The international fragmentation of production implies that a country's export bundle often incorporates intermediate inputs imported from other countries, hence the drivers of export competitiveness should also be analyzed at the level of a country&a - Essay Example

Influence of international fragmentation of production on a country’s competitiveness in export trade By Foundation BusinessProfessor: [University’ Name] [Department] 21 November 2014 1.0 Influence of international fragmentation of production on a country’s competitiveness in export trade 1.1 Introduction A common measure of any country’s economic competitiveness and general economic growth today is its export market share. This is the country’s share in the global market of a particular industry or commodity.

However, this type of measurement has for long been debatable as to how feasible it remains to be especially in a market that has increasingly continued to embraced globalisation. During the past few decades, emerging countries have progressively dominated the export market thereby reducing the market dominance that has for long been associated with the developed countries. As an example, China has been the biggest gainer of the export market share while the OECD countries have experienced some of the most significant losses in the share for the past few years.

The processes of producing goods have become internationally fragmented, and thus it is common to have various stages of goods production being produced in different countries. This has led to increased incorporation of imported intermediate goods into a country’s export bundle. It is for this reason that observing a country’s industry or product export statistics may not be the most appropriate method of measuring its competitiveness. This is because international fragmentation allows countries to operate in other markets in addition to operations at their traditional specialisation.

Therefore, the best way to accurately measure any country’s competitiveness is by analysing the specialisation areas of the country. These include analysing upstream activities such as inputs or components production or downstream activities such as final assembling of goods. The paper will discuss the export performance of various countries along their value chains. This will include analysing their competitiveness in the final and the intermediate goods. The discussion will also illustrate the impacts of imported intermediate goods on a country’s export competitiveness across various industries.

The analysis will feature the export performances of both OECD and the emerging economies over the period 1995-2007. 2.0 A general overview on the global export performance (1995-2007) Looking at the statistics on global export shares, one is bound to say that the world market experienced massive repositioning in terms of market shares during this period. The larger OECD countries lost their export market share between 1995 and 2007 with notable falls being experienced by the United States and Japan.

On the other hand, China was the largest gainer in this market shift, and it exceeded its export market share by more than double. It was during this period that China became the world largest exporter. Other notable emerging export markets included South Africa, Brazil and India. The main reason for this market gain by the emerging economies was largely attributed to their involvement in low-tech industry export market. The role of the emerging economies in the global export market was seen in their growing market shares of the intermediate and the final goods.

However, the statistics on imports showed minimal changes despite a marked gain in the export shares by the emerging economies. On the other hand, developed countries accounted for about 77 percent of the imports in 2007. This generally pointed to the huge reliance on final demand of developed countries by the emerging economies. The emerging countries showed fast growth in their demand and supply of intermediate exports and import goods. This led to more exports of final goods and which was an indication that the emerging nations are progressively integrating into the global value chains (GVCs).

The growth of trade between developed and the emerging economies can be attributed to the internalisation in the chains of supply. 3.0 Global value chains The meaning of the term GVCs has evolved over time although it has commonly been associated with concepts such as international fragmentation, global production sharing, off-shoring and vertical specialisation. Emergence of GVCs and international fragmentation concepts have been enhanced by changes in business and regulatory environments, business organisation and corporate thinking.

Globalisation of value chains enhances efficiency in business operations thereby lowering costs. It involves activities such as sourcing inputs from more efficient and low-cost producers either domestically or internationally, and this leads to lower cost of production (Beltramello, Backer & Moussiegt 2012). 3.1 The role of global value chains in export performance and measurement As established in the earlier discussion, the measure of a country’s export competitiveness today is largely influenced by the country’s amount of intermediate inputs imported from abroad.

This means that countries no longer fully rely on their domestic resources if they are to remain competitive in the export market. The level of technology and skills endowment from where the country exports its goods are, therefore, important factors for increased competitiveness as well. Global value chains, and especially the concept of international fragmentation are dominantly used in today’s global economy. They are widely used to measure the performance of various activities of the import-export markets across the globe.

To efficiently achieve this, they make use of indicators’ database such as one which was recently (2013) developed through a collaboration between OECD and WTO. The database is based on trade in value and is abbreviated as TiVA. By using TiVA database, analysts can avoid double counting of trade flows during the border crossing of goods and services. Instead, TiVA measures flow that corresponds to the value added by the country producing the goods for export. The added value in consideration includes profits, labour compensation and taxes (Beltramello, Backer & Moussiegt 2012).

TiVA database is an important tool for measuring trade flows in that it provides good evidence for necessary policy-making purposes. This is especially important when used to measure the domestic value added that has been created by the export of a good or a service. The measurements can then be used to indicate the growth and competitiveness of a country’s economy. The same tool can also be used in measuring a country’s importation trade. By looking at trade from the perspective of value added measurements, it is easy and efficient to understand how upstream domestic industries make contributions to the export trade of a country.

TiVA initiative is also important in determining national statistics and indicating global interdependencies in a better way. This is especially imperative in the wake of increasing global value chains (Beltramello, Backer & Moussiegt 2012). 4.0 Conclusion The paper has clearly shown that the export performance and measurements of global economies require an advanced level of analysis that can capture the actual drivers of international competitiveness within GVCs. The use of TiVA database to measure trade flows makes the process more efficient.

It is, therefore, evident that through international fragmentation of production, the measure of a country’s export trade flow is often proportional to the availability of its intermediate goods imports. The imports can, therefore, serve as the one of the drivers of a country’s export competitiveness alongside other factors such as its positioning along the value chain. Bibliography Beltramello, A., Backer, D. K. & Moussiegt, L. 2012, The Export Performance of Countries within Global Value Chains (GVCs), OECD Science, Technology and industry working papers, 2012/02, OECD Publishing, France.