Participation in global value chains (GVCs) is widely acknowledged as a route to economic growth and job creation, and in the period leading up to the 2008 financial crisis, they expanded rapidly, eventually accounting for around 70% of international trade.

Today, three mega-trends are disrupting our global production system and reshaping the distribution of global value: emerging technologies; the environmental sustainability imperative evolving from the accelerating global climate emergency; and the reconfiguration of globalization, which has resulted in escalating trade tensions.

In the 2019 report Reshaping Global Value, published by the World Economic Forum and the United Nations Development Program (UNDP) in collaboration with Kearney, projections indicate a worst-case potential value loss of up to ~40% and best-case potential value gain of +70% across a range of possible scenario outcomes. It states that “facing up to these disruptions requires new approaches to ensure an orderly, inclusive and sustainable transition”.

As Kearney partner Beth Bovis observed, most conversations on the topic at this year’s annual meeting have focused on how much we don’t know and how much risk there is; coupled with hope that we are at the tipping point from talk into action.

For this session however, we wanted to discuss the opportunity business and governments have to influence the changes needed to bring about the best vision for the future of global value of our society and economy by re-orienting future business models. We invited senior industry figures Donald Allan, Executive Vice President and Chief Financial Officer at Stanley Black & Decker, Christophe Beck, President and Chief Operating Officer at Ecolab, Pascal Cagni, French Ambassador for International Investment and Chairman of Business France, Dipali Goenka, Chief Executive Officer and Joint Managing Director at Welspun India, and Kathy Wengel, Executive Vice President, Chief Global Supply Chain Officer at Johnson & Johnson to join us in Davos.

The discussion was vibrant and far-ranging, however two major themes dominated.

1. Does value chain reconfiguration present an opportunity for businesses to address environmental and social issues, and serve all of their stakeholders?

The short answer was an emphatic “yes”.

As one example, the shift away from globalization and the advent of Industry 4.0 technologies have combined to make it both desirable and easier to move manufacturing much closer to consumers. One speaker described an initiative to create flexibility in their supply chain, meaning customers can be served much more quickly, while cutting transportation and shipping emissions. And reaction to the changes has been positive, because customers like the increased speed, and the company’s ability to customize products to their needs better.

Our panel spoke about how the critical starting point is knowing which parts of the existing value chain you need to change, and which new parts you must build. And in terms of moving from talk to action, partnerships and broader coalitions act as an important springboard. One successful example of such a partnership is the Coalition for Epidemic Preparedness Innovation (CEPI), which initially formed to counteract the spread of the Ebola virus but is now accelerating development of vaccines against various emerging infectious diseases.

It’s also important for organizations to look beyond the activities within their direct control, a theme that was also touched on during our Shareholder Value vs. Stakeholder Value session. Too often, a disconnect exists between companies’ sustainability efforts and the expectations and behavior of their customers. Consumer attitudes will likely become more important as the next generation dedicated to conscious consumption will represent the majority of consumers by 2030, and as the demand for sustainable production and value-chain transparency becomes increasingly prominent beyond Europe and North America.

Another company initiative from the panel sprang from a desire to reduce the amount of consumer waste generated after buying their products. Trials on locally available recyclable content didn’t hit the required quality standards, so the company looked upstream at the entire recycling industry, and the roles people play in gathering waste. With government and industry keen to help, but nobody taking the lead, the company stepped in and now funds two major cooperatives, meaning they get a better product and are able to give back at the same time.

So as well as deciding where in the value chain to act, businesses must also decide where they want to participate, and where they are prepared to lead.

2. How can the public and private sectors work together to start taking the bold steps that are needed?

Our panel agreed that it’s not so important where this starts – so long as it starts somewhere. No matter how things are initiated and what they focus on in the beginning, they will need to be agile because nobody has the full picture of how things will turn out. The main thing is to get out of the starting blocks, build, pivot when and where needed and think about scaling things up once some progress has been chalked up.

Thinking about what these groups should be responsible for, our audience suggested tax and research & development incentives, negotiating favorable trade policies, the rules and any restrictions around foreign investment, labor relations and – a pressing task given the impact of Industry 4.0 on manufacturing, supply chains and the world of work – national skill programs to develop, upskill and reskill in critical capability areas.

We also heard what the French Government is currently doing around increasing flexibility within the welfare state, which is already paying off. The type of apprenticeship model being used in other European countries was mentioned as a crucial step towards reducing the country’s unemployment rate. Another important consideration is policy development. The view from our panel is that this should be done by governments and businesses working together. In France, for example, there are a number of forums where ministers and businesspeople come together to find solutions.

As for the types of initiative that will make a difference, our audience spoke about paternity leave, the inclusion of carbon accounting in business management systems as well as purchasing processes and those that go beyond reducing harm into active compensation, for example offsetting or exceeding the impact of paper use by planting trees.

No-one is underestimating the extent of the task ahead, or the inherent challenges involved. As our panel summarized, “Global execution requires a lot of collaboration between people who are not used to working with one another, so we will need to learn how to share the value we are creating. How do we find a way that is good for everyone?”

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