Global value chains are radically altering how goods and services are produced--parts made in one country, for instance, are increasingly assembled in another and sold in a third. The globalisation of production has changed the industrial structure within OECD countries, and in some sectors blunted their competitiveness. Another major consequence has been fears of job losses, due to outsourcing and offshoring-not only in manufacturing but also in services. The rapid integration of China and India, with their large pool of educated people, further reinforces these concerns. How should OECD countries respond? This report brings together OECD data on the globalisation of value chains, including the rise of outsourcing/offshoring. It first examines how OECD countries are affected by the globalisation of production, on both the macroeconomic and sector-specific levels. The costs and benefits of globalisation are then discussed, with an emphasis on employment and productivity. Finally, this report analyses how globalisation impacts the competitiveness of OECD countries, highlighting the need for an effective innovation strategy.The report discusses not only the moving up the value chain that takes place in OECD countries but also in China, as R&D is increasingly going to emerging countries.