In between, value-added is low in activities such as product assembly, which is frequently offshored to emerging and developing economies. This is the basic idea behind the so-called “smiling curve”, originally used in 1992 by Acer’s founder Stan Shih to illustrate the problems of information technology (IT) manufacturers in Chinese Taipei, which found itself along the bottom of the curve.
Some argue that there has been a tendency in OECD countries for the smiling curve to deepen, moving from relatively flat–meaning value evenly spread all along the chain–to U-shaped, with fabrication and assembly accounting for a much lower share of value. added. The offshoring of labour-intensive manufacturing and assembly to low-wage economies has, in fact, decreased the cost of these stages. Rising up the value chain has become a goal of many policy makers, particularly in emerging economies, where large manufacturing activities may not capture as much value from producing goods for the global market as was originally thought.
© OECD Observer No 296 Q3 2013