Final answer:
The value chain describes the stages a product goes through during production, from design to final sale. With globalization, these stages can occur in different countries, boosting efficiency and specialization. The value chain, thereby, is crucial to understanding production and international trade dynamics.
Step-by-step explanation:
The process by which an organization creates the product or service it offers to the customer is known as the value chain. This concept explains how a product is produced in stages and how specialization has allowed for an international trend towards splitting up these production stages across different regions. For example, producing an iPhone involves multiple stages such as designing and engineering in the United States, sourcing parts from Korea, assembling in China, and conducting marketing and advertising back in the United States. Improvements in communication, sharing of information, and transportation have facilitated the breaking down and distribution of different parts of the production process across the globe, leading to a more specialized and efficient world economy. This practice of trading more specialized subcomponents rather than whole finished products, known as intra-industry trade, promotes economic gains by fostering innovation and specialization in particular segments of the value chain.