The political economy of global value chains restructuring

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The political economy of global value chains restructuring

Rogach O.

Doctor of Science, Professor, Head of the International Finance Department of the Institute of International Relations of Taras Shevchenko National University of Kyiv

Abstract

The article analyzes the international production of multinational enterprises (MNEs). It presents some theoretical approaches to the analysis of international production, such as fragmentation theory, global value chains (GVCs) theory. The article argues that at the present stage of the world economy internationalization, there are two trends in the localization of MNEs global chains. The first trend indicates a slowdown of GVCs growth in the last seven years. The second trend characterizes the restructuring of GVCs. It indicates the backward movement of certain international production fragments to the MNEs home countries. Among the major factors that have slowed the growth of international MNEs production, the article analyzes the political instability and low economic dynamics of some FDI exporting countries. Changes in the location of global value chains are driven by technological, economic and geopolitical factors. Fourth industrial revolution, the robotization of production and new technologies for shale oil and gas in the US are changing the traditional determinants for GVCs localization. They have caused the relocation of many businesses from countries with the cheap labour to MNEs home countries. The article also highlights that the important factors of GVCs restructuring are the fiscal mechanisms implemented by the US administration, including tax reform. But the short-term and long-term effects of such measures differ significantly. Finally, the third important factor in the dynamics and restructuring of multinational enterprise network production is the geopolitical risk and political uncertainty. The trade war between the US and China has had a particularly significant impact on the current global value chains rebuilding.

Key words: multinational enterprises, international production fragmentation, foreign direct investment, global value chains.

Анотація. У статті проаналізоване міжнародне виробництво багатонаціональних підприємств (БНП). У ній представлені деякі теоретичні підходи до аналізу міжнародного виробництва, зокрема теорія фрагментації, теорія глобальних ланцюжків створення вартості (ГЛСВ). У статті стверджується, що на сучасному етапі інтернаціоналізації світової економіки існують дві тенденції локалізації глобальних ланцюжків БНП. Перша тенденція вказує на уповільнення зростання таких мереж за останні сім років. Друга тенденція характеризує реструктуризацію ГЛСВ. Остання тенденція вказує на зворотний рух певних фрагментів міжнародного виробництва до домашніх країн БНП. Серед основних факторів, які сповільнили зростання обсягів міжнародного виробництва багатонаціональних підприємств, у статті проаналізовано політичну нестабільність та низьку економічну динаміку деяких країн-експортерів ПІІ. Зміни у розташуванні глобальних ланцюжків створення вартості зумовлені технологічними, економічними та геополітичними факторами. Четверта промислова революція, роботизація виробництва та нові технології видобутку сланцевої нафти та газу в США змінюють традиційні детермінанти локалізації ГЛСВ. Вони спричинили релокацію багатьох підприємств з країн з дешевою робочою силою у країни базування БНП. У статті також підкреслюється, що важливими факторами реструктуризації ГЛСВ є фіскальні механізми, що застосовуються адміністрацією США, включаючи податкову реформу. Але коротко- та довгострокові наслідки таких заходів істотно відрізняються. Нарешті, третім важливим фактором динаміки та реструктуризації виробництва багатонаціональних підприємств є геополітичні ризики та політична невизначеність. Торговельна війна між США та Китаєм мала особливо значний вплив на поточну перебудову глобальних вартісних ланцюжків.

