"Today, a single finished product often results from manufacturing and assembly in multiple countries, with each step in the process adding value."

"Firms make components in the most cost-effective location and value is added at every step along the way, resulting in a finished product that is assembled with inputs from multiple countries."

"The fragmentation of production processes and the international dispersion of tasks and activities within them have led to the emergence of borderless production systems – which may be sequential chains or complex networks and which may be global, regional or span only two countries."

"GVCs are typically coordinated by transnational corporations (TNCs), with cross-border trade of production inputs and outputs taking place within their networks of affiliates, contractual partners (in non-equity modes of international production, or NEMs; see WIR11) and arm's-length suppliers."

"GVCs are defined by fragmented supply chains, with internationally dispersed tasks and activities coordinated by a lead firm (a TNC)."

"Raw material extracted in one country may be exported first to an affiliate in a second country for processing, then exported again to a manufacturing plant in a third country, which may then export the manufactured product to a fourth for final consumption."

"Value chain Country A Country B Country C Country D Raw material extraction Final demand Processing Manufacturing 2 2 + 24 = 26 2 + 24 + 46 = 72"

"About 60 per cent of global trade, which today amounts to more than $20 trillion, consists of trade in intermediate goods and services that are incorporated at various stages in the production process of goods and services for final consumption."

"The average foreign value added in exports is approximately 28 per cent (figure IV.2). That means, roughly, that about $5 trillion of the $19 trillion in 2010 world exports of goods and services has been contributed by foreign GVCs cause 'double counting' in global gross trade figures."

"the degree of double counting in industries, which, conceptually, can serve as a rough proxy for the length of GVCs"

"Traditionally, a select number of manufacturing industries have been at the forefront of value chain segmentation ('fine-slicing' of value chains) and of associated trends such as outsourcing and offshoring."

"The analysis of GVCs takes into account both foreign value added in exports (the upstream perspective) and exported value added incorporated in third-country exports (the downstream perspective)."

"For example, China, on the one hand, is a large economy with an increasingly important internal supply chain. On the other hand, it has a significant share of processing trade and is an important exporter of electronics, the industry with the most complex GVC linkages."

"GVCs are present predominantly in industries characterized by such supply chains, with typical examples including electronics, automotive and textiles (although the scope is widening to agriculture and food and offshore services, among others)."

"Raw material extracted in one country may be exported first to an affiliate in a second country for processing, then exported again to a manufacturing plant in a third country, which may then export the manufactured product to a fourth for final consumption. The value of the raw material counts only once as a GDP contribution in the original country but is counted several times in world exports."

"Developed countries, as a whole, at 31 per cent have a higher share of foreign value added in exports than the global average."

"while developing countries (25 per cent) have a lower share of foreign value added than the world average (28 per cent), their foreign value added share is significantly higher than in the United States and Japan."

"Economic, technological, and political shifts as well as changing business strategies have driven firms to unbundle production processes and disperse them across countries."

"This is a paradigm shift from the 20th century when countries had to build the entire supply..."

"Many of the most significant environmental and social impacts associated with business activity occur within the supply or value chain of a company, rather than in its own operations."

"OECD research has shown that between 28-43% of estimated child labour for export goods is indirect, meaning it takes place through preceding tiers of the supply chain (such as through extraction of raw materials or agriculture)."

"Trade linked to these networks accounted for around 17% of global GDP, while total global trade reached roughly 31% of global GDP."

"A car may combine parts from several countries. A medicine may rely on ingredients and packaging sourced across continents."

"New OECD data shows that 49 of the 80 economies covered increased the share of foreign inputs embedded in their exports between 2011 and 2024."

"The increasing fragmentation of production processes into activities scattered across different countries has challenged economists and statisticians to find ways to measure the extent of these developments and their potential implications."

"Increasingly, countries and firms specialise in particular stages of production according to their comparative and competitive advantages, and are linked in vertical supply chains through trade in intermediate products."

"This phenomenon is intrinsically related to a surge in international trade in intermediate products, which dominate world trade flows, characterised in large part, and indeed further complicated, by the increasing role played by multinational enterprises (MNEs) (whether through intra-affiliate transactions or indeed through the control of supply chains)."

"However, for most countries these data are not available. Moreover, often processing trade statistics only reflect the tip of the iceberg, as they only consider trade associated with a special type of sub-contracting or outsourcing arrangement, and do not cover all other activities (the majority) related to the geographic fragmentation of production."

