315 W 99th St. #7C New York, NY 10025 Ben@Developing-Trade.Com

Regional Value Chains in Services: Methodologies and Approaches

Report Prepared for the United Nations Conference on Trade and Development and the United Nations Economic Commission for Africa

Ben Shepherd, Principal.

January 22nd, 2019.

i

ABSTRACT This report provides the methodological basis for an UNCTAD and UNECA project studying services in value chains in Africa. The project’s objective is to provide partner countries with tools and methodologies that enable them to better assess the contribution of services to regional value chains. The report describes the two main methodological approaches that are available to study this question. In doing so, it serves as the basis for training materials to be developed separately for a “train the trainer” seminar to be held in-region. The objective is to equip African officials and researchers with cutting edge methodological background so that they can study these questions in detail, with support from outside experts.

The report sets out two methodological approaches to the study of services in regional value chains in Africa. The first is largely qualitative, based on firm-level interviews as the basis for case studies, as successfully implemented in the Asia-Pacific by the Fung Global Institute and APEC Policy Support Unit. The second approach is quantitative, based on the literature on trade in value added. In both cases, the report presents the motivation for each approach, as well as its relative strengths and weaknesses. For the case study approach, the text annexes a case study skeleton and survey instrument, courtesy of the Fung Global Institute and APEC. For the quantitative approach, the report includes a fully worked example using a small Eora subset and R code developed by UNCTAD.

ii

TABLE OF CONTENTS

ABSTRACT .......................................................................................................................................................... I

1 INTRODUCTION AND OVERVIEW ........................................................................................................ 1

2 INTERVIEW AND CASE STUDY APPROACH ......................................................................................... 5

2.1 MOTIVATION ................................................................................................................................................................................ 5 2.2 IDENTIFICATION OF PARTICIPANTS ......................................................................................................................................... 6 2.3 SURVEY INSTRUMENT ................................................................................................................................................................. 6 2.4 CASE STUDY .................................................................................................................................................................................. 7

3 QUANTITATIVE APPROACH USING INPUT-OUTPUT TABLES ........................................................ 7

3.1 MOTIVATION ................................................................................................................................................................................ 7 3.2 DERIVATION OF KEY RESULTS ............................................................................................................................................... 11 3.3 NUMERICAL EXAMPLE .............................................................................................................................................................. 14

4 CONCLUSION ............................................................................................................................................ 21

REFERENCES .................................................................................................................................................. 23

ANNEX: GUIDANCE FOR INTERVIEWERS AND SURVEY INSTRUMENT .......................................... 25

CASE STUDY NOTES ......................................................................................................................................................................... 25 NOTES AND OBSERVATIONS ON QUESTIONS ............................................................................................................................. 27 SURVEY INSTRUMENT ...................................................................................................................................................................... 32

1

1 INTRODUCTION AND OVERVIEW

Analysis of Global Value Chains (GVCs) has grown markedly in academic and policy circles alike over the last ten years or so. Although GVCs were first identified as “production networks” in East and Southeast Asia in sectors like automobiles and electronics (Ando and Kimura, 2005), it has increasingly been recognized that services are an important part of the equation. Indeed, the servicification of manufacturing is a phenomenon that is now right at the top of the policy agenda, in recognition of the fact that many goods in fact consist to a significant extent of value added originating in services sectors, while other goods bundle services to make the product more appealing or useful to consumers. More than ever, manufacturing and services are closely intertwined: in the GVC context, it is increasingly difficult to separate the two out in any hard and fast way.

Bamber et al. (2017), taken up by Hallward-Dreimeir and Nayyar (2017), suggest a three way classification of services in modern productive systems like GVCs: standalone, embodied, and embedded. Standalone services are those that are offered independently, or which constitute the main core of a productive structure. An example is a restaurant, which offers diners hospitality services. The second category, embodied services, refers to services inputs that are consumed as intermediates in the production of final goods or services. The most common example is transport services: a manufacturer uses domestic and international transport links to ship their goods to consumers, so the value of the transport services is “embodied” in the final product when it reaches the consumer. Finally, embedded services refer to, for example, apps that can be purchased and used on a personal electronic device. These services are not standalone, in that they can only be used in conjunction with a manufactured good, and they are not embodied in that their value is not typically included in the value of the personal electronic device. Taking all three types of services together, it is clear that the modern world economy is in many senses a services economy.

Africa is no exception to this observation. Figure 1 shows the proportion of GDP that is accounted for by services in Africa. In other regions of the world, there is an obvious positive association between per capita income and the prevalence of services in the economy, but it is nonetheless clear that services are an important part of economic life in a low- and middle-income region like Africa as well. The proportion of services in total GDP is over 50% on the continent, and there is some evidence of an increasing trend in the later years of the sample, in line with increasing servicification seen elsewhere. Moreover, the figure likely understates the true importance of services in the economy due to the importance of the informal economy in some countries in the region, including in important services sectors like retail. While concern has been expressed by some that premature movement into services may have negative impacts for development and structural change, more recent evidence from around the world shows that productivity differences and differences in productivity growth rates across services sub-sectors are at least as large as those between services and manufacturing (Shepherd, forthcoming). In Asia, for example, rapid growth in goods trade was accompanied by growth in services trade that was almost as rapid.

From a trade perspective, recent analysis shows that production fragmentation—which is at the core of global and regional value chains—is also taking place in services markets, not just in goods. De Backer and Miroudot (2013) show that while many services are still produced and consumed primarily by small firms within national borders, it is by no means universally true. GVCs are already very active in sectors like business services, where back office operations, call centers, and professional services are frequently provided across borders within a GVC-like structure. Similarly, financial services have seen significant production fragmentation in recent years. Within the African context, a sector not

2

examined by De Backer and Miroudot (2013), namely tourism, can also be added to the list: tour services can be booked internationally, while aggregator websites located in one country allow access to transport and recreation services in other countries. GVCs are similarly emerging in this sector. As the African Continental Free Trade Agreement (ACFTA) further liberalizes trade in services all across the continent, the process of production fragmentation, and the associated rise of services value chains, is likely to intensify. The bottom line is that services clearly matter to policymakers, business leaders, workers, and consumers in the developing world in general, and particularly in Africa.

Figure 1: Services value added as a percent of GDP, Africa, 1995-2016.

Source: UNCTAD Stat.

Figure 2 shows the importance of services production, employment, and trade in the six countries that are the particular focus of this project, namely Ethiopia, The Gambia, Kenya, Mali, Nigeria, and Togo. Services represents a significant proportion of output and employment in all six countries, with the proportion of GDP ranging from 36% in Mali to 65% in The Gambia, while employment ranges from 21% in Ethiopia to 56% in The Gambia. Relative to GDP, trade in services is somewhat lower than the proportion of value added would suggest, ranging from 5% in Nigeria to 31% in The Gambia. The takeaway from the figure is, however, that despite different geographies, economic structures, and income levels, services represent a vital part of the economy in each of the project countries.

0

10

20

30

40

50

60

70

80

90

100

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Per

cen

t

Year

3

Figure 2: Services employment as a percent of total employment, services value added as a percent of GDP, and services trade relative to GDP, project countries, 2014.

Source: World Development Indicators. Note: Data not available for all indicators and all countries after 2014.

Another gloss that has been put on the GVC paradigm by the more recent literature is the importance of regional linkages. ITC (2017) makes the argument, based on a comprehensive review of the data, that most “global” value chains are in fact regional in scope; very few truly span multiple regions. This point is even more true for value chains that involve small and medium enterprises (SMEs), which of course predominate in Africa. As such, although we use the GVC terminology throughout this report, we are conscious that the bulk of the economic activity that will be examined will in fact be regional, rather than truly global, in scope. We emphasize that the methodologies we discuss are equally applicable to regional and global interactions.

What are the implications of GVCs from a development perspective? Baldwin (2011) puts forward a new model of industrialization and development based on value chain trade. Whereas countries like Korea industrialized by developing full supply chains in particular sectors, those countries currently undergoing rapid industrialization, like Viet Nam, are specializing in more narrowly defined tasks according to their comparative advantage, while other productive activities take place elsewhere through GVC linkages. Over time, as labor markets tighten and human capital builds up, countries can move up to higher value added activities within value chains. In the services context, this might mean moving from business process outsourcing (BPO) to knowledge process outsourcing (KPO). This process is expressed as increasing labor productivity over time, combined with more intense trade in intermediate goods and services, mostly taking place within value chains.

This fragmentation of production across borders as implied by the GVC business model, and in particular the large-scale flow of intermediate goods and services, means that traditional trade data are inadequate to properly describe the phenomenon, in particular in the case of services. Standard trade data are measured on a gross shipments basis. In other words, a cellular phone with an import value of $500 is recorded as an import of that value, even though its component parts and embodied services have traveled across borders numerous times during the production process, and have also been counted independently in trade statistics. With fragmented production, gross shipments trade statistics

0

10

20

30

40

50

60

70

Ethiopia Gambia, The Kenya Mali Nigeria Togo

Per

cen

t

Country

Services Employment % Total Services % GDP Services Trade % GDP

4

tend to significantly overstate the value of trade, and are incompatible with the system of national accounts, which operates on a value added basis. This is the reason why some countries, like Malaysia, have a trade to GDP ratio in excess of 100%: trade values are measured inclusive of the value of intermediate inputs, but GDP is measured net of intermediate inputs.

