Management of global value chains and risk : an application to emerging markets

Abstract

Management of global value chains by manufacturing firms requires detailed consideration of the relationships with partner firms and the risks involved in operating in different countries, especially emerging markets. Value chains in the mining equipment sector are particularly interesting, since production of many components is outsourced to third-party firms, and supply chains often include regional distribution centers and also after-sale service of equipment. The mining equipment business in the Democratic Republic of Congo (DRC) is populated by multinational manufacturers that operate in three value chain structures. Each arrangement presents a somewhat different risk and return profile: greater local presence offers greater upside profit opportunity, while exporting to another company in the DRC entails lower country risk. This study explores the majority of original equipment manufacturers (OEMs) selling into the mining industry in the DRC. Through interviews and secondary data, we create a detailed look at the operation of the global value chains used by these firms. The contribution of the paper is to further develop our understanding of the operation of global value chains, and to show how and why, despite similar circumstances, different MNEs pursue different strategies in the same country and industry.