"as well as the true nature of interconnectedness across economies. This is often referred to as the double (or multiple)-counting problem of international trade statistics."

"This, in turn, has led to the development of a new branch of trade statistics, referred to as Trade in Value-Added (TiVA) providing new insights on GVCs, and corresponding databases, notably the OECD-WTO TiVA database, which provide a measure of international interdependencies through the construction of global input-output tables that show how producers in one country provide goods and/or services to producers and consumers in others."

"Countries located at the beginning of the production chain (upstream) tend to import fewer intermediates and export more, resulting in a relatively low value of CRI. In contrast, countries that specialise in assembly and are located at the other end of the supply chain (downstream) tend to import more intermediate goods and export relatively less, resulting in a comparatively high value of Cri."

"Perhaps the classic example of the impact of the phenomenon concerns processing trade, where firms, typically at the end of value chains, import parts for final assembly."

"They provide product-level information (with the Harmonised System (HS) coding covering around 5 000 goods), with almost complete country coverage and the identification of partner relationships."

"The most basic version of this indicator measures the share of a country's exports of intermediate goods in its total goods' exports, which provides broad insights into the relative position of a country within GVCs (i.e. more or less upstream in the production of intermediate goods compared to final demand goods)."

"A variation of this indicator quantifies the share of imports of intermediate goods in total goods imports, which is particularly useful for countries participating in the downstream stages of supply chains (i.e. the assembly of finished goods from imported components)."

"Conventional gross trade data would indicate that the country has a comparative advantage in the production of the final good, despite the fact that it may have added relatively little value to the actual good through lowskilled part tasks."

"Hummels et al. (2001) use national IOTs to show that vertical specialisation (i.e. the use of imported inputs in producing goods that are exported) has increased over time, and explained 30% of the growth in exports of 14 OECD and emerging market countries between 1970 and 1990."

"But with the field still relatively new, many users are struggling to fully understand how these new indicators should be used and indeed how they have been constructed."

"Supply Chain Visibility refers to the ability of a manufacturer or retailer to see order status and product flows upstream from immediate (tier 1) suppliers to the focal company as well as downstream from the focal company to immediate (tier 1) customers, from the moment of order placement to final delivery."

"Supply Chain Traceability reflects the ability of a company to identify all the actors or entities that make up its supply-chain ecosystem, i.e., the network of networks that includes bundles of source, producer, conversion agent, storage, and carrier firms that extend from the raw materials stage all the way to the end-users of products and services."

"Visibility drops off sharply beyond tier-1 suppliers, and retailers exert minimal influence toward achieving it beyond immediate upstream partners."

"We report survey results from 131 retail industry executives on their firms' current traceability and transparency capabilities."

"Regarding traceability and transparency, our survey respondents reported having developed only moderate traceability capabilities and finding the achievement of traceability (and transparency) 'back to source' to be idealistic/very challenging given current knowledge and resource positions."

"one automotive supplier counted just over 650 immediate suppliers at tier 1. This number ballooned to an estimated 24,000 suppliers at tier 2 – prior to accounting at all for any suppliers further upstream in the series of relationships leading all the way back to raw materials."

"A focal company is likely to have very little insight into or influence on its suppliers at distances beyond tier 1 – assuming it can identify them in the first place."

"What if even just a few of the boutique's 1,000+ tier-3 suppliers change, struggle, or cease operations each month? Would product quality, delivery timing, or received volume be impacted? Would the boutique have to approve a change in suppliers every time a switch was made by a sub-tier supplier that was several degrees removed from Betty's purview?"

"The most common response was 'Not sure,' with 24.4% of responses. Right behind was a 3-tier supply network (23.7%) and then 4-tiers (17%). Sixteen respondents (12%) indicated that the supply network for their best-selling product extended six or more tiers."

"the respondents indicated less capability to trace their best-selling product back to their raw materials sources (average score: 3.09 out of 6 on the extent of ability)."

"there is modest agreement that their companies are trying to increase visibility of risks (4.06 of 6 in terms of effort) but that supply chain opaqueness remains a challenge."

"Finally, though our initial findings are indeed preliminary, our sampled managers and executives indicate that efforts to achieve traceability through supply network provenance merely represent a static snapshot of a dynamic situation."

"Anecdotally, we also note that very small firms struggle more than larger firms with tracing their focal product back to source."

"Given the inherent complexity of supply chain mapping activities, such price increases may dampen competitiveness for some firm-product combinations."

"Retail supply chains are long, with many tiers of supply, and are also very complex due to the potential for multiple consumer channels and thousands of SKUs being moved, stocked, and sold."