A second limitation of standard gross shipments trade data is that they do not identify the sources of value added, whether goods or services, embodied in a final product. But from a GVC standpoint, this question is of great importance, as it enables analysts to map GVCs both geographically and in product (service) space. With this in mind, applied international trade researchers have developed a variety of techniques to examine the nature and extent of GVCs in goods and services sectors alike. The purpose of this report is to introduce two major methodological approaches that make it possible to look, in particular, at services value chains in Africa. Section 2 presents an interview and case study approach pioneered by researchers in the Asia-Pacific. In essence, it requires individual researchers to interview knowledgeable company representatives, typically senior management, and map their usage of services. The original research upon which Section 2 is based focused on embodied services in manufacturing value chains, but it can equally well be applied to standalone services value chains such as the services assessed in this project, namely, infrastructure, financial and tourism services. In Section 3 we move from a consideration of particular cases to a more general, quantitative approach using multi-region input output tables (MRIOs) that makes it possible to produce summary indicators of GVC participation at the sectoral level. Again, these techniques were originally developed for trade in goods, but have also now been used extensively to look at dynamics in services markets.

There is no one, single methodology that makes it possible to capture all important aspects of services value chains comprehensively and definitively. Rather, there are different approaches that have different strengths and weaknesses in terms of capturing important parts of the reality on the ground. Nonetheless, a combination of approaches can be effective in analyzing the role of services, including finance, tourism, and transport, in value chains, both in terms of value chains that are specialized in service delivery, and those that use services as intermediate inputs. In summary, the main strength of the interview and case study approach is that it allows data collection at a fine level of disaggregation, and captures services supplied within the firm or group, in addition to arm’s length commercial transactions. In addition, it makes it possible to use conceptual units like “tourism” that are not reflected in a single economic sector in quantitative work, but are instead spread across sectors like transport, travel, and restaurants and hotels. However, the approach does not easily scale up to produce reliable estimates of services GVC participation at the sectoral or country level, because it is based on isolated case studies, not systematic sampling. By contrast, the quantitative MRIO approach is based on rigorously collected and analyzed data, and is well adapted to producing aggregate statistics. However, it only captures arm’s length transactions, and does not take account of services provision that takes place within firms. Similarly, the need to merge trade data with national accounts data to produce the MRIOs means that the data are necessarily highly aggregated, so it is not possible to identify services use as finely as is possible with the interview and case study approach.

Against this background, the present paper takes an eclectic approach. We present both major methodologies that we believe can be of use to analysts in Africa in terms of better understanding the dynamics of services within the GVC paradigm. We focus on a concrete, application based presentation of the two methodologies, and make reference to the existing literature for further details and extensions of the basic approaches. This quantitative part of this report is designed to be used by researchers with a graduate level background in economics, as the concepts involved are sometimes sophisticated, and familiarity with matrix algebra and basic concepts in input-output analysis is necessary. The qualitative methodology, on the other hand, can be implemented by researchers with

5

some training in economics and business concepts, as well as the basics of survey administration. Although there are necessarily complexities involved in both methodologies, we conclude the paper by discussing the prospects for policy-relevant research and analysis using one or both of these approaches, and the ways in which such work could be informative for policymakers across the continent.

2 INTERVIEW AND CASE STUDY APPROACH 2.1 Motivation The first methodology we discuss is a case study approach based on firm-level interviews. The methodology is straightforward and easily understood, although the details of its application can be challenging in a limited data context. In each country being studied, a selection of firms is made taking into account factors like sector of activity, management capacity, and size. The interviewer then administers a survey on services use to a senior management representative. Results of the survey are then used to develop a largely qualitative case study of the firm in question, looking at its linkages within value chain structures, either regional or global, and its use of services within that context.

This approach is based on one originally developed by the Fung Institute, and subsequently implemented in the Asia-Pacific by Low and Pasadilla (2016). That project was limited to the role of services within manufacturing value chains, but there is no reason why the same instrument cannot be applied to firms involved in services value chains as well.

To give an idea of the scope of a project conducted in this way, it is useful to examine the book by Low and Pasadilla (2016). It consists of 20 substantive chapters, each one based on a firm interview. The area of geographical focus is the Asia-Pacific, specifically the 21 member economies of APEC. Firms were interviewed in 12 economies. APEC is a diverse grouping, including economies at different levels of per capita income, with markedly different economic structures and patterns of specialization. Clearly, with the number of firms interviewed, there is no claim that the results of the survey and case studies are representative in a statistical sense. It would not be appropriate to use data from one firm, or a small number of firms, to construct national level data, as results may be biased due to sampling error. In principle, the survey could be applied systematically based on a national sampling frame, like a commercial register, in the way that a project like the World Bank Enterprise Surveys is undertaken. However, that would involve interviewing tens or even hundreds of firms in each country, and so is extremely resource intensive. The option that is presented here is more rooted in qualitative research, and is designed to bring to bear some first, relatively systematic information on the role of services in value chains in Africa. It is a standalone exercise that is not comparable to any other data source currently available in the region. Although the approach is qualitative, the objective is to collect hard data, not perceptions, so it is important that the interviews be conducted one on one with a knowledgeable participant. Focus groups and other similar methods are well adapted to gauging firm perceptions, but not for gathering hard data.

The major advantage of this approach is that enables a much more disaggregated level of analysis than is possible with the quantitative approach outlined in Section 3. Services can be identified at a finer level, which helps pinpoint GVC interactions with greater specificity. In addition, it is possible to identify services use within the firm, as well as between firms; input-output tables only capture transactions with a party external to the firm, and so understate the true level of services inputs embodied in goods exports.

6

2.2 Identification of Participants Given that the objective of this part of the project is not to produce statistically accurate aggregate data, there is a certain liberty in terms of identifying participant firms. It would of course be desirable to have firms in different sectors of activity, based on the main services in each economy being studied, in particular finance, tourism, and transport. Similarly, it would be desirable to have firms of different sizes. In practice, however, many small firms in Africa would find it difficult to respond accurately or fully to the questionnaire, so the exercise should likely focus on larger, higher capacity firms.

Selection of firms for interviews takes place according to a number of criteria. Subject to the concern mentioned above, it is desirable to have firms of different size categories. We also need firms from each of the sectors under consideration. It is also important to have firms at different points in the relevant value chains, including some that are engaged in standalone service delivery, and others that provide services as intermediate inputs. A major variable is the willingness of senior management to devote time and resources to responding to the survey and helping develop the case study. Confidentiality is also an issue, as many of the questions touch on business processes that some firms will not want to publicize. Chambers of Commerce and other professional associations can likely assist in terms of identifying firms that are willing to be part of the project, and in the first instance, it would be appropriate to focus on those firms. Again, this part of the research needs a clear caveat to the effect that it is not statistically representative, but is designed to provide partial, but useful and interesting, information on an understudied phenomenon.

Given that the methodology is based on interviews of willing firms and is being implemented within a limited budget, results will be strictly illustrative rather than representative. Obtaining representative data would require interviews with potentially hundreds of firms in each country, based on a sound sampling framework, as with the World Bank Enterprise Surveys. As such, there is no scientific criterion for the right number of surveys to be conducted. The answer depends on the resources available and the number of willing and interested firms across the sectors considered.

A major constraint in undertaking this project in Africa is the extent of informality in the services sector, particularly in sectors like tourism. Many smaller firms tend to operate informally, which makes it difficult both to identify potential interview subjects, and also for selected firms to accurately identify services use and resource implications, as account keeping may be rudimentary or inaccurate due to difficulties in tax compliance. While it would be desirable to include examples of informal firms in sectors where they are particularly relevant, the focus will necessarily be on firms that can be identified with some precision from commercial registers or other similar documents. If the objective were to produce a statistically representative sample, that approach would be problematic. Given the more modest objective of producing meaningful examples, however, this approach represents a necessary compromise with the reality on the ground.

2.3 Survey Instrument The Annex contains a skeleton guide for the case study, along with the survey instrument used by the Fung Global Institute and Low and Pasadilla (2016). We have amended the materials to apply equally to firms that are involved in services GVCs and firms that are involved in manufacturing GVCs.

The case study exercise begins with a series of general questions to senior management to help identify the firm’s activities, and their place within the value chain. The information elicited is a mix of qualitative and quantitative in nature.

The core of the survey is in the following tables. Each table in the survey identifies a separate stage in the firm’s operations, and maps that stage to a set of narrowly defined services that are believed to be

7

relevant to that stage of operations. Services are identified using the CPC Version 2 classification. We do not include all entries from that classification, but only those thought to be most relevant to firm operations within the GVC context. However, a key point to emphasize is that particularly in the early stages of implementation, there will likely be a learning process in relation to the survey in Africa. Interviewers should therefore be encouraged to use it as a starting point, from which firms can identify services that have been overlooked in the instrument, which can then be amended over time.

For each service identified, the interviewer asks the senior management representative to indicate whether or not the service is used. If it is used, the interviewer then follows up to ask whether it is supplied in-house, supplied by a firm in the same group, or outsourced to third parties. In the last two cases, the interviewer should ask the manager to identify the firm in question and its location (domestic or foreign, and which country if the latter). These types of linkages can help map value chains in great detail, and can assist in determining the national or regional boundaries of value chain activity in a particular sector.

2.4 Case Study Once the interview is complete, the interviewer should prepare a textual case study summarizing the findings of the interview. The general format should be in terms of the skeleton in the Annex, but given the likelihood of major differences across firms, sectors, and countries, interviewers should enjoy considerable latitude to put together the case study in the most appropriate way without external supervisors being overly prescriptive.

