Global Value Chains in Germany, India and Brazil after COVID 19 - Beginning of a New Type of Globalization?

Prof. Dr. Christina Teipen (research team at HWR Berlin: Prof. Dr. Hansjörg Herr, Dr. Petra Dünhaupt, MA Fabian Mehl)

Cooperation:
Prof. Dr. Bruno de Conti, Universidade Estadual de Campinas, Brazil,
Prof. Dr. Ernesto Noronha & Prof. Dr. Premilla D’Cruz, Indian Institute of Management Ahmedabad,
Prof. Dr. Praveen Jha, Centre for Economic Studies and Planning, Jawaharlal Nehru University, India

Funding: VolkswagenStiftung

Project period: 01.03.2021 – 31.08.2022

About

The project seeks to examine the effects of the COVID-19 crisis on global value chains (GVC) in Germany, India and Brazil. Together with distinguished international research partners in the two emerging economies, the first step will be to analyze the short and medium-term economic and social effects of the COVID-19 crisis in the automotive and IT value chains, as well as the policies adopted in reaction to it. The second and main purpose of the project will be to analyze long-term economic and social upgrading or downgrading trajectories, a potential modification of the existing globalization model and a fundamental restructuring of the type(s) of capitalism.

Project description:

The developments since the start of the COVID-19 pandemic suggest that many of the economic and social achievements of recent years have been wiped out and that new strategies need to be developed to cope with the new reality. The crisis has demonstrated the vulnerability of GVCs, which have been optimized for just-in-time production and cost savings.

Overall, the effects of the COVID-19 crisis on employees, firms and financial institutions are expected to be much harsher in the Global South than in the Global North. Labour laws, social protection and government capacities to protect workers must be considered to be much weaker in the Global South than in the Global North. This could lead to wage dumping strategies, more precarious working conditions, erosion of environmental protection standards, and lower employee participation rights. Firms will suffer from liquidity problems and, if they survive, emerge from the crisis with high stocks of debt. The financial system will have debt-problems as well. Investment will most likely suffer for a long time in these countries, as well as in the GVCs in which they are embedded.

The COVID-19 crisis is likely to strengthen tendencies towards concentration and increasing power asymmetries in GVCs – a trend that has been observed for some time before the crisis.

Possible reactions after COVID-19 will be analyzed in the cases of the IT and automotive sectors, including the re-shoring of activities to the Global North and the geographic concentration of outsourcing to some Global South regions. Also, innovative technical and managerial changes will most likely be triggered, such as increased digitization of work and more spatial closeness between production locations.

The COVID-19 crisis has revealed the shortcomings of GVCs. Export-oriented sectors – for example the German automotive industry – could be severely affected. On the other hand, further innovation and outsourcing in the IT-industry, for example to India, can continue to change GVCs. The COVID-19 crisis has the potential to transform GVCs and the existing globalization model substantially.

Beyond the short-term effects of the COVID-19 crisis in the two selected industries, it will be analyzed whether more fundamental changes can be expected and in which directions they are likely to go. The automotive and IT industry are particularly suitable for investigating such developments. With regard to the IT services sector, a further push towards digitization, automation and outsourcing could be conceivable. Increasing demand for cloud computing as a result of increasing work-from-home arrangements would most likely benefit big tech firms like Amazon or Microsoft, further consolidating their dominant position within the industry. With regard to the automobile industry, political conflicts over state subsidies for the sector could result in spurring investments into electric mobility, thereby transforming production models and supply chains.

Methodology:

The project combines debates from sociology as well as economics and can build upon insights on economic and social upgrading trajectories from our current research project and pursue quantitative and qualitative analyses on changes after COVID-19 in two sectors: IT services and automobile.

As a first step, the economic and social effects of the COVID 19 crisis and government policies in the two GVCs will be analyzed. This will include analyses of company reactions, the effects of financial and labor market policies, as well as the consequences for employees. Here, we will draw on quantitative and qualitative research.

Following this, we will conduct expert interviews with relevant actors at the national and industry levels in all three partner countries, to capture their expertise and produce reliable estimations on mid-term challenges, debates and strategies from different perspectives. This will include interviews with representatives from companies, governments, employers’ associations, trade unions, NGOs and think tanks. Based on this open qualitative design, we intend to assess whether COVID 19 will lead to a fundamental restructuring of GVCs, the implementation of new technological and social-ecological innovations, and a new type of globalization and capitalism.