The Impact Participating in Global Value Chains on International Trade and Foreign Investment - Essay Example

The report of this analysis concentrates on how individual countries benefit from the global value chains. The essay further investigates how the GVC affects growth. In an essence, the provision of GVC within a country opens the ways for individual companies and organizations to trade globally. This goes a long way in contributing to the creation of their value chains; it also gives them the opportunity to hire employees that are more competent. It further gives them an advantage of learning from other countries and organizations thereby developing a good culture that leads to individual prosperity and success of companies. Big companies operating under the GVC often have an advantage since they can easily get access to the market thus having a big market share. This leads to bigger profit margins which allow them to hire technical employees, get access to modern technology, and gain a competitive advantage. This is contrary to small countries and companies which survive in the Market. GVC is of little benefit since it exposes them to competition from the companies that are already established (Gereffi, Humphrey, & Sturgeon 2005). The most competitive employees go to big companies, which are established to pay them (potential employees) as they want.

There are various factors on which the dependence of the potential impact of the global value chain is inclined. First is the type and nature of the global value chain. A beneficial value chain is one that provides an opportunity from which countries and industries can learn. Without the provision of the capability of learning, the industries themselves will stagnate and never have the opportunity of advancing. The GVC should also be one, which is elastic; this is to say that the product of goods and services offered and provided by the company within a particular locality should provide the opportunity for the growth of other products. This gives the opportunity for an industrial expansion for other industries and other businesses. According to the World Economic Forum (2013), industries in developed countries like Japan dealing with electronic equipment have had the potential to expand to deal with other technological things. For instance, phone manufacturing companies have often expanded to make computers and other visual and electronic devices. This is contrary to industries in other small countries that only specialize in the assembly of these machines. Their capabilities are confined to assembly and not in the manufacture of innovation of various technologies which can enable them to expand to other endeavors. The other factor is the type of business and the environmental factors in the host country and economy. It is important to determine whether there is an environment friendly to industrial learning, and the skillful management of the firms. The firms must also be willing to invest in developing new skills by investing in the workforce (Koopman,  Powers, Wang, & Wei 2011). This is done by continuous and ongoing training in a firm. It is also important to note that the benefit of the global value chain in a country is determined by whether local firms have the capability of competing in their local countries. Local competition is the stamina that can determine the potentiality of these firms to gain international access to competition without which they cannot favorably fit in the world economic competition.

The global value chain has an increasing benefit as it helps in building and upgrading long-term investment and the ability of individual countries to perpetuate their productivity. GVC helps individual firms to expand their knowledge thus increasing their skills. Increased skills mean long-term investment skills and an increase in skillful productivity. A skilled firm is one in which there is a quality production of goods and services. This builds the confidence of customers in a firm thus customer loyalty. The advantage gained because of the global value chain helps a firm to upgrade their production. This leads to higher income of a firm hence an increase in the gross domestic product of an economy. Not all forms of the GVC are of absolute advantage to firms and to the host countries; sometimes, it can lead to over-dependence on traditional technologies, which are mostly based on TNC-governed which have limited value addition. This limits the potential of the growth of a firm thus low profitability. Firms must therefore be keen to examine the kinds of the GVC that they engage in since they have a direct impact on their output. The type of the inter-firm association, their capabilities of recruiting competent employees, and their capability of adapting to a new environment determine their outcome.