Quality control takes place at two levels. First, the interviewer should provide the studied firm the opportunity to comment on the case study, and to correct any inaccuracies. Second, project staff and experts should review the case study for completeness and internal coherence, with any outstanding issues to be addressed by the interviewer in concert with firm management.

3 QUANTITATIVE APPROACH USING INPUT-OUTPUT TABLES The recent international trade literature has developed sophisticated methods for tracking trade within value chains. However, the data requirements are substantial, and particularly in the case of services, are not met by most economies in Africa. In short, the methodology requires an input-output table using standard international categories, along with bilateral trade data by sector in goods and services. Most African countries do not maintain bilateral trade in services data. It is therefore necessary to use model based estimates. The main global effort to combine these ingredients for all countries is the Eora database. It has been little used in research relative to narrower but higher quality undertakings like the World Input Output Database and the OECD-WTO Trade in Value Added Database. But it represents the only source of data available across the African continent. We therefore use it as an analytical example here, but results need to be interpreted with a major caveat as to the quality of the underlying data. A full description of the Eora dataset, including details of its construction using sources including national accounts, input output tables, and trade data, can be found in Lenzen et al. (2013).

3.1 Motivation Johnson and Noguera (2012) develop the concept of trade in value added. More precisely, they combine standard trade data in gross shipments terms with a MRIO (in this case from the Global Trade Analysis Project) to compute the domestic value added content of exports. This concept of trade is compatible with the national accounts, and takes full account of the use of domestic and imported intermediates in producing exports. Fundamentally, this approach decomposes the gross value of exports into two components: domestic origin value added (DVA), and foreign origin value

8

added (FVA). The latter is embodied in exported goods as intermediate goods or services originating in another country. As such, a lower ratio of DVA to gross exports—known as the VAX ratio—is consistent with a higher degree of international production sharing, which is commonly interpreted as indicating a greater degree of GVC integration. Koopman et al. (2014) show that it is possible to decompose DVA and FVA further, essentially by identifying instances of double counting in gross value trade statistics.

Another strand of the literature has focused on characterizing value chains, again using a combination of trade data and MRIOs. Hummels et al. (2001) track the extent of vertical specialization in trade, which they define as the use of imported intermediates in the production of exports. They identify two relevant measures. VS is defined as the import content of exports, namely imported intermediates used by a country in producing its exports. In the policy literature, it is typically referred to as backward linkages. By contrast VS1 is a country’s exports that are in turn used as intermediates in the production of another country’s exports. This measure has come to be known as forward linkages in the policy literature. Higher measures of backward and forward linkages are consistent with increased international production sharing, and thus with more production through GVC-type structures.

Many different indicators of GVC activity and linkages are now available in the literature. In what follows, we focus on the basic mathematics and data behind the computation of these indicators. The coverage is not exhaustive. Rather, the text aims to equip readers with a basic understanding that can lead to the derivation of key results, and to provide references that contain further details that build upon this basic understanding. Our treatment is closest to Aslam et al. (2017), which is an excellent reference with accompanying Matlab code (easily translatable to other languages) to reproduce key results using Eora data. A similar approach with Stata and SAS code to reproduce key results using WIOD data is in Jones et al. (2013).

To provide some motivation for the technical analysis that follows, it is useful to turn to the OECD-WTO Trade in Value Added (TiVA) database. Available through the OECD website, it has a user friendly interface that makes it possible to easily extract key information like domestic and foreign value added in exports, both total and specifically originating in services sectors. South Africa is the only African country covered by the database, however. We use it as an example here.

Figure 3 shows the composition of South Africa’s gross exports of business sector services. The bars show the breakdown between domestic and foreign origin value added, while the line shows the percentage of foreign value added in total exports. There is a general upwards trend in export value over time, with the exception of 2008-2009, due to the Global Financial Crisis. The proportion of foreign value added in gross services exports, which is a proxy for the degree of GVC integration, peaked just before the Crisis, but recovered somewhat between 2010 and 2011. The data suggest that there is some level of GVC involvement in South Africa’s services sectors, but the use of foreign value added is typically lower than would be seen in manufacturing sectors.

9

Figure 3: Breakdown of South Africa's gross exports of business sector services, 2000-2011.

Source: OECD-WTO TiVA. Note: Right-hand axis shows percent.

Another way that these tools can be used to decompose the data is shown in Figure 4. The bars indicate the percentage of South Africa’s gross exports of manufactured goods made up of embodied services value added. The data identify domestic and foreign sources of services separately. Together, these data show the level of servicification in the South African economy, with a constant level of around 35% of exports actually consisting of embodied services inputs. As such, these data show a substantial level of inclusion of services inputs in manufacturing value chains, including services inputs coming from abroad.

Figure 4: Services value added embodied in South Africa's exports of manufactures, by origin, percent, 2000-2011.

Source: OECD-WTO-TiVA.

0

2

4

6

8

10

12

0

5000

10000

15000

20000

25000

30000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mill

ion

USD

Year

Domestic Foreign FVA % EXGR

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Per

cen

t

Year

Domestic Foreign

10

The technical tools presented in the following pages provide the analytical approaches necessary to produce the kind of summary data that are easily available through the TiVA web interface. The situation is more complicated for African countries, other than South Africa, as they are not included in the database. As a result, some manipulation of data is required before similar results can be produced.

Input-output tables and trade data do not say anything directly about employment. But as Cali et al. (2016) demonstrate, it is possible to use closely related methods to the ones developed here combined with data on labor usage to produce measures of the labor content of exports (LACEX). We do not pursue the algebra here, but the basic ingredients are easily recognizable from the analysis presented in this section. The World Bank has made a database of the labor content of exports based on the GTAP MRIO freely available through its website. In terms of data, computing the direct and indirect labor content of exports by level of qualification requires employment data that are disaggregated by sector and level of qualification. Although the ILO maintains such a database, it contains numerous missing or incomplete entries. We therefore do not pursue incorporation of those data here, but interested readers can produce output similar to the breakdown reported by Gonzalez et al. (2016) for Costa Rica by combining the methods discussed here with the incorporation of employment data as set out in Cali et al. (2016) if the necessary data are available on a national basis. Alternatively, researchers can directly use the World Bank LACEX database to obtain the best available information from international sources.

Figure 5 shows the type of results that are enabled by this kind of analysis, based on the World Bank’s LACEX databse. Only three of the focal countries for this project are included in the database, due to lack of data. The figure shows the proportion of the value of gross exports of trade and transport services accounted for by labor payments to skilled and unskilled workers respectively. Results are relatively similar in Ethiopia and Kenya, with over one third of the value of gross exports represented by payments to labor, primarily unskilled. The results for Nigeria show the limitation of applying this approach in an environment of imperfect data: the value of payments to unskilled labor is actually greater than the value of gross exports, which is difficult to interpret from a sectoral performance or policy point of view. Nonetheless, it is still clear that unskilled labor predominates, which is an important point from a policy point of view in terms of the analysis of the development implications of GVCs.

11

Figure 5: Labor content of gross exports, trade and transport, percent (selected countries).

Source: World Bank LACEX database.

3.2 Derivation of Key Results The first element we need to consider is an input output (IO) table. An IO table has three basic components: a matrix of intermediate goods demand, a matrix of final demand, and a matrix of value added or primary inputs. Historically, IO tables were prepared for a single country at a time. The concepts can easily be extended to a multi-country case, however. Figure 2 presents a basic example, taken from Aslam et al. (2017), with two countries and just one sector. In the intermediate use matrix, diagonal elements represent domestic use of domestically-sourced intermediates, while off diagonal elements represent exports of intermediates. Similarly, in the final demand matrix, diagonal elements represent domestic final use of domestic output, while off diagonal elements represent exports of final goods and services. As a result, summing elements across a row or a column gives each country’s gross output. Gross exports is given by summing the relevant off diagonal elements from the intermediate use matrix and the final demand matrix.

0

20

40

60

80

100

120

140

160

Ethiopia Kenya Nigeria

Per

cen

t

Country

Skilled Unskilled

12

Table 1: Simple MRIO example.

Intermediate Use Final Demand Gross Output Country A Country B Country A Country B

Sector 1 Sector 1 Sector 1 Sector 1

Country A Sector 1 Intermediate use of domestic output

Intermediate use by B of exports from A

Final use of domestic output

Final use by B of exports from A

𝑋𝐴

Country B Sector 1 Intermediate use by A of exports from B

Intermediate use of domestic output

Final use by A of exports from B

Final use of domestic output

𝑋𝐵

Value Added 𝑉𝐴 𝑉𝐵

Gross Output 𝑋𝐴 𝑋𝐵

Source: Aslam et al. (2017).

Considering the row sum approach, we can use matrix algebra to represent the production system for G countries and N sectors as follows:

(1) 𝐴𝑋 + 𝑌 = 𝑋

Where X is the gross output matrix, A is the matrix of input-output coefficients, and Y is the matrix of goods used for final demand. It is immediately clear that AX is the intermediate use matrix as in the example above. In Eora notation, AX is called T, and Y is called FD. However, in what follows we use the more common notation from the IO literature.

