The globalisation of value chains is central to today’s globalisation process. It is linked to the growth of global production networks in which multinational companies play an important role and has resulted in the physical fragmentation of production with an optimal location of the various stages. It has thus given rise to significant firm restructuring to include outsourcing and offshoring.

Simultaneous exports and imports within the same industry are generally labelled as intra-industry trade. They typically occur among rich countries with a similar economic structure and level of development that are geographically close. Intra-industry trade often accompanies foreign direct investment, as multinational companies locate affiliates in different countries and trade goods and services between the affiliates and the parent company.

Due to the increasing importance of international production sharing and global value chains, trade in intermediate inputs has been steadily growing. Previous research has shown that multinational companies are more dependent on international sourcing than “domestic” firms. Intra-firm trade among affiliates and the parent company within the multinational network has resulted in higher trade flows of intermediate inputs and a higher ratio of use of foreign inputs over domestic inputs.

The geographical distribution of intermediate imports of goods and services shows that in value the largest transactions are within and among three regions: Europe, North America and Asia. In the OECD area most inputs are sourced from within the OECD area; when accession countries and enhanced engagement economies are added, about 85% of trade flows are accounted for.

Industries that produce imported intermediates are more or less the industries that “traditionally” produce inputs for other domestic industries: mining and quarrying, chemicals, metal products, transport and storage, and motor vehicles.

In line with the increasing importance of imported intermediates, offshoring or outsourcing abroad has increased in almost all countries over 1995-2005. In Luxembourg, Ireland, Hungary, the Slovak Republic and Estonia, the sourcing of intermediates abroad has increased significantly.

The offshoring indicator calculated separately for manufacturing and services shows that except for Luxembourg and Ireland, international sourcing of intermediates is on average more important in manufacturing. The specific cases of Luxembourg and Ireland are likely to be due to the significant presence of financial and call centre activities in these countries.

The sourcing of intermediates abroad appears to be more important in higher-technology than in lowertechnology industries (higher-technology industries are defined as high- and medium-high-technology industries, ISIC Rev. 3: 24, 29-33, 35; lower-technology industries are defined as medium-low- and lowtechnology industries, ISIC Rev. 3: 15-23, 25-28, 34, 36-37). In most countries the offshoring indicator is higher for higher-technology industries than for lowertechnology industries, owing to the generally greater complexity of technology-intensive goods which typically require a broad range of inputs.

With the emergence of global value chains, imports and exports increasingly move together since companies’ production processes are increasingly characterised by sequential production and movements back and forth. This vertical trade is made up of intrafirm trade within multinational companies as well as arm’s length relations between independent companies.

The distribution of the vertical specialisation measures by partner countries/zones shows the importance of distance and trade costs for vertical trade. Countries tend to source intermediates particularly from neighbouring countries and incorporate them in their exports.