Ключові слова: багатонаціональні підприємства, фрагментація міжнародного виробництва, прямі іноземні інвестиції, глобальні ланцюжки створення вартості. transnational corporations global

Аннотация. В статье проанализировано международное производство многонациональных предприятий (МНП). В ней представлены некоторые теоретические подходы к анализу международного производства, в частности, теория фрагментации, теория глобальных цепочек создания стоимости (ГЦСС). В статье утверждается, что на современном этапе интернационализации мировой экономики, существуют две тенденции локализации глобальных цепочек МНП. Первая тенденция указывает на замедление роста таких сетей за последние семь лет. Вторая тенденция характеризует реструктуризацию ГЦСС. Последняя тенденция указывает на обратное движение определенных фрагментов международного производства в домашних стран МНП. Среди факторов, которые замедлили рост объемов международного производства многонациональных предприятий, в статье проанализирована политическая нестабильность и низкая экономическая динамика некоторых стран-экспортеров ПИИ. Изменения в расположении глобальных цепочек создания стоимости обусловлены технологическими, экономическими и геополитическими факторами. Четвертая промышленная революция, роботизация производства и новые технологии добычи сланцевой нефти и газа в США меняют традиционные детерминанты локализации ГЦСС. Они вызвали перемещение многих предприятий из стран с дешевой рабочей силой в страны базирования МНП. В статье также подчеркивается, что важными факторами реструктуризации ГЦСС стали фискальные механизмы, применяемые администрацией США, включая налоговую реформу. Но краткосрочные и долгосрочные последствия таких мер существенно отличаются. Наконец, третьим важным фактором динамики и реструктуризации производства многонациональных предприятий являются геополитические риски и политическая неопределенность. Торговая война между США и Китаем оказывает особенно значительное влияние на текущую перестройку глобальных стоимостных цепочек.

Ключевые слова: многонациональные предприятия, фрагментация международного производства, прямые иностранные инвестиции, глобальные цепочки создания стоимости.

Introduction

In recent decades international production of multinationals has reached a global scale. Although international statistics do not provide accurate data on the number of these companies, it is estimated that the number of MNEs has exceeded the threshold of 100,000, and the number of their foreign affiliates is estimated at more than 1 million units. The share of multinational firm's gross production in the world GNP is 25%, in the world trade - 65%.

As Narula & Pineli [2019] summarized, the role of MNEs in economic development has been an agenda for research in international business and political economy literature for more than 50 years. The traditional questions of multinational enterprises foreign expansion and their relationships with host countries have recently been complemented by topics of global value chain's benefits distribution and offshoring effects for home and host countries.

Modern MNE's production is different from its 40-year-old prototype. It provides for a complex network hierarchical system of production and market relations, encompassing both enterprises belonging to multinational firms and formally independent companies. The fragmentation of international production has led to significant changes in the division of labor, both at the corporation and country levels. Such network segmentation has led to the emergence of global value chains (GVCs) of multinational enterprises. Global value chains represent an organizational model of the fragmented value creation process that is managed and controlled by the MNEs.

The GVCs characterize the organizational structure of modern networks of international production. Fragmentation of international production gives rise to profound structural changes in contemporary world trade. More and more countries and firms are beginning to specialize in the individual stages, links, value creation functions within individual GVCs, which defines the new specialization of these economic units in the world economy [Baldwin, & Lopez-Gonzalez, 2015].

The flagship MNE's global value chains are often collaborate and combine to perform certain functions or tasks. This is clear evident in the existence of so-called "strategic alliances" [Dunning, 1995]. Such alliances of MNEs create global network production system.

Depending upon the MNEs organizational models and the technological features of industries and products, two types of international production fragmentation process can be distinguished. Vertically integrated multinationals typically fragment the process of final product manufacturing based on the stepwise processing of raw materials, semi-finished products, intermediate products. Such vertically integrated value chains cases are given by the petrochemical, electronic, and electrical industries. Multinational enterprises organize international production systems in these sectors based on sequential technological operations [Baldwin, & Okubo, 2019]. Horizontally integrated MNEs and international firms with widely diversified production lines tend to build another model for fragmentation architecture. These network systems have considerably higher role of participants' specialization in functions involved in value creation or their competencies and unique assets.