Historically, an important use of IO matrices was to derive demand for inputs and factors of production based on scenarios for final production or consumption. As will become clear, equation (1) can be manipulated so that it becomes possible to calculate the additional inputs from each sector required for an additional unit of output from any given sector. However, this process assumes that technology is held constant, that is that inputs are used in the same proportions when production is increased. This is an abstraction from reality, where there is substitution among inputs and factors of production. A further limitation is that the analysis we are presenting relies heavily on technique, but that is not a substitute for high quality data. IO tables are produced based on systematic surveys of firms in different sectors of activity, with subsequent aggregation to the sectoral level. If those surveys are based on outdated sampling frameworks, or if they exclude many firms due to informality, they may produce inaccurate results, which in turn brings into question all analytical results produced using these data. To date, trade in value added analysis has been applied most often in countries where the underlying data are unquestionably of high quality. As mentioned above, Eora uses statistical techniques to fill in missing data, and makes assumptions about the use of imported intermediates, for example, since this is not directly measured in the underlying survey data. As a result, output needs to be interpreted with caution. The analysis here is presented primarily for its analytical value, and to provide readers with a strong rationale for the measures commonly used to measure value chain integration in the applied international trade literature.

13

Equation (1) can be rearranged by grouping terms and solving for X:

𝑌 = 𝑋 − 𝐴𝑋 = 𝑋(𝐼 − 𝐴)

(2) ∴ 𝑋 = (𝐼 − 𝐴)−1𝑌 ≡ 𝐵𝑌

The matrix B is the Leontief inverse. From basic matrix algebra, we know that:

(3) (𝐼 − 𝐴)−1 = 𝐼 + 𝐴 + 𝐴2 + 𝐴3 + ⋯

Considering the structure of the A matrix, this means that each element of the Leontief inverse captures the full direct and indirect output requirements in one sector of a unit of output from another sector.

In a standard MRIO context, we observe AX but not A. We therefore need to recover A in order to form the Leontief inverse. To do that, we use element-wise division. For any element (i,j) of A, we have:

(4) 𝑎𝑖𝑗 =(𝐴𝑋)𝑖𝑗

𝑋𝑖

Calculating the elements of a in this way makes it possible to recover the whole matrix, and then in turn to calculate the Leontief inverse B.

We turn next to an analysis of value added. We define �̂� as the matrix of value added shares, or the value added coefficients matrix. This matrix is obtained by summing across rows in A, putting those elements on the diagonal of a square matrix, and subtracting it from an appropriately dimensioned identity matrix. In other words:

(5) �̂� = 𝐼 − 𝑑𝑖𝑎𝑔 (∑ 𝑎𝑖,1 ⋯ ∑ 𝑎𝑖,12

𝐺𝑁

𝑖

𝐺𝑁

𝑖

)

The next step is to calculate a matrix 𝑇𝑣 as follows:

(6) 𝑇𝑣 = �̂�𝐵𝐸 = [𝑣1̂ 0 ⋯0 𝑣2̂ 0⋮ 0 ⋱

] [𝑏11 𝑏12 ⋯𝑏21 𝑏22 ⋯

⋮ ⋮ ⋱

] [𝑒1 0 ⋯0 𝑒2 0⋮ 0 ⋱

]

Where E is a matrix with gross exports on the diagonal and zeros elsewhere.

The 𝑇𝑣 matrix contains the value added content of production in each country shipped to each other country. In other words, it provides a combination of domestic and foreign value added depending on the country pair chosen. Table 2 makes the point clearly. Each diagonal element represents domestic value added in exports (DVA), while the sum of the remaining elements in each column represents foreign value added in exports (FVA). To keep the exposition clear, the table is presented at the country level, but it can equally well be repeated at the country-sector level. The computation makes it possible to compute summary measures, such as total DVA and FVA, by country or by country-sector. But applying appropriate sums makes it possible to calculate other measures of interest, such as FVA for particular regions (e.g., the immediate sub-region and the rest of the world), or DVA and FVA from services only.

14

Table 2: Value added content of trade matrix.

Country 1 Country 2 Country 3 … Country N

Country 1 𝑇𝑣11 𝑇𝑣

12 𝑇𝑣13 … 𝑇𝑣

1𝑁 Country 2 𝑇𝑣

21 𝑇𝑣22 𝑇𝑣

23 … 𝑇𝑣2𝑁

Country 3 𝑇𝑣31 𝑇𝑣

32 𝑇𝑣33 … 𝑇𝑣

3𝑁 …

Country N 𝑇𝑣𝑁1 𝑇𝑣

𝑁2 𝑇𝑣𝑁3 … 𝑇𝑣

𝑁𝑁 Source: Aslam et al. (2017).

In countries where the data on labor compensation shares are available, we can extend the analysis to look at the labor content of exports by using a similar approach. Cali et al. (2016) set out the approach in full. First, we define a matrix L where off-diagonal elements are zero, and the diagonal elements are the compensation of employees’ shares of output Y. As above, we compute:

𝑇𝑙 = 𝐿𝐵𝐸

Where Tl is the matrix of labor content of export shares. The operation can be repeated in exactly the same way using jobs inputs rather than compensation shares if output in those terms in desired. We stress, however, that data requirements for this stage are more problematic in most countries, and the standard Eora data do not cover labor, so researchers would need to obtain data on compensation or jobs by sector from other sources.

3.3 Numerical Example Aslam et al. (2017) provide Matlab code for a numerical example using three countries and four sectors.1 We adapt their code here, using R code supplied by UNCTAD, to step through the matrix operations described above, and reinforce the intuition behind them, as well as stress the interpretation of results. Table 3 shows the example MRIO. To simplify the presentation as much as possible, we enter the matrices directly into R rather than importing them from pre-prepared files; Aslam et al. (2017) take the latter approach, and their code can easily be applied to data files available through the Eora website (www.worldmrio.com).

First, we clear the workspace and set up the country and sector dimensions by issuing the following commands:

G <- 3

N <- 4

GN <- G * N

We then enter the T (AX) and FD (Y) matrices directly, using the data from Table 3:

1 Matlab is commercial software that is widely used in computational exercises in a range of disciplines, including economics. However, access requires payment of a license fee. An alternative matrix algebra engine is Octave, which is freely available for download online. Octave generally uses Matlab format and conventions. All code presented in this paper can be easily adapted for use in other computational packages like Matlab or Octave, or in statistics software commonly used in economics, such as Stata.

15

data1 <-

c(346,156,95,594,819,154,832,397,409,562,241,554,354,443,7,908,42,92,561,839,470,770,83,368,291,7

95,243,825,753,2,340,232,251,605,526,610,637,259,289,813,500,716,947,645,856,221,898,41,547,466,

910,276,518,149,779,553,197,285,305,828,752,936,822,638,611,496,98,924,608,689,872,972,295,444,7

,828,929,535,367,257,890,429,641,26,113,518,791,459,79,748,254,218,586,673,424,157,46,457,552,57

2,632,680,730,607,796,186,15,958,962,96,544,96,675,113,711,337,787,571,241,211,531,190,686,191,3

74,615,788,738,351,32,565,622,857,776,897,18,915,482,308,458,253,145,982,270)

t <- matrix(data1, nrow=12, ncol=12, byrow=TRUE)

data2 <-

c(394,902,446,514,694,512,384,753,909,91,653,301,630,565,857,847,209,37,165,419,886,800,355,501,

338,320,194,479,14,608,269,814,559,700,822,729)

fd <- matrix(data2, nrow=12, ncol=3, byrow=TRUE)

16

Table 3: 3x4 example MRIO.

Source: Aslam et al. (2017).

17

Output from this stage indeed gives the T and FD matrices we expect:

Table 4: T matrix.

346 156 95 594 819 154 832 397 409 562 241 554

354 443 7 908 42 92 561 839 470 770 83 368

291 795 243 825 753 2 340 232 251 605 526 610

637 259 289 813 500 716 947 645 856 221 898 41

547 466 910 276 518 149 779 553 197 285 305 828

752 936 822 638 611 496 98 924 608 689 872 972

295 444 7 828 929 535 367 257 890 429 641 26

113 518 791 459 79 748 254 218 586 673 424 157

46 457 552 572 632 680 730 607 796 186 15 958

962 96 544 96 675 113 711 337 787 571 241 211

531 190 686 191 374 615 788 738 351 32 565 622

857 776 897 18 915 482 308 458 253 145 982 270

Table 5: FD matrix.

394 902 446

514 694 512

384 753 909

91 653 301

630 565 857

847 209 37

165 419 886

800 355 501

338 320 194

479 14 608

269 814 559

700 822 729

With these matrices in place, we can calculate gross output (X) by summing intermediate and final demand:

X <- matrix(NA, ncol = G, nrow = GN)

for (i in 1:G) {

X[, i] <- rowSums(t[, ((i - 1) * N + 1):(N * i)]) + fd[, i]

}

Table 6 shows the output from this step, namely the X matrix. Each cell in the X matrix is gross domestic output by country-sector. For instance, taking cell (1,1), we can easily verify that 1585 = 346 + 156 + 95 + 594 +394, where the last term comes from the FD matrix and the others come from the T matrix.

18

Table 6: X matrix.

1585 3104 2212

2226 2228 2203

2538 2080 2901

2089 3461 2317

2829 2564 2472

3995 2338 3178

1739 2507 2872

2681 1654 2341

1965 2969 2149

2177 1850 2418

1867 3329 2129

3248 2985 2379

Now that we have X, we need to rearrange it to facilitate extraction of matrix of technical coefficients A. To do that, we calculate gross output by country-sector, i.e. summing across all end destinations of output, and fill each column with the relevant row sum by taking a transpose:

XT <- matrix(NA, ncol = GN, nrow = GN)

for (i in 1:GN) {

XT[i, ] <- rowSums(X)

}

Table 7 shows this matrix, referred to as Xt. It is easy to verify that each cell in column 1 of Xt is 6901 = 1585 + 3104 + 2212, i.e. the sum of the first row in X.

