International Value Chains - Need for Reform and Opportunities

Tasks

The global linking of production processes via value chains is currently presented primarily as a risk. Alternatives such as the withdrawal from globalisation (reshoring or nearshoring) are therefore discussed in politics and in the media. This publication aims to classify which risks actually exist and which costs and benefits a corresponding change in supply chains would bring.

Methods

In the first part of this study, we describe descriptively the value-added linkages of the German economy. In addition, we analyse products for which there is dependence from abroad and examine the risks of supply failures to which they are exposed. By dependence we mean goods that are of high importance for German production and whose non-availability would pose a major problem. Moreover, these goods are difficult to substitute: German companies obtain them from only a few countries of origin and at the same time production in Germany is too low to compensate for any supply shortfalls. In the second part, we define potential risks and relate them to international value chains. In the analysis, we focus on uncertainties in the areas of economic policy, geopolitics, global climate change and cyber security. In the third part, the economic effects of bringing international production processes back to Germany (resho-ring) and to the EU, North Africa and Turkey (nearshoring) on the German economy are quantified using the ifo trade model. In the fourth part, the results of a representative company survey on procurement strategy are presented and in the last chapter policy measures are specified.

Data and other sources

COMTRADE, World Input-Output Database, WTO-TRAINS, VGR der Länder, firm-level survey.

Results

The study shows what costs and benefits a change in supply chains would cause. Both the descriptive analysis and the quantitative analysis illustrate the important role of global value chains for the German economy. A shift of production back to Germany or to neighbouring countries, such as EU member states, would have negative consequences for Germany's economic strength. In our study, we identify highly dependent products and examine the risks of supply failures to which they are exposed.