Literature review

The concept of fragmentation was pioneered by Jones & Kezkowski [1990]. Although these authors have not developed a formal theory, they have analysed a fragmentation model in which the various "production units" have been linked to the services sector [especially in the fields of transport, communications and information technology]. Further useful theoretical analysis has been provided by the research of Grossman & Rossi-Hansberg [2008], Antras & Helpman [2004]. Grossman & Rossi-Hansberg [2012] proposed the term "trade in task" which characterizes the division of production functions into individual fragments. They developed a model of fragmented production where each country performs one function in the production and sale of goods. As Koe and Jeng point out, "organizationally fragmented and spatially distributed production networks constitute a new form of economic structure for the modern global economy and its uneven developmental consequences" [Coe, & Yeung, 2015: p.1].

The term value chain was first mentioned by Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance [Porter, 1985]. Any firm is not just a set of equipment, people, resources. It is based on the sequence and systematicity of certain stages of activity. Each stage creates its value, which is included in the total value of the product [services]. Such systematic and consistent activity, as Porter says, allows the company to create products and services that are focused to consumers. The Porter's value chain is a set of activities that firm takes to create value for its customers. This scientist has proposed a general model of such a chain, which includes the basic elements of typical business activities and the relationship between them [Rogach, 2018].

Porter notes that value chains in the same industry have the same structure, but the main competitors tend to have different features. Such distinction cover product differentiation, different types of semi-finished products, geographical location of production operations and distribution channels. Porter calls such difference as a "key source of competitive advantage" and the activity of value creation firms is the "discrete building blocks" of their competitive power [Porter, 1985].

The concept of "chain" reflects the vertical sequence of events that led to the supply, consumption and maintenance of goods and services. The main accent here is on the product approach. Changes in the comparative advantages of countries move individual fragments of production to other countries [Pla-Barber, Linares, & Ghauri, 2018].

GVCs can also be complex and cover individual fragments of different systems of international production. For example, if several flagship MNEs form a strategic alliance, their global product chains intersect and have joint participants. This can occur when producing related products, or different classes of the same product [Buckley, 2016].

Gereffi, Humphrey & Sturgeon [2005], Lee & Gereffi [2015] and their followers developed an institutional and managerial stream of international production fragmentation research. At the center of their analysis, these scientists put not the development of trade models on tasks, but the structure analysis of fragmented international production, the role of its participants and management in global value chains [Mayer, Phillips, & Posthuma, 2017].

Some theoretical publications in political economy of international production considers both production and exchange of intermediate goods and services in the global networks of MNEs. It integrates new approaches to the international trade theory ["the trade in task" theory] and the latest concepts of FDI [the network concept of MNE, the concept of global value chains]. Based on this, it explains the evolution of the international division of labor and the modern features of venture capital movement, as well as the exchange of goods and services. Such research approach underlies the evolution of international trade and the geographic relocation of industries from one country to another. It generates a distribution of separate, ever smaller functions, tasks between countries. Such distribution is carried out in the global value chains, organized and controlled by MNEs [Johnson, & Noguera, 2012].

As Buckley [2009] showed, the development of operating fragmentation as a key feature of the global value chains was accelerated by two interrelated processes. The first one is a rapid progress of technology, allowing the industry to divide GVCs into small, `compact' links. The second one is that technological innovation `squeezed' the distance separating the countries and improved the speed, efficiency and effectiveness of coordination of geographically dispersed production process.

The new paradigm of international trade examines the impact of foreign production [GVCs fragmentation] on the expansion of export-import flows. As Baldwin [2006] argues, that such fragmentation leads to a significant increase in trade of intermediate goods, which represents only separate tasks or functions of global production and marketing.