Table 7: Xt matrix.

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

6901 6657 7519 7867 7865 9511 7118 6676 7083 6445 7325 8612

R has a dedicated operator for elementwise division using matrices. We make use of that to recover A:

A <- t / XT

19

Table 8 shows results. Again taking cell (1,1), we can see that 0.050 = 346/6901.

Table 8: A matrix.

0.050 0.023 0.013 0.076 0.104 0.016 0.117 0.059 0.058 0.087 0.033 0.064

0.051 0.067 0.001 0.115 0.005 0.010 0.079 0.126 0.066 0.119 0.011 0.043

0.042 0.119 0.032 0.105 0.096 0.000 0.048 0.035 0.035 0.094 0.072 0.071

0.092 0.039 0.038 0.103 0.064 0.075 0.133 0.097 0.121 0.034 0.123 0.005

0.079 0.070 0.121 0.035 0.066 0.016 0.109 0.083 0.028 0.044 0.042 0.096

0.109 0.141 0.109 0.081 0.078 0.052 0.014 0.138 0.086 0.107 0.119 0.113

0.043 0.067 0.001 0.105 0.118 0.056 0.052 0.038 0.126 0.067 0.088 0.003

0.016 0.078 0.105 0.058 0.010 0.079 0.036 0.033 0.083 0.104 0.058 0.018

0.007 0.069 0.073 0.073 0.080 0.071 0.103 0.091 0.112 0.029 0.002 0.111

0.139 0.014 0.072 0.012 0.086 0.012 0.100 0.050 0.111 0.089 0.033 0.025

0.077 0.029 0.091 0.024 0.048 0.065 0.111 0.111 0.050 0.005 0.077 0.072

0.124 0.117 0.119 0.002 0.116 0.051 0.043 0.069 0.036 0.022 0.134 0.031

Having recovered A, we can now calculate the Leontief inverse B:

B <- solve(diag(GN) - A)

Table 9 shows results. The interpretation of this matrix is crucial. Cell (1,1) indicates for an extra unit of final demand in country 1 sector 1, production in country 1 sector 1 needs to rise by 1.272 units, while production in country 1 sector 2 needs to rise by 0.241 units, etc., after accounting for all direct and indirect (knock-on) effects.

Table 9: Leontief inverse matrix B.

1.272 0.241 0.223 0.295 0.349 0.159 0.389 0.306 0.321 0.304 0.243 0.236

0.266 1.276 0.201 0.336 0.237 0.154 0.346 0.367 0.334 0.340 0.214 0.203

0.279 0.346 1.250 0.338 0.345 0.147 0.340 0.302 0.308 0.324 0.291 0.250

0.378 0.333 0.317 1.408 0.384 0.274 0.497 0.436 0.477 0.326 0.404 0.243

0.319 0.318 0.346 0.282 1.333 0.167 0.401 0.351 0.307 0.290 0.274 0.285

0.464 0.499 0.449 0.437 0.457 1.278 0.448 0.544 0.497 0.468 0.453 0.396

0.286 0.309 0.237 0.354 0.381 0.218 1.360 0.326 0.420 0.306 0.316 0.205

0.235 0.299 0.309 0.282 0.246 0.216 0.300 1.283 0.342 0.327 0.262 0.195

0.268 0.348 0.329 0.345 0.370 0.245 0.418 0.393 1.426 0.295 0.258 0.323

0.360 0.239 0.284 0.242 0.344 0.154 0.383 0.301 0.380 1.317 0.239 0.210

0.310 0.277 0.319 0.268 0.310 0.221 0.394 0.379 0.327 0.246 1.310 0.264

0.383 0.384 0.368 0.271 0.400 0.213 0.367 0.372 0.333 0.292 0.379 1.249

The next ingredient we need is the matrix of value added shares, �̂�. To compute it, we take column sums of A, place them on the diagonal of a square matrix, and then subtract the result from an appropriately dimensioned identity matrix. Results are in Table 10, and can easily be verified by hand.

20

V_hat <- diag(GN) - diag(colSums(A))

Table 10: Matrix of value added shares �̂�

0.170 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

0.000 0.168 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

0.000 0.000 0.223 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

0.000 0.000 0.000 0.210 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

0.000 0.000 0.000 0.000 0.129 0.000 0.000 0.000 0.000 0.000 0.000 0.000

0.000 0.000 0.000 0.000 0.000 0.497 0.000 0.000 0.000 0.000 0.000 0.000

0.000 0.000 0.000 0.000 0.000 0.000 0.057 0.000 0.000 0.000 0.000 0.000

0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.071 0.000 0.000 0.000 0.000

0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.089 0.000 0.000 0.000

0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.198 0.000 0.000

0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.209 0.000

0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.348

To prepare the matrix of exports, we first create an indicator matrix for each country (id) such that the first four rows of column 1 are equal to one, the second four rows of column 2 are equal to one, etc., so that it identifies all sectors within a country. We can then multiply that matrix elementwise by X to give country-sector level domestic shipments (i.e., production that is produced and consumed in the same country). We can then subtract that from X to get exports. Finally, we rearrange by taking row sums and producing a vector of exports. The code compresses these operations, with results shown in Table 11, which can easily be verified by hand:

id_temp <- diag(GN)

id <- matrix(NA, ncol = G, nrow = GN)

for (i in 1:G) {

id[, i] <- rowSums(id_temp[, ((i - 1) * N + 1):(N * i)])

}

e_bysector <- rowSums(X - id * X)

Table 11: Export vector by country-sector.

5316

4431

4981

5778

5301

7173

4611

5022

4934

4027

21

5196

6233

The final step is then to calculate the value added trade matrix, 𝑇𝑣, by diagonalizing the export vector and computing the relevant matrix multiple:

tv <- V_hat %*% B %*% diag(e_bysector)

Results in Table 12 contain the full set of value added contributions by country-sector. Aggregate measures can easily be calculated by summing. For instance, total domestic value added in exports (DVA) in Sector 1 from Country 1 is obtained by summing the first four cells of the first column, 1146.33 + 237.96 +330.81 +421.18 = 2136.28. FVA can be calculated by subtracting DVA from total exports, i.e. the sum of column 1 5136.00 – 2136.28 = 3179.72. Both numbers can be converted to percentage shares by dividing through by gross exports.

In terms of the particular objective of this report, namely identifying services flows within value chains, let Sectors 1 and 2 be goods sectors and Sectors 3 and 4 be services sectors. Then for Country 1, column 1 rows 3 plus 4 is total services DVA in exports of Sector 1 (goods), while column 3 rows 3 plus 4 is total services DVA in exports of Sector 3 (services). The first calculation highlights the role of services in goods GVCs, while the second identifies services GVCs. The same calculations can be repeated for FVA, to give total services value added in goods or services exports.

Table 12: Value added trade matrix 𝑻𝒗.

1146.33 181.30 188.16 289.18 313.71 193.49 304.35 260.26 268.41 207.37 214.06 249.03

237.96 951.85 168.80 326.76 211.54 186.11 268.33 310.31 277.91 230.31 187.30 212.77

330.81 341.91 1387.33 435.82 407.48 234.80 349.10 337.75 338.86 291.16 336.58 347.59

421.18 309.68 330.64 1705.48 427.10 412.49 479.99 458.68 492.81 274.99 440.42 317.31

219.23 182.39 222.91 211.17 914.83 154.91 239.29 228.17 196.20 151.37 184.11 229.55

1227.14 1098.41 1112.56 1256.01 1205.32 4556.53 1027.81 1358.10 1218.66 936.21 1170.62 1228.40

85.95 77.49 66.82 115.90 114.48 88.63 355.08 92.59 117.20 69.85 92.91 72.27

88.23 93.48 108.45 114.97 91.82 109.34 97.48 454.65 119.20 93.00 96.07 85.55

126.51 137.01 145.55 176.82 174.03 156.23 171.17 175.35 624.65 105.48 119.27 178.97

379.71 209.53 279.99 276.93 360.86 218.79 349.86 299.36 371.60 1050.83 245.89 259.43

344.14 256.50 332.66 323.86 343.16 330.93 380.10 397.97 337.16 207.14 1423.40 343.66

708.80 591.46 637.14 545.09 736.66 530.73 588.44 648.83 571.33 409.28 685.35 2708.45

3.4 Extensions Wang et al. (2013) provide an alternative means of decomposing gross exports into their value added components. Their method is more detailed and technical than the Leontief-based decomposition used in this paper. It is an accounting framework, in which gross exports are decomposed into the following elements:

Domestic value added in final exports (DVA_FIN).

Domestic value added in intermediate exports (DVA_Int, DVA_INTrexI1, DVA_INTrexF, DVA_INTrexI2).

Domestic value added returning home (RDV_INT, RDV_FIN, RDV_FIN2).

22

Foreign value added in exports (FVA = MVA_FIN + OVA_FIN + MVA_INT + OVA_INT).

Pure double counting (PDC = DDC + ODC + MDC).

For a detailed description of each of these elements, readers should consult Wang et al. (2013), with the caveat that the material is highly technical. Nonetheless, the Wang et al. (2013) decomposition is helpful, because it makes it straightforward to compute certain quantities of interest, such as DVA, FVA, and DVX.

Concretely:

Gross Exports = Sum(All elements)

FVA = MVA_FIN + OVA_FIN + MVA_INT.

DVA = Gross Exports – FVA.

Backward linkages = FVA / Gross Exports.

DVX = RDV_INT + RDV_FIN + RDV_FIN2 + DDC_FIN + DDC_INT + DVA_INTrexI1 + DVA_INTrexf + DVA_INTrexI2.

