Key findings

• Global value chains (GVCs) encompass a myriad of firm-to-firm relationships and the full range of activities required to bring a product or service from conception to its end use.

These activities are managed and coordinated by multinational corporations (MNCs) via investment, trade, people, technology, and information flows. Their business decisions have profound implications for the global economy.

• It is impossible to understand GVCs without understanding how MNCs make their global production decisions. By understanding the objectives and strategies of MNCs, developing countries can better stimulate their entry into GVCs and increase the development benefits from MNC activities in their economies.

• MNCs have proliferated since the 1970s. They and their affiliates contributed 36 percent of global output in 2016, including around two-thirds of global exports and more than half of imports. Countries that are major global exporters all benefit from a strong presence of MNCs.

• Three objectives dominate the production decisions of MNCs: lowering production costs, mitigating risks, and increasing market power. MNCs balance their level of control, their commitment of proprietary resources, the type and level of risks they take, and the costs and returns of various transaction modes to organize their global production networks.

• The business strategies MNCs use to pursue each of their objectives are inextricably intertwined with the structural characteristics of the specific GVCs they operate within.

• The rise of superstar firms and their increased market concentration have a dual impact on growth and distribution. MNCs’ business strategies affect the gains that foreign direct investment and GVCs bring in knowledge spillovers, resources, consumer welfare, and the distribution of value added in the supply chains.