In the framework of the international business theory [or theories of multinational enterprises] the microeconomic approach predominates in research agenda. In the definition of global value chain, the focus is made on the distribution of tasks between the parties and the control of MNEs over this process. FDI and exports are regarded as complementary but alternative operations of MNEs. Brainard [1997], Helpman, Melitz & Rubinstein [2008] restore the traditional methodological approach to FDI as a substitute for trade. These views are reflected in the theory of exchange of concentration on proximity developed by them [also known as - "proximity- concentration trade-off theory"]. FDI will reduce the production concentration of the parent company in home, but in return the company will be in proximity to the market of the host country. In handling export instead of FDI, the firm will increase the concentration of production in the home country but will lose proximity of the plant to the market of a foreign country. Under these conditions, higher transport costs and trade barriers and lower investment barriers and the economy of scale at factory level in comparison to corporate level will encourage the firms to choose FDI, not export.

Later Helpman, Melitz & Yeaple [2004] introduced an important new factor in this theoretical model - the heterogeneity of companies in terms of their productive capacity. They proved that firms differ significantly in terms of productive capacity and by this indicator are divided into a group of companies with low, medium and high productivity. Foreign operations are usually carried out by firms with high productivity. The most productive firms will serve the foreign market through FDI, and the least productive - through export from the home country. The empirical studies confirm that in sectors with greater heterogeneity of firms the share of high- productivity firms relative to low-productivity firms is much higher than in other sectors. In such sectors the share of firms that choose FDI rather than export will be higher than in other industries [Castellacci, 2011].

Although the economic literature mainly refers to the global nature of value chains or global production networks of MNEs, some scholars believe that these companies are oriented on the regional market of its country of origin. They don't diversify GVCs on the global markets, because the costs of monitoring and coordination of global operations don't cover the benefits of their implementation [Rugman, 2005]. Rugman & Verbeke [2005], Verbeke & Kano [2012] state that the majority of the 500 largest MNEs have not global but regional structure of their value chains. Thus, regionalization may be a result of two strategies - either serving a starting solution in process of internationalization of the firm or being an intermediate process on the way toward globalization [Rugman, & Chang, 2010].

Political economy studies of global value chains have revealed the fragmented international production effects on the structure of the economy, employment levels, trade balance, and the country well-being [Baldwin, 2006]. Some of these studies proves that fragmentation has the positive impact for all participating countries. However, some studies distinguish short-term and long-term positive effects and highlight the greater benefits for multinational's home country or other industrialized countries from global value chains. Baldwin & Robert-Nicoud [2007] have also explored the theoretical aspects of offshore trade between countries with different factors of production. An important issue has also been the study of benefits from fragmentation, especially between industrialized and developing countries.

Research findings

In the last two decades, significant structural changes have taken place in the organization of multinational enterprise's global value chains. This applies to the dynamics, territorial proportions, and the complexity of the goods and services flows in such value structures, as well as a reverse relocation tendency of some production segments in the context of outsourcing [Rogach, 2019].

GVCs are dynamic and flexible systems. They are mobile enough. Ever since the product fragmentation went beyond national borders and became international 30-40 years ago, there has been a constant adjustment or restructuring of production networks in response to changing comparative advantages of countries, increasing political risks or developing new corporate cost- minimization strategies.

Production networks mobility and flexibility is one of the essential features of modern globalization. None of the countries can be sure of the constant "loyalty" of the MNEs to maintain separate production units [as its own or subcontracted outsourcing] on its territory for a long time.

Moving individual links in global chains from one country to another has become a common trend that is accelerated or slowed by many economic and political factors.

At the present stage of the world economy internationalization, there are two trends in the localization of MNEs global chains. The first trend indicates a slowdown of such networks growth in the last seven years, and the related trend characterizes the increase in the backward movement of certain international production fragments to the MNEs home countries.

After three decades of international production networks rapid territorial and sectoral expansion, the pace of this process has slowdown. This is evidenced by the rather low growth rate of sales, value added and employment of multinational firm's foreign affiliates in 2012-2017. In 2005-2010 sales of foreign affiliates grew by an average of 9,7% per year and affiliate's value added grew by an average of 10,7% per year. In 2012-2017 the average growth of these indicators was much less - 1,5% for both [UNCTAD, 2018].