Forward linkages = DVX / Gross Exports.

GVC participation = Backward Linkages + Forward Linkages.

The R package Decompr, in addition to providing a Leontief decomposition, also provides a Wang et al. (2013) decomposition. Results from that exercise can be directly used to compute the above items of interest.

4 CONCLUSION This report has set out in detail the two main approaches that are available for studying services in African value chains: firm-level interviews and case studies, and quantitative work using MRIOs like Eora. We emphasize that the two approaches capture different parts of the puzzle and so are complementary rather than competing. Both are challenging to implement on the ground, and require considerable background and capacity on the part of local researchers, as well as support from outside experts and UNCTAD staff.

23

REFERENCES Ando, M., and F. Kimura. 2005. “The Formation of International Production and Distribution Networks in East Asia.” In T. Ito and A. Rose (eds.) International Trade in East Asia, Chicago: University of Chicago Press.

Aslam, A., N. Novta, and F. Rodrigues-Bastos. 2017. “Calculating Trade in Value Added.” Working Paper WP/17/178, IMF.

De Backer, K., and S. Miroudot. 2013. “Mapping Global Value Chains.” Trade Policy Paper No. 159, OECD.

Baldwin, R. 2011. “Trade and Industrialization after Globalization’s Second Unbundling: How Building and Joining a Supply Chain are Different and Why it Matters.” Working Paper 17716, NBER.

Bamber, P., O. Cattaneo, K. Fernandez-Stark, G. Gereffi, E. van der Marel, and B. Shepherd. 2017. “Diversification Through Servicification.” Report prepared for the World Bank.

Cali, M., J. Francois, C. Hollweg, M. Manchin, D. Oberdabernig, H. Rojas-Romagosa, S. Rubinova, and P. Tomberger. 2016. “The Labor Content of Exports Database.” Policy Research Working Paper 7615, World Bank.

Gonzalez, R., R. Minzer, N. Mulder, R. Orozco, and D. Zaclicever. 2016. “El potencial dinamizador del sector exportador costarricense: Encadenamientos productivos, valor agregado y empleo.” Project Document, UN ECLAC.

Hallward-Driemeier, M., and G. Nayyar. 2017. Trouble in the Making? The Future of Manufacturing-Led Development. Washington, D.C.: World Bank.

Hummels, D., J. Ishii, and K.-M. Yi. 2001. “The Nature of Growth of Vertical Specialization in World Trade.” Journal of International Economics, 54(1): 75-96.

ITC. 2017. Small and Medium Enterprise Competitiveness Outlook 2017: The Region—A Door To Global Trade. Geneva: ITC.

Johnson, R., and G. Noguera. 2012. “Accounting for Intermediates: Production Sharing and Trade in Value Added.” Journal of International Economics, 86(2): 224-236.

Jones, L., W. Powers, and R. Ubee. 2013. “Making Global Value Chain Research More Accessible.” Working Paper No. 2013-10A, US International Trade Commission.

Koopman, R., Z. Wang, and S.-J. Wei. 2014. “Tracing Value Added and Double Counting in Gross Exports.” American Economic Review, 104(2): 459-494.

Lenzen, M., D. Moran, K. Kanemoto, and A. Geschke. 2013. “Building Eora: A Global Multi-Region Input-Output Database at High Country and Sector Resolution.” Economic Systems Research, 25(1): 20-49.

Low, P., and G. Pasadilla (eds). 2016. Services in Global Value Chains: Manufacturing-Related Services. Singapore: World Scientific.

Shepherd, B. Forthcoming. “Ricardian Comparative Advantage in Services Sectors.” In M. Helble and B. Shepherd (eds.) Services-Led Development: Prospects and Policies, Tokyo: Asian Development Bank Institute.

24

Wang, Z., S.-J. Wei, and K. Zhu. 2013. “Quantifying International Production Sharing at the Bilateral and Sector Levels.” Working Paper No. 19677, NBER.

25

ANNEX: GUIDANCE FOR INTERVIEWERS AND SURVEY INSTRUMENT2

Case Study Notes 1. Name of firm:

2. Data on firm:

Line of business:

Global turnover:

Markets in which firm operates: domestic and export (foreign) sales:

Number of employees:

Globally:

In plant/factory/office under study:

3. Specification of the product/service to be studied:

4. Introductory description of the entire value chain, including the location of production stages, and main inputs and output for each stage of production:

5. Identification of the production stage and location at which the value chain begins and ends in the analysis:

6. Total number of jobs in the identified value chain:

7. Identifying the services inputs and how they are supplied (starting from the beginning of the chain):

(Complete attached table in format indicated below)

Table 1: In-house and 1st tier outsourced service inputs + how/from where they are supplied

Firm: Product/Service:

2 This instrument is based on a model developed by the Fung Global Institute, and implemented across APEC economies in Low and Pasadilla (2016). We are grateful to Patrick Low for generously supplying the documentation.

26

Service

In-house supply

Outsourced

Characteristics of

outsourced suppliers:

Arm’s length or corporate relationship

Type, name, location, size and ownership

Bundled/

Unbundled

Notes

8. Identifying the main items of value in terms of services inputs; innovation potential; and employment shares

(Complete attached table in format indicated below)

Table 2: Rankings by value contribution and other attributes

Firm: Product/Service:

Listing of service inputs

Top service inputs in terms of contribution to total costs

Observations on technology and scope for innovation

Number of jobs involved in supplying the identified service

Notes

27

9. Interface with policy

(Complete attached table in format indicated below)

Table 3: Interface with policy

Firm: Product/Service:

Service

Description and analysis of policies that impact the service input

Notes and Observations on Questions Question 3: Product description

1. The analysis should be done on a single product (good or service), or a class of highly homogeneous products if that proves easier.

A service, such as energy, is a homogeneous product so there can be no question of trying to break out a fraction of the output except in terms of defining the configuration of the value chain – that is, if the product is produced in different locations or goes to multiple destinations in which case we would initially want to focus on a single location or separately defined market. This is relevant to the description of the supply chain as dealt with in points 2 and 3 below.

Question 4: Description of the value chain

2. This is intended as a general scoping of production along the value chain prior to pinning down its precise dimensions and configuration for the ensuing analysis. The location of production stages and the main inputs and output for each stage of production should be specified.

Questions 5: The beginning and the end of the value chain to be analysed

3. The value chain to be analyzed must be fully configured and defined in terms of its start, its end, and its geography. Here we are scoping the value chain of the lead firm, and for practical reasons to do with acquiring data, the lead firm’s ownership relationships are likely to be important in defining the beginning and the end of the value chain we identify. It may in fact be decisive in many cases, at least in the first instance.

28

If the lead firm owns the operation from upstream of say, the manufacturing operation, this will allow the analysis to start at the pre-manufacturing stage in the value chain – perhaps even at the conception/design stage. Similarly for any downstream activities, we could go all the way to retail and maybe even take a look at post-sales services if the ownership structure remains intact.

In the case of a services supplier, much the same argument applies. For a law firm, for example, we would probably start in the lawyers’ premises and finish with the delivery of the service to the client.

Question 6: Total number of jobs in the identified value chain

4. We need to know the total number of employees in the identified value chain in order to derive the services share of employment in Table 2. These numbers serve as a rough indicator of the contribution of value derived from services to jobs.

Question 7: Identifying the services inputs and how they are supplied

5. Avoiding double counting. Just as GDP can be calculated as returns to factors or as expenditures, so it is with the analysis of value along the chain. Our analysis focuses on services expenditures. We should not, therefore ever count wages or profits as part of the services input. Rents may be a different matter, provided no double-counting arises. The possible inclusion of rent makes sense because it is a matter of circumstance whether a firm owns or rents premises, machines or other fixed assets, and in the latter case we can think of the use of the assets in questions as an outsourced service. Neither wages nor profits can be thought of in this way. Our position so far has been not to include depreciation as a service, but rather as equivalent to a wage paid to fixed assets. This may be contentious.

Outsourcing. This is the part of the analysis that involves the detailed mapping of services inputs. The distinction between in-house and out-sourced supplies is on the face of it relatively straightforward. We need to ask what the reason is for the choice between in-house and outsourced supply (e.g. a lack of resources or competency, a focus on high margin/core competency areas, networked services, economy of scale). We should also ask whether, and if so why, there have been any changes in the recent past in sourcing strategies and whether such changes are contemplated in the future.

Unbundling the bundles. Certain complications may emerge when services are bundled. It does not make much analytical sense to think of services supplied in-house in terms of bundling. Services may be supplied jointly with other services or goods, or separately. The way in-house services enter the value chain will be a function of efficiency/practicality considerations, and not of any other strategic consideration.

A different set of questions arises if first-tier outsourced inputs are bundled, whether with goods or other services. In trying to unbundle an offering, one is inevitably venturing into an analysis of the value chains of other firms, which is something we have said we would not do initially on grounds of complexity. Nevertheless, even if we do not intend to do this in any systematic manner at present, we should not completely ignore the production process behind the arms-length purchase of inputs by the lead firm. Regardless of whether the outsourced input is characterised as a good or a service, we would still like to know something about the services that are incorporated.

29

If we are dealing with a bundled input consisting of goods and services, the services may be wrongly specified as goods. There may also be goods production hidden in a services value chain, although the incidence of this will be considerably less. If the bundled input is a service, the problem could be that we are not identifying correctly the actual services involved. Dealing with these issues is not always easy, especially as we do not intend to follow the chains behind the outsourced inputs at the outset. But we should take a shot at least at identifying the service components in a bundled product, otherwise we are going to miss too much of the story. This is the weakest link in the analysis, especially when it comes to trying to estimate the value rankings of different services inputs. We should probably identify these service components separately when presenting the results.