"When we examine cases in which the market system fails to allocate resources efficiently, we often find an asymmetry of information at the root of the problem. If information about something that affects the value of a market transaction is not observable by both parties, and verifiable by a court, then it cannot be included in the contract governing the transaction. We have a problem of incomplete contracts."

"all factories are subject to three different types of audits: a basic environmental, safety and health (SHAPE) audit, a more in-depth management and working conditions audit (M-Audit) and periodic inspections by the Fair Labor Association (FLA)."

"The SHAPE inspection was first launched in 1997 and is typically performed by Nike's field-based production staff. The goal of this audit is to provide a very general picture of the factory's compliance with labor, environment, safety and health standards. SHAPE inspections take about a day and occur between once or twice yearly."

"The M-Audit is always conducted by Nike's in-house compliance specialists. These inspections are announced beforehand."

"The FLA is a multi-stakeholder initiative that brings together companies, universities and NGOs and supervises independent monitors to perform unannounced inspections of supplier factories."

"The evidence presented suggests that notwithstanding the significant efforts and investments by Nike and its staff to improve working conditions among its suppliers, monitoring alone appears to produce only limited results."

"Using a unique data set based on factory audits of working conditions in over 800 of Nike's suppliers in 51 countries."

"Capitalizing on the superior credibility and flexibility and potential lower cost of external assessments, many global buyers are relying less on their own in-house (second-party) auditors and more on third-party auditors to monitor and prevent environmental and social misconduct in supply chains."

"auditors will suppress information (by underreporting violations) about harmful working conditions so that the global buyers and noncompliant suppliers who hire them can maintain the perceived competitive advantage of noncompliant production."

"Drawing on agency theory for a more nuanced understanding of auditor incentives and on data from a global fashion brand, we find third-party auditors are indeed less effective, especially as a given factory's region exhibits more reported corruption or less potential oversight by second-party auditors."

"This distinguishes them both from first-party auditors, employed by the audited entity (in our context, a supplier) to conduct self-audits, and from second-party (or 'in-house') auditors, typically employed by a business partner (such as a global Buyer) of the audited entity."

"Businesses have a clear responsibility to identify, prevent, mitigate and remediate the risks of this exploitation happening in their operations and supply chains."

"The UN Guiding Principles on Business and Human Rights (UNGPs) set out how businesses should conduct human rights due diligence by 'assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed.'"

"Businesses must be vigilant to ensure they are not knowingly or unwittingly complicit in this abuse taking place in their operations and global supply chains. Modern slavery is so prevalent that if businesses are not identifying risks and cases, they are probably not looking hard enough. Businesses need to be proactive in identifying risks, conduct meaningful engagement with workers, trade unions, suppliers and stakeholders to prevent and mitigate harms to workers."

"Guiding Principles on Business and Human Rights Implementing the United Nations 'Protect, Respect and Remedy'."

"the need for rights and obligations to be matched to appropriate and effective remedies when breached."

"These Guiding Principles apply to all States and to all business enterprises, both transnational and others, regardless of their size, sector, location, ownership and structure."

"The responsibility to respect human rights is a global standard of expected conduct for all business enterprises wherever they operate."

"Addressing adverse human rights impacts requires taking adequate measures for their prevention, mitigation and, where appropriate, remediation."

"A policy commitment to meet their responsibility to respect human rights."

"A human rights due diligence process to identify, prevent, mitigate and account for how they address their impacts on human rights."

"Processes to enable the remediation of any adverse human rights impacts they cause or to which they contribute."

"Business enterprises need to know and show that they respect human rights."

"Seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts."

"For the purpose of these Guiding Principles a business enterprise's 'activities' are understood to include both actions and omissions; and its 'business relationships' are understood to include relationships with business partners, entities in its value chain, and any other non-State or State entity directly linked to its business operations, products or services."

"Severity of impacts will be judged by their scale, scope and irremediable character."

"including through the provision of adequate independent monitoring and accountability mechanisms."

"Companies must identify and address actual and potential adverse human rights and environmental impacts in their own operations, those of their subsidiaries and in their chains of activities, supported by complaints and notification procedures, monitoring and public communication."

"The new rules will ensure that companies in scope identify and address adverse human rights and environmental impacts of their actions inside and outside Europe, while avoiding unnecessary burdens for companies and smaller business partners."

"On 25 July 2024, the Directive on corporate sustainability due diligence (Directive 2024/1760) entered into force."