services’ in total services imports as _narrow measure of services offshoring_ . The _broad measure of services offshoring_ additionally takes ‘communication services’ and ‘financial services’ into account. In Table 1 we see that Japan and Denmark saw a small decline in services offshoring between 1991 and 2006, while the other countries experienced compound annual growth rates of services offshoring of between 1.3% and 5.2%.

**<u>Table 1: Goods and Services Offshoring Intensities, Selected Countries, 1991 vs. 2006</u>**

|**_Measure_**||**Denmark**|**France**|**Germany**|**Japan**|**United**<br>**Kingdom**|**United**<br>**States**|
|---|---|---|---|---|---|---|---|
|**_Goods Offshoring Intensity_**|**1991**|2.9%|3.8%|4.1%|14.9%|3.0%|8.6%|
|_(Narrow Measure)_|**2006**|6.5%|6.3%|8.2%|29.1%|8.2%|23.1%|
||**CAGR**|5.4%|3.4%|4.7%|4.5%|7.0%|6.8%|
|**_Goods Offshoring Intensity_**|**1991**|9.0%|15.2%|14.6%|49.3%|14.1%|40.1%|
|_(Broad Measure)_|**2006**|13.1%|16.4%|17.0%|68.2%|22.8%|54.1%|
||**CAGR**|2.5%|0.5%|1.0%|2.2%|3.3%|2.0%|
|**_Services Offshoring Intensity_**|**1991**<br>|23.1%|13.0%|20.0%|29.2%|13.7%|10.4%|
|_(Narrow Measure)_|**2006**|20.0%|28.0%|26.1%|24.3%|22.6%|18.6%|
||**CAGR**|-1.0%|5.2%|1.8%|-1.2%|3.4%|4.0%|
|**_Services Offshoring Intensity_**|**1991**<br>|23.1%|24.7%|22.1%|31.6%|17.7%|18.6%|
|_(Broad Measure)_|**2006**|22.3%|33.4%|31.6%|27.0%|32.9%|22.6%|
||**CAGR**|-0.2%|2.0%|2.4%|-1.0%|4.2%|1.3%|

Source: Milberg and Winkler (2010b). Data: OECD National Accounts database, UNCTAD GlobStat Database.

Economic development has become increasingly associated with “economic upgrading” or “industrial upgrading” within GVCs, requiring that firms move up through the chain of production of a particular commodity into higher value added activities. This involves raising productivity and skills through training, mechanization and the introduction of new technologies. It also requires fitting into existing corporate strategies by linking closely to lead firms. In manufacturing, such upgrading has been associated also with qualitative change, with firms moving from parts production or assembly, to design and more integrated production, to fullyintegrated production to original brand design. Humphries and Schmidt (2004) describe four types of upgrading in global value chains: product, process, functional and chain. Product and process involve productivity gains while the producer remains largely in the same place in the global value chain. Functional upgrading involves moving into more technologically sophisticated and higher value added aspects of an existing chain. And chain upgrading implies moving into a new, related value chain that also involves more skills, capital and value added.

The economic theory of vertical integration focuses on transactions cost minimizing behavior by lead firms and distinguishes hierarchical from market-based relations within GVCs.<sup>6</sup> Gereffi (1994) shifts the focus of analysis of GVCs, characterizing global value chains as “buyer-led” or “producer-led” depending on the nature of the lead firm. Large retailers (e.g. Wal-Mart, Sears, JC Penney and K-Mart) and firms with global brands (e.g. Nike, Liz Claiborne) lead buyer-led global value chains and are more likely to work at arm’s-length with suppliers and to have supplier contracts of shorter duration. Manufacturers in more high-tech areas such as automobile, aircraft and aspects of electronics (e.g. Ford, Boeing, Apple) lead producer-led chains in which 6 Williamson (2000) and more recently Grossman and Helpman (2005). For an extension, see Gereffi et al. (2005). 6