Once-off or periodic versus regularly recurring service inputs. Some services will be provided once in a while, such as cleaning drains or emptying septic tanks at the factory. Others will be contingent and therefore variable and unforeseeable, such as machinery repairs. Yet others will be a continuing part of the variable costs of production, such as energy, and general cleaning services. These distinctions are worth bearing in mind, both in terms of identifying all the services along the chains. We had initially hoped to assign ordinal rankings to each of the services inputs (in lieu of asking for cost and price data), but this turns out to be impractical because businesses either do not have these data or are reluctant to invest the time to obtain them. For us, it is relatively unimportant that we have this information but it is helpful to know which of the services are most important in terms of vlue or crucial to the operation of value chain, in case these are factors that determine which policies matter the most.

Apportionment. Some services provided in-house or outsourced will be supplied for a range of distinct value chains within a single lead firm. These will typically be multi-product firms or multi-nationals producing the same product for multiple markets (recall that we are defining our supply chain in terms of single destinations). It would be useful to understand whether and how far these services are customized for different product lines, but assigning appropriate value through an apportionment exercise can be difficult, especially if the service is indivisible. On the other hand, the only reason we want to do this is to obtain the ordinal ranking of service values and this is an approximate exercise in any case.

Tradability. The issue here is whether a service that has been purchased locally could have been traded across borders. If it could have been, an interesting question is why it has not been. This could be because of cost, or technical, regulatory or other considerations. Alternatively, tradability might be conferred through bundling, where it would have been impossible if the product was supplied separately. An important question that arises here is whether policy – protectionism or ill-considered regulation – might be responsible for the geography of any sourcing decisions. One result of this analysis will be to identify what services can never be traded, at least given technological conditions. The answer may well be that, in principle, any intermediate service that is an input into production and can be bundled can also be traded.

Characteristics of arm’s length suppliers. It would be useful where possible to acquire basic information about the characteristics of arm’s-length suppliers, such as the type of firms, their location, ownership and size. This will help to provide an indication of how far SMEs are benefiting from outsourcing opportunities. As with stretching the extent/length of the value chain to be analyzed upstream or downstream, or delving into the bundling of outsourced inputs, this exercise is limited because of distinct ownership.

Question 8:; innovation potential; and employment shares

30

6. Identifying the main items of value in terms of services inputs. As noted above, we seem only to be able to obtain rudimentary information on the

relative importance of different services in our value chains. We hope to get some idea of where value resides in relation to the services

contribution to production cost in a value chain. Some firms may only be able to identify the half-dozen or so leading services inputs.

The scope for innovation. This aspect of the study cannot hope to be comprehensive. We know that services can be a source of innovation. Among the aspects of innovation to be examined is the way the service itself is supplied or combined with other services to secure additional value. Think of this as service design, or an aspect of process innovation. Another aspect is the relationship or form of cooperation between producers and consumers. The ways in which knowledge is used and transferred and how activities are organized can also embody innovations that add value. The role of IT may be crucial in some of these contexts. A distinction may be useful between pure process innovation – just the way things are done, and service innovations that are linked to adaptation or new technological discoveries in physical dimensions.

Many will find these notions nebulous and measurement next to impossible, but the difficulties cannot obscure the reality that additional value is created by innovative approaches involving services. Insights here are likely to be largely anecdotal, or case-specific. They will require that the firm is aware of specific recent changes or contemplated changes in production that contribute to productivity.

Number of jobs. We are interested in occupational data as an indicator of the employment contribution of services in value chains – and by (rather heroic) extension – in the economy at large. There is potentially a huge attribution problem here, where services are supplied across many product lines or when they are provided by outsourced suppliers. Nevertheless, we consider it worthwhile trying to form an impression of the extent of income and job creation associated with services. These results are likely to be tentative and possibly not worth reporting. It might even be argued that the underlying questions here are better addressed using macro data. We should, at the very least, try to obtain employment shares as between services and goods inputs, even if we ignore outsourced inputs and manage the attribution problem by assumption.

Question 9: Interface with policy

7. The exercise here requires some knowledge of the kinds of policies likely to be in place that affect services in different ways (see the project

document that addresses this question). The idea is to look at identified services input and examine what policies impact that service and how.

The kinds of policy that may be significant are those that affect the choice of supply mode (i.e. whether the choice of mode is policy-neutral)

and a wide range of standards, regulations and qualification requirements that shape supply options and costs. Possible obstacles or additional

costs may involve a lack of trade openness (leading, for example, to a lack of modal neutrality), and a lack of streamlined regulation. WE should

focus on a subset of policies perceived by interviewees to be particularly challenging and unnecessarily cost-augmenting.

It is important to distinguish between the content of policies in the terms discussed in the previous paragraph, and the delivery of services by governments. The latter are included in our analysis as service inputs. These could be, for example, the administration of standards and other regulatory procedures.

31

The treatment of public policy (or fiscal) interventions by governments as a source of value is a useful way of combining consideration of both private and social sources of value. This is more of a conceptual than an estimation issue. Treating public policy as a source of value is a direct challenge to the view sometimes held by business that public policy intervention is at best a tax on business (which it may literally be rather than a regulation) and in any case a cost-laden interference.

Once a government regulation of some kind pursues a public policy (health, safety, environment, etc.) in an inefficient manner, the costs of the inefficiency should be thought of as negative value addition (a dead-weight loss) and be debited from the positive benefits of the intervention. Reducing negative value addition (inefficiency, poor infrastructure, corruption) can be thought of as productivity-enhancing policy innovation. Productivity growth can therefore emanate both from private and public sources.

32

Survey Instrument Table 1: Establishment phase3

Stage/ Category

Service Central Product

Classification

(CPC) Ver.2 Code

Please mark (X)

if the service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another company

in the group

(name, type, size,

location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

1. Government

services

(licensing etc.)

Business liaison

services (for

example, services

from trade

development

centres or SME

centres)

Class of 9113 -

Public

administrative

services related to

the more efficient

operation of

business

Company

registration and

licensing services

91138 - Public

administrative

services related to

general economic,

commercial and

labour affairs

Information and

statistical services

Class of 9113 -

Public

administrative

services related to

the more efficient

3 Services listed in Table 1 are non-exhaustive as differences exist between specific manufacturing sectors and value chains. Firms are encouraged to add services that have been left out in this category.

33

Stage/ Category

Service Central Product

Classification

(CPC) Ver.2 Code

Please mark (X)

if the service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another company

in the group

(name, type, size,

location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

operation of

business

Visa and

immigration

services for

foreign investors/

employees (if any)

91290 - Public

administrative

services related to

other public order

and safety affairs

2. Other services

(professional

etc.)

Business

consultant

services

Class of 8311 -

Management

consulting and

management

services

34

Stage/ Category

Service Central Product

Classification

(CPC) Ver.2 Code

Please mark (X)

if the service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another company

in the group

(name, type, size,

location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

83129 - Other

business consulting

services

Banking and

finance services

71121 - Deposit

services to

corporate and

institutional

depositors

71135 - Non-

mortgage loan

services for

business purposes

Legal services 82130 - Legal

documentation and

certification

services

3. Others (please

specify):

35

Stage/ Category

Service Central Product

Classification

(CPC) Ver.2 Code

Please mark (X)

if the service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another company

in the group

(name, type, size,

location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

36

Table 2: Raw-materials, input/pre-production (goods) or pre-supply (services) stage4

Stage/ Category Service Central

Product

Classification

(CPC) Ver.2

Code

Please mark

(X) if the

service is used

in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size,

location,

ownership)

Outsourced

to third-

parties

(name, type,

size,

location,

ownership)

1. Procurement

of raw

materials

Procurement

agent for raw

material

sourcing

85999 - Other

support services

n.e.c.

Customs-

related services

for raw

materials

imported

85999 - Other

support services

n.e.c.

Quality

assurance

services (of raw

materials)

83441 -

Composition

and purity

testing and

analysis services

4 Services listed in Table 2 are non-exhaustive as differences exist between specific manufacturing sectors and value chains. Firms are encouraged to add services that have been left out in this category.

37

Stage/ Category Service Central

Product

Classification

(CPC) Ver.2

Code

Please mark

(X) if the

service is used

in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size,

location,

ownership)

Outsourced

to third-

parties

(name, type,

size,

location,

ownership)

2. Logistics Freight

transportation

services (of raw

materials) by

road, rail, sea or

air

Division: 65 -

Freight transport

services

Repair and

maintenance

for fleets (if

self-owned)

87143 -

Maintenance and

repair services of

trailers,

semitrailers and

other motor

vehicles n.e.c.

