Global value chains: Why international production is evolving, not fragmenting

The products and services people use every day rarely come from one place. A car may combine parts from several countries. A medicine may rely on ingredients and packaging sourced across continents. An online purchase might bring together software coded in one region, financial processing in another, and physical logistics spanning multiple borders.

These everyday items rely on two distinct but connected systems. The supply chain, which handles the logistical sourcing and physical movement of materials. But also the global value chain, which is much broader and encompasses how value is added at every step of production, integrating design, software, multinational investment, manufacturing, and business services across borders.

In 2024, global value chains remained a central feature of the world economy. Trade linked to these networks accounted for around 17% of global GDP, while total global trade reached roughly 31% of global GDP. Despite recent shocks, global production has not fragmented, it is adapting.

COVID-19, recent geopolitical tensions, and rising trade restrictions exposed bottlenecks in global supply chains, increased costs, and pushed firms to reassess how they physically move goods.

This led to predictions of widespread economic fragmentation and deglobalisation. The reality, however, is different. Firms are reorganising their logistical supply chains to manage risk, such as diversifying suppliers, building supply chain resilience, or relocating specific physical activities. But they are not abandoning global value chains. Cross-border integration through services and investment remains deeply embedded.

Industries are adjusting to shocks in targeted ways.

Manufacturing and transport remain deeply embedded in global value chains, as complex products still depend on dense international networks. Pharmaceuticals have become more internationally integrated since 2011, reflecting the sector's reliance on highly specialised inputs and tightly coordinated production.

Motor vehicles, by contrast, have reduced their reliance on imported foreign inputs. This represents a strategic adjustment in physical supply chains to reduce exposure to component shortages, sometimes referred to as reshoring or nearshoring, rather than a total retreat from global value creation.

Country trends reinforce that global trade integration is evolving. New OECD data shows that 49 of the 80 economies covered increased the share of foreign inputs embedded in their exports between 2011 and 2024. For many economies, this points to deeper integration as assemblers of imported materials.

However, the picture is more mixed when we look at countries' roles as suppliers of inputs that end up in other countries' exports. Some economies are expanding this upstream role, while others are scaling it back. This reflects structural changes in global production, with many economies now focusing on high-value activities that depend heavily on internationally sourced components.

The evolution of global value chains is heavily driven by intangible assets. Producing and selling goods increasingly depends on software, finance, design, and logistics, not just factories and shipping.

Services trade grew faster than goods trade between 2011 and 2023, reaching 21% of global GDP, when accounting for all modes of international supply, including services delivered through foreign affiliates, not just cross-border transactions. Commercial presence abroad remains an essential way to deliver these services internationally. A firm may shorten its physical supply chain by manufacturing closer to home, while simultaneously expanding its global value chain by sourcing software and financial services from abroad.

Multinational enterprises underpin this entire system. They account for more than half of global exports when the exports of their foreign affiliates are included. In 2023, the domestic sales and exports of these foreign affiliates reached USD 25.6 trillion, a figure close to the total value of global trade. These strategic investment decisions shape global production flows far beyond the simple transport of physical goods.

Global value chains are not fragmenting; they are evolving into more complex, service-driven systems. A country can secure its physical supply chains against disruption while remaining deeply integrated into global value chains through services, data, and investment.

So no, globalisation is not dead. The world economy remains deeply connected, even as the shape of these connections continues to adapt and change.

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