Aerial view of container ship

Global Value Chains drive the future of Digital Trade

Craig Burchell, Vice President of Global Trade Affairs at Huawei Technologies’ HQ in Shenzhen, China, looks at tech supply chains for the first instalment of ICC United Kingdom’s Global Value Chains (GVCs) Series.

Craig, what challenges threaten GVCs today?

The integrity of GVCs is critical to fight Covid-19, energise economic recovery and combat the climate crisis. I think the biggest threat to us all is being distracted from these three priorities when addressing GVCs. Today more than ever they require rational and fact-based consideration, unsullied by fear, uncertainty and doubt (“FUD”). The challenges ahead all concern taking the complex web of interdependent supply chains to the next level of success; so they continue to connect supply and demand as efficiently as possible based on comparative advantage. There is still much loose talk about “decoupling” and “re-shoring” which is distracting. In February, for example there were many claims about mass decoupling from China and the facts today show it is not happening. We can expect medical and pharma sector to see diversification and shortening of GVCs, and prices will rise accordingly, but that does not signal a retreat from China – in fact from all my conversations the opposite is true.

The most constructive way of approaching GVCs is to focus on positive initiatives to take them to their next level of efficiency, and as a way to share the benefits of trade more equitably rather than forcing them to fracture to suit a unilateral agenda. There is much more to gain from multilateral collaboration on GVCs with energy and a positive, can-do attitude.

Make no mistake: the risks of forced “decoupling” are real and the consequences will be costly. McKinsey’s recent report on GVCs gives many interesting insights, and warsn that supply chain disruption can easily remove a third of a year’s EBITDA for many companies across a variety of sectors. Forced decoupling is fundamentally at odds with the way technology, innovation and communities evolve. Fortunately, experienced engineers, technicians and experts from the tech world know that unilateral initiatives to decouple a nation from our shared digital future is a retrograde step. This is clear from the rational views of tech companies in the U.S. and elsewhere, as well as those of researchers, scientists, trade associations, experts, and opinion leaders.

 

Craig, please could you outline for us what supply chains look like in your industry sector?

Value chains in the tech sector are truly global. They’re highly collaborative and an important driver of resource efficiency and innovation. In addition, the tech sector has many highly specialized production hubs with high added value. The barriers to entry are also high, such as the cost of building a new wafer fab for example. Tech sector GVCs deliver just-in-time products “Made in the World,” giving customers great value for money. Through global value chains, technology companies source the world’s best components, technology and services from the world’s best creators and manufacturers. Then they combine these inputs to produce the world’s best and smartest devices. Why settle for second best by cutting out the best supply chains?

What factors have driven global tech value chains to where we are today?

First, I believe at its core is the drive to communicate and co-operate, to build communities and to exchange ideas, goods and services regardless of man-made borders. These factors have driven trade and development for millennia. Billions of people energetically trade across communities where you “Do what you do best and buy the rest.” Tech sector GVCs have grown because of this.

 

Second, the last three decades have seen the growth of the internet, an explosion of interconnectivity and a dramatic boost to trade from the WTO Information Technology Agreement to end tariffs on ICT products. Since 1997, tech trade has quadrupled as a result of this global agreement. This was a huge achievement for the US and European tech companies who led the movement. I witnessed first-hand how it changed the tech world during my time as Philips’ Global Head of Trade. The growth of all high-tech companies, Huawei included, has run in parallel with these ecosystem evolutions, accelerated in Huawei’s case by very strong collaborative innovation processes and global partnerships.

 

Third, the ICT boom, global tech value chains and rising living standards would not have been possible without a rules-based multilateral trading system. This is why, like all high-tech companies, Huawei naturally supports and promotes open trade, a level playing field, fair competition, strong IP protection and non-discrimination.

Fourth, the migration of the electrical and electronics eco-system to Southeast Asia gave countries in the region a significant competitive advantage. This move was driven by US and EU tech companies looking to produce better products at better prices, with greater economies of scale and lower labour costs. Asia now has the highest concentration of manufacturers of components, assemblies, kits and devices. This will remain a dominant factor in global tech sourcing.

Besides hardware, how else is Huawei interconnected with counterparties globally?

Global value chains encompass goods, services and innovation, including R&D, software and patent licensing. Innovation has become globalised too; Huawei has R&D centres of excellence and thousands of innovation partners working around the globe and around the clock creating Intellectual Property (IP). Huawei invested about €15billion in R&D in 2018, which puts it comfortably in the top 10 global investors in innovation. Huawei’s 5G team created and owns around 15% of the patents required for 5G. It is common in the tech sector to cross-license patented innovations to share the fruits of research and drive collective progress. This is also a benefit of GVCs.

Huawei works in close collaboration with over 1,500 telecoms operators around the world to deploy the best solutions for the needs of business and consumers. Driven by demand for connectivity, Huawei has collaborations in many countries to enable rural and remote connectivity far from the infrastructure of cities. This is one of our contributions to bridging the digital divide and promoting intelligent connectivity.

So, you see other benefits of GVCs?

Yes, GVCs can be used to promote positive change in best practices and ecological sustainability. Progress on the UN’s Sustainable Development Goals (SDGs) in this “decade of delivery” can be supported via certification along value chains. Responsible multinationals are conscious of the need to have suppliers adhere to the highest standards of ethical and sustainable practices. Awareness is disseminating much faster throughout the business community as a result of greater global inter-connectivity, so it’s easier to monitor compliance with international standards. GVCs offer a route to raise living standards, to greater resource efficiencies and more equality if they are managed properly.

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