3. Storage Storage of raw

materials –

general storage

67290 - Other

storage and

warehousing

services

38

Stage/ Category Service Central

Product

Classification

(CPC) Ver.2

Code

Please mark

(X) if the

service is used

in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size,

location,

ownership)

Outsourced

to third-

parties

(name, type,

size,

location,

ownership)

Storage of raw

materials –

refrigerated

storage

67210 -

Refrigerated

storage services

Storage of raw

materials – tank

farm

67220 - Bulk

liquid or gas

storage services

4. Product

Design

Conception

and design of

product

83920 Design

originals

Industrial

design

83912 Industrial

design services

Patent

acquisition

83960

Trademarks and

franchises n/a

39

Stage/ Category Service Central

Product

Classification

(CPC) Ver.2

Code

Please mark

(X) if the

service is used

in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size,

location,

ownership)

Outsourced

to third-

parties

(name, type,

size,

location,

ownership)

5. Others

(please

specify):

40

Table 3: Production (goods) / service provision (services) stage5

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

1. Production

administration

Production

Administration

- Production

management

83115 - Operations

management consulting

services

Production

Administration

- Repair and

maintenance

of factory

equipment

87156 - Maintenance

and repair services of

commercial and

industrial machinery

Production

Administration

- Quality

assurance

and

83441 - Composition

and purity testing and

analysis services

5 Services listed in Table 3 are non-exhaustive as differences exist between specific manufacturing sectors and value chains. Firms are encouraged to add services that have been left out in this category.

41

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

compliance

with ISO

Warehousing

services for

intermediate goods

67220 - Bulk liquid or

gas storage services

67290 - Other storage

and warehousing

services

2. Services supporting

factory daily

operations

Cleaning services of

factory

85330 - General

cleaning services

Engineering Services

83310 - Engineering

advisory services

Class: 8332 -

Engineering services for

specific projects

42

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Gardening services

for factory lawn

85970 - Landscape care

and maintenance

services

Security guards for

factory and

warehouses

85250 - Guard services

Sewage water

treatment services

94110 - Sewerage and

sewage treatment

services

Specialized cleaning

services for

machines and

equipments

85340 - Specialized

cleaning services

Repair and

maintenance services

of machines and

equipment

87156 - Maintenance

and repair services of

commercial and

industrial machinery

43

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Waste collection and

recycling services

Class: 9421 - Collection

services of hazardous

waste

94229 - Collection

services of non-

hazardous recyclable

materials, other

44

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

94239 - General waste

collection services, other

3. Services from

government

regulation

requirements

Government

inspections on fire

prevention, health

hazards,

environmental

protection and other

aspects.

91133 - Public

administrative services

related to mining and

mineral resources,

manufacturing and

construction

91290 - Public

administrative services

related to other public

order and safety affairs

4. Worker- related

services

Catering services for

workers

63393 - Other contract

food services

Dormitory for

factory workers

63220 - Room or unit

accommodation services

for workers in workers

hostels or camps

45

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Medical services 93121 - General medical

services

Personnel search

and referral services

- Recruitment of

factory workers

85112 - Permanent

placement services,

other than executive

search services

Retail services for

workers

Group of 6212 - Non-

specialized store retail

trade services, of food,

beverages and tobacco

Recreational

facilities and services

for workers

96520 - Sports and

recreational sports

facility operation

services

Transportation

services for crews to

and from airport

64114 - Local special-

purpose scheduled road

transport services of

passengers

46

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Social insurance for

factory workers

91320 -Administrative

services related to

government employee

pension schemes; old-

age disability or

survivors' benefit

schemes, other than for

government employees

91330 - Administrative

services related to

unemployment

compensation benefit

schemes

5. Others (please

specify):

47

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

48

Table 4: Delivery and sales/post-production (goods) post-supply (services) stage6

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

1. Packaging and

labelling

Design of Packages 83919 - Other specialty

design services

Packaging Services 85400 - Packaging

services

2. Delivery to

wholesaler/retailer

Cargo handling

services

67110 – Container

handling services

Customs-related

services

85999 - Other support

services n.e.c.

Land transport of

goods (from

warehouse to

domestic port )

65112 - Road transport

services of freight by

tank trucks or semi-

trailers

Water transport

(from domestic port

to destination port)

65213 – Coastal and

transoceanic water

transport services of

6 Services listed in Table 4 are non-exhaustive as differences exist between specific manufacturing sectors and value chains. Firms are encouraged to add services that have been left out in this category.

49

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

intermodal containers

by container ships

3. Sales services Retail trade services

- By store

Group of 621 - Non-

specialized store retail

trade services

Group of 622 -

Specialized store retail

trade services

Retail trade services

- By internet

or mail-order

Group of 623 - Mail

order or Internet retail

trade services

Retail trade services

- By other

non-store

Group of 624 - Other

non-store retail trade

services

50

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

retail trade

services

Retail services on a

fee or contract bases

Group: of 625 - Retail

trade services on a fee

or contract basis

Retail

Administration

- Operation

management

83115 - Operations

management consulting

services

83116 - Supply chain

and other management

consulting services

Retail administration

- Site

development

for new

shops

83911 - Interior design

services

Group of 546 -

Installation services

51

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Group of 547 -

Building completion and

finishing services

Security services

(cash delivery)

85240 Armoured car

services

85250 Guard services

Storage and

warehousing services

for finished goods

67220 - Bulk liquid or

gas storage services

67290 - Other storage

and warehousing

services

4. Leasing/Hire

purchase services

Hire purchase

services of

machinery

Group of 731 - Leasing

or rental services

concerning machinery

52

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

and equipment without

operator

Group of 732 - Leasing

or rental services

concerning other goods

71140 Financial leasing

services

Leasing/rental

services

Group of 731 - Leasing

or rental services

concerning machinery

and equipment without

operator

53

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Group of 732 - Leasing

or rental services

concerning other goods

71140 Financial leasing

services

5. Others (please

specify):

54

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

55

Table 5: Back-office, utilities and general services7

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

1. Finance Auditing on financial

accounts

Group of 822 -

Accounting, auditing

and bookkeeping

services

Financial services

71121 - Deposit services

to corporate and

institutional depositors

71313 - Group pension

services

71701 - Services of

holding equity of

subsidiary companies

7 Services listed in Table 5 are non-exhaustive as differences exist between specific manufacturing sectors and value chains. Firms are encouraged to add services that have been left out in this category.

56

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Internal auditing

(including audits of

financial accounts

and corporate

governance)

Group of 822 -

Accounting, auditing

and bookkeeping

services

83118 - Head office

services

Insurance services

for machinery

71332 - Marine,

aviation, and other

transport insurance

services

2. General

Management

Business and

management

consultancy services

Class of 8311 -

Management consulting

and management

services

57

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Company secretary

services

83990 - All other

professional, technical

and business services,

n.e.c.

Corporate

communications,

marketing and

public relationship

83114 - Marketing

management consulting

services

83121 - Public relations

services

Courier, postal and

local delivery

services

Group of 681 - Postal

and courier services

Estate management 72112 - Rental or leasing

services involving own

58

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

or leased non-residential

property

Human resources

management

83113 - Human

resources management

consulting services

Human resources

management -

- Personnel

search and

referral

services for

back-office

staff

Class of 8511 -

Personnel search and

referral services

I.T. and information

system management,

Class of 8313 -

Information technology

59

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

consulting and

support, with

webpage

development

(IT) consulting and

support services

Class of 8314 -

Information technology

(IT) design and

development services

Class of 8316 - IT

infrastructure and

network management

services

Safety and security

services

85230 - Security systems

services

85250 - Guard services

60

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Telecommunication

services

Group: 841 - Telephony

and other

telecommunications

services

84210 - Internet

backbone services

84221 - Narrowband

Internet access services

84222 - Broadband

Internet access services

Uniform 83919 - Other specialty

design services

61

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

- Design and

alternation

Uniform

- Laundry

97130 - Other textile

cleaning services

3. Legal Legal services 82120 - Legal advisory

and representation

services concerning

other fields of law

82130 - Legal

documentation and

certification services

4. Research and

Development

Product

development/ R&D

81129 - Research and

experimental

development services in

62

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

other engineering and

technology

81400 - Research and

development originals

5. Advertisement Retail

Administration-

Advertising

83611 - Full service

advertising

Advertisement –

advertisement

agencies services

83611 - Full service

advertising

83620 - Purchase or sale

of advertising space or

time, on commission

Advertisement –

designers’ services

83611 - Full service

advertising

Advertisement –

direct marketing and

mail-in

advertisements

83612 - Direct

marketing and direct

mail services

63

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

Advertisement –

cameramen,

directors,

photographers and

models.

83611 - Full service

advertising

6. Utilities Electricity supply Class of 8631 - Support

services to electricity

transmission and

distribution

Gas supply 86320 - Gas distribution

services through mains

(on a fee or contract

basis)

Water supply 86330 - Water

distribution services

64

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

through mains (on a fee

or contract basis)

7. Others (please

specify):

65

Table 6: Post-sales (goods) / post-supply (services) services8

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

1. Sales/After-

sales Customer

services

Customer services –

complains and

compliments

handling

85931 - Telephone call

centre services

Customer services –

Loyalty Program

95999 - Other services

provided by

membership

organizations n.e.c.

Customer services –

Technical support

85931 - Telephone call

centre services

Customer services –

warranty and repair

services

Group of 872 - Repair

services of other goods

Replacement/ re-

possession services

Group of 731 - Leasing

or rental services

concerning machinery

8 Services listed in Table 6 are non-exhaustive as differences exist between specific manufacturing sectors and value chains. Firms are encouraged to add services that have been left out in this category.

66

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)

for leased

equipments

and equipment without

operator

Group of 732 - Leasing

or rental services

concerning other goods

71140 Financial leasing

services

Others (please

specify):

2. Others (please

specify):

67

Stage/ Category Service Central Product

Classification (CPC)

Ver.2 Code

Please mark

(X) if the

service is

used in your

supply/value

chain

Supplied in-

house

Supplied by

another

company in

the group

(name, type,

size, location,

ownership)

Outsourced to

third-parties

(name, type,

size, location,

ownership)