil’s GVC-oriented industrial policy on attracting investments by contract manufacturers, 
as well as GVC lead firms, signals a sophisticated understanding of the dynamics of the 
electronics GVCs by policy-makers. Contract manufacturers provide a leading edge, flexible, 
and scalable platform for local production and R&D. Lead firms like Apple and HP tend to use 
the same contractors on a global basis, and their presence in Brazil lowers the bar for 
localization.
5 Conclusions: What Do GVC-Oriented Industrial Policies Look Like?
Emerging economies are playing significant and diversified roles in GVCs. During the 
2000s, they have become major exporters of intermediate and final manufactured goods 
(China, South Korea, and Mexico) as well as primary products (Brazil, Russia and South Africa). 
However, market growth in emerging economies has also led to shifting end markets in GVCs, 
as more trade has been South-South, especially since the 2008-2009 economic recession
(Staritz et al., 2011). China has been the focal point for both patterns, since it is the world’s 
leading exporter with an emphasis on manufactured goods, but it also has stoked the primary 
product export boom as the world’s largest importer of a wide range of primary products.
The primary product exporting profiles of Brazil, Russia, and India (BRI) suggest that 
these countries are contributing to China’s role as a materials processing and final assembly 
hub. Finished manufactured items are then exported from China back to these BRI countries
and the rest of the world. Still, trade statistics cannot reveal where ownership, intellectual 
property (IP), and GVC coordination — and much of the profits in GVCs — lie. But from case 
studies (e.g., Linden et al., 2007; Xing and Detert, 2010) and new research on trade in value 
added (UNCTAD, 2013; Gereffi and Lee, 2012), we know that many of China’s exports consist of
foreign-branded products, contain core IP from industrialized countries (USA, Europe, Japan), 
and include sophisticated intermediate products imported from the most industrialized and 
advanced emerging economies, such as South Korea and Taiwan, as well as other developing 
countries in East Asia (Malaysia, Thailand, etc.). Thus, rising South-South trade may in fact 
signal the emergence of a GVC structure that undergirds China’s role as “the world’s 
workshop.” This helps to explain efforts by the BRI countries to diversify away from primary 
commodities, first by adding more value to exported commodities, and second by moving into 
technology-intensive final products such as automobiles and electronics.
16
Various types of industrial policy are industry-specific. While this puts them in line for 
criticism when policy-makers are seen to be “picking winners,” the industry focus is essential. 
Research at the level of global industries clearly shows that the structure and upgrading 
trajectories of GVCs vary significantly, and as a result, cross-industry comparisons are essential
(Sturgeon et al., 2008; Cattaneo et al., 2010; Sturgeon and Kawakami, 2011; Staritz et al., 2011). 
For example, trade in customized intermediate goods is extremely high, growing, and global in 
scope in electronics, while trade in automotive parts tends to be organized in regional 
production systems (i.e., North America, Europe, Asia), and trade in intermediate inputs to 
apparel products (fiber and fabric) is actually falling as the major apparel producing countries 
(e.g., China and Bangladesh) gain huge capabilities in textile production (Sturgeon and 
Memedovic, 2010). The reasons for these differences are complex. On one hand, the detailed 
characteristics of product designs, intermediate components, final goods, and logistics
requirements greatly influence the geography of industry GVCs (Gereffi et al, 2005). On the 
other hand, certain products (e.g., autos) come with high levels of political sensitivity that drive 
production toward end markets (Sturgeon and Van Biesebroeck, 2010). 
As the Brazil consumer electronics case suggests, the formation of industrial policy does 
not always begin with policy-makers “picking” industries, but rather with attempts to improve 
the performance of existing industries that link their country to the global economy. This 
involves a search for mechanisms that can capture investment and improve a country’s value 
adding position in highly mobile segments of GVCs that are already in the process of spreading 
to new locations, or may already be present in the jurisdiction that policy makers are 
responsible for. When Brazil’s policy-makers try to capture more local value added in local 
markets that are already growing rapidly, they cannot be said to be picking winners. 
Of course, policy-makers must also be concerned with slowing market growth by raising
prices to levels that block consumers’ access to leading-edge products. Broad economic growth 
can be slowed when markets for products that make the whole economy more efficient, such 
as smart phones and computers, are truncated. But it is possible for policies that pressure lead 
firms to add more value locally to be modest and targeted enough that they do not raise prices 
to the point where market growth is impeded and leading edge products fail to make it into the 
hands of the businesses and consumers that want them.
