Guide: Spotlight on Global Value Chains

Global opportunities await Canadian exporters seeking to access the supply chains of larger multi-national enterprises.

These profitable channels allow qualified suppliers of goods and services to quickly link in to extensive B2B procurement networks. The following Spotlight introduces strategies that your company can use to enter new Global Value Chains (GVCs) effectively as well as expand on existing supply frameworks. Whether it is finding your niche, qualifying for preferred supplier lists, or taking advantage of diverse supplier initiatives, this short guide can help your business connect to GVC opportunities right here in Canada or around the world.

Globalization – Creating Opportunities

As trade continues to expand globally, companies are increasingly sourcing and segmenting their various services and production units from around the world.  Globalization has led to many positive outcomes such as improved information and communication technologies, a considerable decline in transportation costs, and reduced barriers to trade and investment. This growth has positively contributed to the competitiveness of Canadian businesses.

The Canadian Trade Commissioner Service (TCS) is pleased to present the following Spotlight on Global Value Chains (GVC), which presents information for Canadian exporters, especially small and medium-sized enterprises (SMEs) that are looking to either expand their business overseas, become a part of an existing GVC, or are interested in supplier diversity initiatives.

To illustrate this global trend, let’s take a look at a Company X that is headquartered in Canada, has its research and development (R&D) function in the United States, manufactures its product in China using parts made in India, sells to the European common market, and offers after-sales service from Thailand. The firm in each geographic area specializes in one task, performing at a higher level than if one firm were to complete all activities. This process has been referred to as global supply chain management, globalization of business processes, or simply global business development; however this phenomenon is professionally known as Global Value Chains (GVC).

For further information and resources on globalization, the growth of GVCs and other steps involved in the exporting process, refer to the TCS’s Step-by-Step Guide to Exporting which includes a special section in step #2 dedicated to Globalization: Linking to global value chains.

What are Global Value Chains?

Globalization: Refers to the growth of international trade and capital flows between integrated world economies.

Value Chain: Every step a business takes to produce a product or service and deliver it to the customer from its conception to its end use and beyond. As represented in Figure 1, all of a firm’s individual business processes are represented in the value chain. Research and development, production, distribution, sales and service are all business processes which most firms consider to be integral aspects of their business strategy. Corporate services act as support mechanisms for these core processes.

Global Value Chains: A value chain is established when firms outsource functions of their company to other countries. If business activities occur outside a single geographic location, usually a country, it is referred to as a GVC.

Figure 1: Simplified Value Chain

Access Existing GVCs

In order to reach an international market, your business can access an existing GVC, where you can:

• Provide intermediate input – Consider contacting the procurement division or partnering with subsidiaries of a multi-national enterprise (MNE), rather than the MNE itself.
• Produce a niche product or service – Have a unique or innovative product or service, as it will make your organization a desirable partner in the international marketplace (there has been a rise in the service sectors such as finance, information processing, telecommunications, logistics, and law).
• Supply to multiple clients – Sell your product or service to multiple enterprises and receive a steady income from separate GVCs.
• Become a preferred supplier – Include your organization on preferred supplier lists to access other markets through contracts with a larger enterprise.

Apply to Preferred Supplier Lists

Preferred Supplier Lists (PSLs) are a way of getting onto - and staying on - a larger multi-national corporation’s radar. Some sectors, such as the automotive, aerospace, oil and gas, and infrastructure sectors, are more likely to do business with suppliers on a pre-approved PSL.

• Some companies only do business with preferred suppliers – For some organizations, it’s a requirement to be present on a PSL. However, when it is not required, it will give your company priority over your competitors. It is a shortcut to a desirable contract.
• Know the requirements – Make sure that your organization has all the necessary information, appropriate documentation (forms, applications, certifications), and the resources (employees, financial, legal) to apply to the desired preferred supplier list.
• Finalize the application – Know the deadline date to apply as well as the evaluation criteria, and make sure to have the completed proposal with all the required elements (samples, prototypes, graphics, mock-ups, etc.).

For more information on PSLs, you can watch the following on-demand webinar Increase your Sales and Credibility: Become a Preferred Supplier. You may also contact your local Trade Commissioner for insight on international development opportunities.

Importance of Supplier Diversity

“We promote better access to financing, technology, and training facilities that help improve the capacity of micro, small and medium enterprises to integrate into sustainable and inclusive global supply chains.”

