global_chain.jpgWhat is a Global Value Chain?


The value chain is a model designed by Michael Porter to describe the ways in which companies can create value and establish competitive advantage through very specific activities. The global value chain takes these activities into account across geographic space and global economies. Duke University has established the Global Value Chain Initiative (www.globalvaluechain.org) to “test and develop” global value chain frameworks and to further expand research and formal publications in this arena. The Initiative’s website notes that while global supply chains have been around for centuries they have become much more prevalent in the last 10-15 years. Today’s global value chains are highly integrated and require intensive day-to-day management.

The global value chain is not singular. In fact there are significant variations between different global value chains. Timothy Sturgeon categorized global value chains into five basic categories based on the ways in which the chain is governed; markets, modular value chains, relational value chains, captive value chains, and hierarchy. Global value chains are organized into these categories based on the examination of three major variables: complexity of transactions, codifiability of transactions, and the competence of the suppliers.



The Diamond Supply Chain as a Global Value Chain
The generic (not Tiffany specific) diamond supply chain is detailed in the chart below.

Supply.jpg



Throughout this process which results in the eggshell blue Tiffany’s box complete with a diamond solitaire, value is added exponentially to the product. The tables below document the ways in which the diamond’s value increases dramatically throughout the production process.global_chain2.jpg


Stage of GVC
% (of original value)
Producer Selling Value
100
Sorting
115
Polishing
127
Polished Dealing
133
Jewerly Manufacturing
166
Retail
320


As you can see the most dramatic increase in product value occurs between “Jewelry Manufacturing” and “Retail.” This is where intangible value is added through marketing, branding, and retailing. It is also specifically where a Tiffany diamond becomes more valuable that a diamond sold at Robins Brothers or Kay Jewelers. A Tiffany diamond does not come from any different place nor is it manufactured in a dramatically different way. It is however branded and marketed through a Tiffany retail store which adds additional value in the pipeline. This is also one of the reasons why African nations themselves have a difficult time in creating a diamond value chain that can complete with the likes of De Beers or Tiffany’s. The most significant value adding components in the diamond supply chain occur after the diamond has left Africa. That makes it very difficult for developing countries to compete is the global value chain where value is generated from intangible sources that are controlled by major players from developed countries (i.e. Europe, the United States, etc.).