There are several explanations for this trend. The technological fragmentation in many industries is already sufficiently developed [or even exhausted] and further fragmentation of the value chain does not give additional profit. Some industries, such as electronic, electrical, which were the first to embark on the path of fragmentation, have already reached considerable "maturity" in this process. In the future, it is only possible to move individual segments of production from one country to another, and not to extend the range of supply chain member countries altogether.

However, technological factors obviously have different effects on the dynamics of GVCs in different industrial sectors. There are still many industries that are far from the "maturity threshold" of the production tasks distribution. Other economic sectors [e.g. services] have further potential for segmentation of operations. It is likely that the slowdown in the growth of "mature industries" networked production will be offset by the greater fragmentation dynamics of other industries that later embarked on this path (biotechnology, pharmaceuticals, creative industries, etc.). The modern industrial revolution continues to reduce the communications, transportation and logistics cost, which contributes to the geographical dispersion of all new types of production.

The general economic factors of the world economy post-crisis development in the last 5-7 years have had a significant impact on the GVCs modern economic dynamics.

Low economic dynamics of most EU countries (in recent years even the traditional European locomotive - Germany) as well as the BRICS countries (including Brazil, China, Russia), increasing volatility and economic problems of emerging markets (Turkey, Argentina) and developing countries, have become one of the main factors in slowing down the global chain's expansion.

Brexit adds even more negative expectations to the potential of European MNEs to further increase global value chains. For UK multinationals and international firms in EU countries, entirely new tax, customs, and supply chain constraints are emerging, constraining new investment or even forcing plans to change established production networks.

The second trend in the GVCs development in the last decade has been a marked process of international production networks restructuring. Although, as we have noted, the modification of production chains is ongoing and is not a new phenomenon of MNE's activity, in recent years it has been felt especially clearly and is increasingly gaining ground. The major impact on such restructuring has a reshoring, that is, the return by multinational firms some fragmented processes back home. The relocation of individual production units reduces the quantitative indicators of GVCs growth.

The process of outsourcing is influenced by many factors, such as robotization and automation of manufacturing processes, digitization of the economy, the introduction of 3D printers, the relative equalization of labor costs, the reduction of energy resources in the United States, as well as the result of special fiscal, trading actions.

All models of "trade in task" and fragmentation of international production studied the foreign outsourcing development with the focus on certain key factors - the difference in the wages of workers and the reduction of transport costs. If these conditions exist, as theoretical studies have shown, some of its segments are transferred to locations with cheap labor [Grossman, & Rossi-

Hansberg, 2006]. The MNEs practice fully proved these theoretical findings during last three decades of progress in communications, transportation, a reduction in international management costs, and the involvement of new regions with very cheap labor. The multinational firms' strategies were aimed at relocating production to Asia or other countries with cheap factors of production.

But the Fourth industrial revolution, the robotization of production and new technologies for shale oil and gas in the US are changing these traditional trends of fragmentation.

For example, the shale revolution has already led to a fall in gas and electricity prices in the United States, where the cost of such energy has become lower than in other industrialized countries. The reduction in energy costs in the United States has led to a major restructuring of GVCs in many industrial sectors. The more cheaper energy resources are in the United States [the current level of prices is still not the limit of decline], the more this factor begins to determine the restructuring of global value chains.

There are two aspects of this impact. First, US MNEs compare their economies against cheap labor in China and other developing countries and the benefits of using cheap energy in the US. For a growing number of industrial sectors, this comparison is not in favour of Asian countries. If the fixed costs of production closure in one location and opening it in another location are not crucial or could be offset by low gas and electricity prices, multinationals decide to disinvest abroad and return to the US. There is a fundamental change in logistics, delivery directions and participants in subcontracts, that is, the entire architecture of the GVCs.

The industrial sectors feel different impact of low energy prices. Therefore, it is still difficult to assess whether this factor can completely neutralize the motive for using cheap labor and deprive Asian countries [China, India and others] of their traditional comparative advantages. But cheap labor benefits "destruction" has already begun and is happening with increasing force. In this case, it is possible to predict the negative effects for the expansion of GVCs.