Once the proposition that a balanced approach is possible is accepted by policy-makers, 
the question then becomes how to craft effective GVC-oriented industrial policies. One way to 
examine this question is to ask how current industrial policies differ from traditional industrial 
policies. A superficial analysis of the Brazilian consumer electronics case might suggest that the 
motivations and policy tools being employed by large emerging economies simply replicate
many of the features of traditional ISI industrial policy: driving import substitution with local 
17
content requirements, instituting requirements for investment in local R&D, stimulating 
demand in key product areas, etc. 
However, we see three major differences that highlight the distinctive nature of GVCoriented industrial policies:
1. Global suppliers. Instead of merely demanding that lead firms make major investments, 
the GVC-oriented industrial policies described in this paper reveal an increasingly
sophisticated understanding of the global-scale patterns of industrial organization that 
have come to the fore in GVCs since at least the 1990s. Lead firms are relying on global 
suppliers and intermediaries for an array of processes, specialized inputs, and services, 
and demanding that their most important suppliers have a global presence. Hence it is 
suppliers, not lead firms that are making many of the new investments that developing 
countries are seeking to capture. In many cases, suppliers generate the bulk of exports 
as well. Furthermore, the largest suppliers serve multiple customers, so the success of 
investments is not necessarily tied to the success of any single lead firm.5 In the 
context of rapidly shifting market share among lead firms, and the sudden entry of new 
players (neither Apple or Google participated in the mobile communications industry 
before 2007), the capability to serve multiple customers takes on heightened 
importance. Therefore, is no accident that Brazil sought investments from Foxconn, 
rather than Apple, in its desire for iPhones and iPads to be produced in the country for 
domesticconsumption and export elsewhere in Latin America.
2. Global sourcing and value chain specialization. Policies that promote linkages to GVCs 
have very different aims from traditional industrial policies that intend to build fully
blown, vertically integrated domestic industries. Policies can target specialized niches in 
GVCs. These can be higher-value niches suited to existing capabilities. They can also be 
generic capabilities that can be pooled across foreign investors. Either of these can 
serve both domestic or export markets. This sort of value chain specialization assumes 
an ongoing dependence on imported inputs and services. Reliance on global sourcing 
means that the entire value chain may never be captured, but it also assures ongoing 
involvement in leading-edge technologies, standards, and industry “best-practices.” 
Clearly, industries in developing countries can no longer make outmoded products. As 
the Brazilian mobile phone case shows, consumers with rising incomes will no longer 
accept them. 
 5 By serving multiple customers, global suppliers can generate enough business to justify capital-intensive 
investments that have high minimum scale requirements, such as electronic displays and automated production 
lines. 
18
3. Moving to the head of GVCs. Encouraging global suppliers to establish facilities within a 
country can have long-term advantages. Local lead firms can rely on global suppliers in 
their midst, and on broader industry GVCs for a wide range of inputs and services, from 
design to production to logistics to marketing and distribution. This can lower risk and 
barriers to entry for local firms, provide access to capabilities and scale that far outstrip 
what is available domestically, and ensure that products and services are up to date, 
precisely because they participate in GVCs from the beginning. As long as policies have 
not driven costs above world norms, up-to-date, world-class products and services also 
open up export markets.
The use of industrial policies by emerging economy policy-makers should not come as a 
big surprise. Both developed and developing countries have used these policies in the past, and 
often with considerable sophistication, as in the case of East Asian economies, such as Japan, 
South Korea, Singapore, Taiwan, and now China. 
There are two GVC-related features of emerging economies that are distinctive today. 
First, there is the centrality of China. A number of natural resource-based emerging economies, 
such as Brazil, South Africa and Russia, see China’s procurement policies as limiting their ability 
to add value to their raw material exports, whereas manufacturing powers such as South Korea, 
Mexico, and to a lesser degree India, see China as their most formidable competitor in both 
export and domestic markets. Second, the flourishing of GVCs has led intermediate goods 
exports to exceed the total of final and capital goods exports for the first time. This raises a 
new competitiveness challenge over who wins the “trade in value added” battle. Countries 
now seek to capture the highest value segments of GVCs, not only to increase total exports, but 
to provide local firms with access to world class inputs. Thus, GVC-oriented industrialization
and GVC oriented industrial policies appear to be elements of the current industrial landscape
that are here to stay.
19
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