1.6 MNCs’ contribution to global value added and exports varies by industry

easily replaced. Feedback from doctors and patients in turn enables manufacturers to improve the performance of their devices. These characteristics make the entry barrier extremely high in the medical device segment, so latecomers have trouble competing with established firms.

MNCs play a dominant role in health GVCs, though it varies significantly by segment. Globally, MNCs and their affiliates contributed 36 percent of output in 2016 (Qiang, Liu, and Steenbergen 2021), including about two-thirds of exports and more than half of imports. However, their share of medical goods and services varies hugely. In chemicals and pharmaceuticals, MNCs accounted for 87 percent of global value added and 83 percent of exports in 2016 (figure 1.6). MNCs account for such a large share in global value added because of highly localized regulations, prompting them to set up affiliates to produce for the domestic market. MNCs play a similarly outsize role in medical devices; the 10 biggest medical device MNCs accounted for approximately 40 percent of global sales in 2018 (Vara 2019).

In contrast, MNCs represented just 4 percent of global value added in health and social services—among the lowest MNC contribution in all industries. Heavy regulations on entry and the dominance of the public sector explain the limited role of MNCs in medical services.

Figure 1.6 MNCs’ contribution to global value added and exports varies by industry

100

90

MNCs’ contribution (%) 80

70

60

50

40

30

20

10

0

Chemical and pharmaceuticalMotor vehiclesOther transportElectrical equipmentComputer and electronics Basic metals Machinery and equipmentFinancial TelecommunicationsPublishing and broadcastingRubber and plastic IT Mining Other manufacturingFood and beveragesTextile and apparelUtilitiesMineralPaper TransportWholesale and retail Professional services and researchFabricated metal Refined petroleum WoodConstruction Hotel and restaurantReal estate Health and social Arts and entertainmentAgriculture Public administrationEducation

Gross exports Value added

Source: Calculations based on the Organisation for Economic Co-operation and Development (OECD) Activity of Multinational Enterprises (AMNE) database (https://www.oecd.org/sti/ind/amne.htm). Note: Data are from 2016. IT = information technology; MNCs = multinational corporations.

Services trade support of medical goods GVCs

Trade in services is fundamental for the existence and proper functioning of medical goods GVCs. Services enter at every stage of production, connecting participants in the chain and ensuring the transition between different production stages. The very existence of medical goods GVCs depends crucially on such services as R&D, product engineering, software development, sterilization, packaging, warehousing, transport, telecommunications (including the internet), financial services (including financing, payments, and insurance), distribution, and postsales services (such as training, consulting, maintenance, and repair).

Although all these services may be supplied purely domestically, trade is usually involved, and they are provided either on a cross-border basis (as in international transportation and payments), through the presence of foreign suppliers (as in insurance), or even through the movement of professionals (as in engineering, marketing, and contract negotiations).

Trade in logistics services. Logistics services, including trade in logistics services, play a critical role in the health care sector and are dominated by a limited number of actors.Logistics is not only part of the medical goods GVCs but is also at the core of the supply-chain management of health care institutions. The manufacturing of medical products tends to be geographically concentrated at the global level, but the goods are needed in and distributed to all countries. In addition, the concentrated mass manufacturing of medical goods depends on highly interdependent GVCs because inputs are usually sourced from numerous countries. As a result, the international supply of logistics services becomes essential not only for medical GVCs but also for medical services themselves. Medical devices and pharmaceuticals (including inputs) are associated with highly specific logistical needs, from packaging and transport to handling, storage, and final distribution, especially for temperature-sensitive products.

At the same time, logistics services are significantly affected by regulations related to the storage and distribution of medical products. Stringent regulatory requirements also imply high thresholds for market entry. In the global health logistics market, usually only integrated logistics operators are able to meet the rigorous regulatory requirements, which explains the market’s high level of concentration.6

Trade in air transport services. Air transport is key to the international supply of medical goods, particularly those that are time-dependent. Trade in air transport services, comprising all international transport and domestic transport supplied by foreign-owned operators, is a crucial part of the logistics chain for medical goods. Air has significant advantages over other means of transport—offering the fastest routes, the possibility of serving geographically scattered airports, the ability to handle oversize cargo, and comprehensive cargo maintenance at airports. However, air transport is significantly more expensive than other means of transport.

Still, in instances when time trumps cost (such as with perishable and time-sensitive biologics, radioactive medications, or clinical trials), the speed of air freight merits