- G20 Leaders’ Declaration, Shaping an interconnected world, Hamburg 2017.

Supplier diversity is also going global and diverse companies are reaping the benefits worldwide.

Supported by the twenty (20) participating countries of the G20 Summit, among many others, companies owned by minorities that have been traditionally underrepresented in supply chains have a unique advantage. Your enterprise will have market-access opportunities to supply goods or services to major corporations, if it is owned (and staffed) by women, minorities, indigenous peoples, or someone that identifies as GLBTQ.

• Corporate Supplier Diversity Initiatives – Having a company with 51 percent or more employees from a designated minority group can open doors for your enterprise to be eligible for supplier diversity initiatives. Most Fortune 500 corporations have supplier diversity initiatives implemented.
• Canadian Certifiers– Some organizations will require certification to qualify as a diverse supplier. Below is a sample list of certification providers:
  • WEConnect International in Canada (women-owned)
  • The Canadian Aboriginal and Minority Supplier Council (CAMSC)
  • The Canadian Gay and Lesbian Chamber of Commerce (CGLCC)

Expanding Your Company’s Current Value Chain

If your company is interested in developing its own GVC, it is important to do it properly to avoid a financial deficit.

The TCS can help your organization understand the dynamics, culture, government regulations, and demographics of the market you are considering.

Some strategies your company can use to add international components to your existing value chains include:

• Joint Ventures and Strategic Partnerships
• Joint Venture – A partnership where each business contributes capital to a newly created entity that they operate either together or through a separate management structure which is accountable to the parent companies.
• Strategic Partnerships– Similar to joint ventures, but are more flexible, allowing the companies to create a mutually beneficial partnership plan.
• Canadian Direct Investment Abroad (CDIA) – Acquiring a foreign company for their production network or building an overseas facility for access to a new market.
• Foreign Direct Investment (FDI) – Attracting investment from a foreign firm to leverage their assets such as capital, research, and products or services.
• Offshoring – Moving internal business processes to locations outside of a company's domestic headquarters in an effort to lower costs or take advantage of other local strengths, such as labour talent. The processes remain under complete control of the company, however - these facilities are simply located in a different country.
• Outsourcing
• Sourcing intermediate inputs such as raw materials, components, sub-systems, and other goods and services from outside suppliers who offer the most attractive product (domestic or foreign).
• Delegating select business processes to third-party vendors who can perform the task cheaper, better and/or faster than your firm could itself. This approach moves beyond efficient sourcing to address business process inefficiencies which may be limiting your firm's success.

GVC Requirements and Regulations

Trade Commissioners located around the globe can help you navigate business challenges.

Expanding your operations to a new country may be profitable for your enterprise, especially with the growth of Global Value Chains through globalization. It is critical, however, to be aware of requirements and laws associated with that practice:

• Legal Requirements:
  • Sanctions and Export Control: Be aware of sanctions and export control issues. Some parts of your value chain may cause sanctions to be applied to you by association, for more information see Export Controls (Global Affairs Canada).
  • Tariffs: Compare fluctuating tariffs between export markets with the new CanadaTariff Finder tool.
  • Taxes (GST/HST)
  • Permits
  • UN Guiding Principles on Business and Human Rights
  • ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy
  • OECD Guidelines for Multinational Enterprises
  • Global Partnership for Financial Inclusion (GPFI)
• Currency fluctuations – The Canadian dollar fluctuates; therefore, it is important to understand exchange rates between Canada and your target market. Refer to Coping with a fluctuating Canadian dollar.

Are you export ready?

The Step-by-Step Guide to Exporting will help you to:

• Sell to more customers. Target global buyers online.
• Enter more markets. Leverage the benefits of free trade.
• Save time & avoid risks. Learn the legal aspects of trade.

Download this free guide and gain access to all TCS export publications through MY TCS.

Access these additional resources:

The TCS and partner organizations have programs, services and tools that can help your company access GVCs
opportunities. These include:

• Canadian Trade Commissioner Service (TCS)
  • Linking In to Global Value Chains: A Guide for Small and Medium-Sized Enterprises
  • Supplier Diversity – What You Need to Know
  • CanadExport: Climb Up the Value Chain (Podcast)
• Export Development Canada (EDC)
  • Study: Chasing the Chain: Canada’s Pursuit of Global Value Chains
• Business Development Bank of Canada (BDC)
  • How your business can tap into global supply chains
  • How small businesses can play in the big leagues