Another aspect of low energy prices impact is the attractiveness for European and Asian MNEs to set US subsidiaries. On the contrary, it has positive effects for the expansion of the GVCs, as energy-intensive manufacturing segments of non-US firms are shifted to the US. This situation, for example, is very clearly observed in the non-ferrous metallurgy [especially the aluminium industry], the petrochemical industry and even in the pharmaceutical sector. In the last ten years, almost all leading non-US multinationals in these industries have decided to open their US subsidiaries motivated by cheap electricity or gas. This is an important factor of their modern competitive strategy.

As already mentioned, robotization and automation also cause the return of assembly industries to post-industrialized countries, especially in the automotive and engineering industries. In recent years, a new industrial revolution has significantly reduced labor costs even in the apparel and footwear industries. US technology leadership in many industrial sectors encourages foreign firms to open branches in scientific and industrial agglomerations. Broetje-Automation (Germany) plans to open aerospace manufacturing robotics facility at Elk Grove Technopark in 2019, and Saab AB (Sweden) will set its military aircraft spare parts facility by 2021.These decisions were motivated by scientific cooperation with the US universities and the introduction of 3D printing into production [Lee, 2019]. In order to bring its production closer to R&D centers and consumers, Danish pharmaceutical MNE Novo Nordisk has decided to acquire an American manufacturer of diabetic drugs in North Carolina in August 2019 [Novo Nordisk, 2019].

Another important factor in the restructuring of the GVCs is the fiscal mechanisms implemented in the US by the Trump administration, including tax reform. But the short- and long-term effects of such measures differ significantly.

US tax reform has had a rather complex multi-vector effect on the dynamics of global FDI. This effect related to accumulated value of foreign direct investment as well as the volume of annual outflows and inflows. In anticipation of the tax reform multinational US firms have accumulated huge resources of retained earnings in their foreign accounts, including offshore jurisdictions [Curcuru, & Thomas, 2014]. According to the U.S. Bureau of Economic Analysis [U.S.BEA], since 2010 the annual repatriation of US MNEs income from abroad has not exceeded $ 150 billion a year. During the same period, their retained earnings rose rapidly from $ 1.5 trillion to $ 3.2 trillion in 2016, including $ 2 trillion in cash on their foreign accounts [UNCTAD, 2018]. US tax law allowed it to do and receive tax deferrals.

The US Tax Cuts and Jobs Act (TCJA) 2017 also focuses to encourage companies to stay in the US in two ways: (1) by reducing the corporate tax rate from 35 to 21 percent and (2) by applying a territorial tax system.

One of the goals of US tax reform was to encourage US multinationals to bring their profits back home, while slowing down repatriation of profits from affiliates of non-US MNEs located here. Changing the US investment climate in corporate tax liberalization has started a new wave of tax competition between countries. The previous "foreign earnings liberalization" was used by the United States in 2005 when it generated a huge wave of inflow (US $ 300 billion) in deferred US foreign earnings to this country.

According to the US Bureau of Economic Analysis, the 2017 Tax Cuts and Jobs Act [TCJA] resulted in the repatriation of $ 142 billion profit from US foreign affiliate to their parent companies in 2018. Because US investment position statistics reflect such a negative revenue repatriation, even without hindering new US FDI to acquire $ 83 billion in equity abroad, the country's net investment position this year was negative at $ 58 billion [Nguyen, & Whitaker, 2019]. The decline in foreign assets of US firms in 2018 was due both to a decrease in the value of portfolio investment and to foreign direct investment. If at the end of 2017 the FDI of US firms at market value was $ 8.9 trillion, then at the end of 2018 they decreased by $ 1.4 billion to $ 7.5 trillion. This decrease in FDI may also be related to the US MNEs disinvestment and repatriation of their capital to the US [Nguyen, & Whitaker, 2019].

