production capabilities. At the same time, suppliers forced to shut down during the slump face considerable fixed costs in re-opening operations, and thus may be at a further disadvantage even when demand returns to pre-downturn levels. Thus in the case of GVC consolidation, the shutdown of the marginal firms can lead to an asymmetric pattern when demand recovers. The high productivity suppliers are in a better position to expand when the market rebounds, leading to a consolidation of the GVC.

# **5.3 GVC Restructuring in the Crisis**

What has been the trend in the HHI over the recent downturn period? We might expect those sectors or products which have seen the greatest decline in trade to exhibit the greatest degree of consolidation according to our HHI measure. But there appears to be no correlation between the percentage decline in trade and the change in GVC structure. This may be due to the fact that the 2007/08 period does not capture enough of the downturn’s effect, since its major impact began in 2008. However, if we recalculate the HHI index for a different grouping of sectors, we do find some regularities. That is, while the volume of trade does not seem correlated (yet) with consolidation, the type of sector or GVC does seem to matter for the pattern of consolidation and diversification.

The hypothesis that emerges from our brief theoretical consideration of global value chain consolidation is that buyer-led chains will experience the most consolidation and producer-led chains the least. This hypothesis gets some support when we look at consolidation in sectors measured by “Broad Economic Category”, which characterizes goods as consumption goods, capital goods and intermediate goods (see Appendix 2 for the definition). The changes in HHI for these product categories between 2007 and 2008 are presented in _Figure 13_ . We see that an almost equal number of product areas experienced diversification as experienced consolidation. Consolidation occurs more often in consumption goods sector (categories 1, 6 and 7, for example) where buyer-led chains are more pervasive and diversification occurs in intermediates (categories 2 and 5) where producer-led chains are more often the governance norm. Finally, we find that there is a weak, positive relation between consolidation and export growth, as indicated by the upward sloping line in _Figure 14_ .

This result is consistent with the fact that in the downturn there have been some significant shifts in product market shares, with China often gaining in US import markets, while smaller East Asian nations have been found to be losing US market share in the US. _Table 3_ provides some evidence on how particular countries are faring in particular markets as US imports decline. These selected sectors reveal a pattern of China gaining market share despite the decline in US imports. Other countries also gain depending on the product area. Countries that are losing market share include high-cost producers (e.g. Italy in the handbag market) and low-cost, especially East Asian producers (e.g. Cambodia in apparel, Thailand in rubber products and plumbing and heating fixtures, and Malaysia in telecommunications products). This evidence thus would indicate that the import decline occurring with the economic downturn is creating winners and losers in terms of market share. China’s continued success in exports to the US, aided no doubt by the adjustable dollar peg, is taking a toll on exporters in both high-cost markets and low-cost markets, the latter especially among smaller East Asian countries. This finding is confirmed by the surveys by Hurst et al. (2009) of small and medium enterprises in East Asia, who report massive declines in orders and cutbacks in employment across a variety of consumer goods.

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