Finally, another important factors in the dynamics and restructuring of the multinational enterprises network production are the geopolitical risks and political uncertainty. Political factors and risks have always been significantly correlated with FDI flows [Schneider, & Frey, 1985]. For example, the wave of MNE's assets nationalization in developing countries in the 1960s significantly changed the direction and volume of FDI.

A series of political developments in recent years, such as Brexit, economic sanctions against Russia, and the US government's rejection of several key international agreements have greatly increased the level of political uncertainty. Increasing economic nationalism, the threat of trade wars and the introduction of customs barriers have worsened the global investment climate. Surveys of multinational enterprise executives indicate that political uncertainty and geopolitical risks are one of the major obstacles to MNEs investment plans [Liu, 2019].

The trade war between the US and the China has had a particularly significant impact on the current global value chains rebuilding. The intensification of trade disputes has forced many firms to postpone investment decisions to expand export subsidiaries in China. This has led to uncertainty for MNEs about the profitability of their operations in the future and the benefits of geographical manufacturing fragmentation and outsourcing networks in low-cost countries. This was evidenced by the significant slowdown of new global value chains growth. Multinational firms that create supply chains to minimize costs are particularly vulnerable to such risks of uncertainty. For the first time in decades, there has been a fear of relocating some of their foreign units to avoid possible trading tariffs [Ayhan, 2019]. In such circumstances, an increase in foreign direct investment seems a very risky business.

If the most pessimistic trade war scenarios are deployed, one can expect an extremely strong effect of these events on the territorial and functional structure of the global MNEs chains. China declared in late August 2019 the introduction of a new 5-10% duty on $ 75 billion of US goods, and in response, President Trump announced his intention to increase the already imposed duties on Chinese goods in the amount of $ 250 billion from 10 to 15%, and additionally make a new round of increase in customs duties from 25% to 30% for another $ 300 billion commodity group from October 1, 2019 [The Financial Times, 2019].

According to many experts, the initiation of 30% duty on exports to the US will make it impossible to have many logistics schemes for supplying multinational firms from China. In combination with other factors of the technological revolution mentioned earlier, this will lead to the largest restructuring of the GVCs in 40 years.

Consequently, as a result of technological, economic and financial factors, US reshoring is gaining ground. According to the Reshoring Initiative, in 2015, for the first time in 45 years, the balance of relocation from the US (offshoring])and return to the US (reshoring) of enterprises in terms of created [lost] jobs was achieved, and the following year a positive balance of these processes was observed in the direction creating additional employment. According to this organization, if in the early 2010s, due to the transfer of multinational enterprises abroad, the US lost about 220 thousand jobs annually, then in 2016, for the first time, the overall result (offshoring + reshoring) was positive - 30 thousand new jobs. The next two years highlighted a unique situation for 50 years - such a net positive balance of new jobs reached at least 135 thousand a year. In 2018 1,389 companies announced their intention to return 145,000 jobs to the United States. [Reshoring Initiative, 2019 b].

It should be noted that these data include both plans for US MNEs headquarters to "bring production back home" and foreign direct investment by non-US firms that were accompanied by the transfer of their existing overseas production facilities to this country. In the latter case, such action by the MNEs is not a reshoring, since it means that a foreign firm is simply restructuring its GVCs. For example, Swiss pharmaceutical companies have manufactured components of their medicines in the UK or India, and now their production is being shifted to the United States, where energy costs or process automation make them more profitable. For the US this is inward FDI of Swiss MNE but not a reshoring.

GVCs transformation has led to decrease the share of foreign value added in world exports. In the previous twenty years the proportions of domestic and foreign value added in world exports have steadily changed in favour of the latter, then after the global financial crisis of 2008-2009 such a structural trend is no longer observed. The share of foreign value added in world exports stabilized at 30%. The coming years will show whether this is only a temporary stay, or a sign of more structural changes related to changes in the country's economic policies and new MNEs strategies.

An important political economy aspect of GVCs architecture is the territorial value creation proportions between groups of industrialized and developing countries. The data indicate a significant increase share of underdeveloped economies. However, there are discussions about the duration of this effect and the balance of benefits that countries get from international production fragmentation [Raei, Ignatenko, & Mircheva, 2019]. For example, Porter & Kramer [2019] argues that multinational enterprises should fundamentally revise their strategy of building GVCs in order to better address the needs of underdeveloped countries.

Most proponents of fragmentation theory believe that this process opens more opportunities niche specialization for countries that have advantages in producing individual segments but have not yet acquired competitiveness in the production of others. In this case, the total cost of performing individual tasks in different low-cost production units will be lower than the total cost of integrated [combined] production in one place. Some scholars argue that the benefits from participation in fragmented international production are approximately balanced between all participants. The high flexibility of GVCs and the mobility of production segments reinforce the trend of wage equalization for workers of the same skill level in different countries. This will facilitate the efficient allocation of resources and the equalization of social standards of rich and poor countries [Mankiw, & Swagel, 2006].

Buckley & Ghauri [2004] believe that MNEs are becoming a "global factories". Such global factories will allow to produce goods and services in any country where there is a demand for them, and to avoid long distances transportation of final products. In this context, as these authors emphasize, it is important to determine the determinants of global networks spatial dispersion. This is also important for shaping the economic policies of the host countries. The worst-case scenario for a global factory is to continue concentrating wealth in post-industrial countries and further lagging the poorer regions that will occupy the niche of low value industrial floors. Fixing high-tech, knowledge-based, high-skilled workforce in developed countries and outsourcing standardized parts and semi-finished products in poor developing countries can capture the trends of the above scenario.

Starting with the early fragmentation models, their authors argue that the process will result in a regrouping of production models between countries. Structural shifts in industry and technological potential will occur in both the country with excess capital and the country with cheap labor. For the country of origin, MNEs fragmentation will lead to technological progress in the capital-intensive sector of the economy. Contrary to expectations, such a country does not experience a fall in the wages of unskilled workers [Strange, & Zucchella, 2017].

Another evidence of the GVCs transformation is the increasing emphasis on high-tech flows of goods and services, the creation of network knowledge and competences, the internationalization of the innovative activities of the branches. The creation of intangible assets is the primary goal of an increasing number of international MNEs production systems. The growth rate of royalties and license fee has averaged 5% over the past five years, three times higher than traditional GVCs dynamics - affiliates sales and value-added growth. [UNCTAD, 2018]. Given that the multinational firm's knowledge creation internationalization is rapidly growing, such a transformation of the GVCs will be observed more clearly in the coming years.

Conclusion

The key feature of a new system of international production by MNEs is a dynamic development of global value chains. According to the degree of geographical coverage of the countries, the value chains can include several neighbouring countries, be regional or global. These value chains of MNEs are in permanent transformation, which covers not only the functional segments of the production structure, but also its geographic dispersion. This determines an important geographical configuration trend of the international production - the emergence of new factors and determinants of its localization.

Thus, the process of global value chains restructuring reflects the contradictory nature of many factors. After a long period of dynamic growth, such MNE's network production systems have slowed down their expansion significantly. The Fourth Industrial Revolution, on the one hand, will continue to reduce economic distance between countries, transport and communication costs of companies, and open new technological possibilities for fragmentation of production processes. This will stimulate further international production mobility and the emergence of new GVCs. On the other hand, a new industrial revolution generates factors that counteract the shifting of production from industrialized countries to low-cost countries or even cause return many manufacturing processes from offshore outsourcing areas. The correlation of such forces of "ejection" and "retraction" will obviously be different at certain stages of the world economy digitalization and the deployment of new robotic production platforms. It will determine the future dynamics of expansion [or possibly even contraction] and restructuring of MNEs global value chains.

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