Between a rock and a hard place: A critique of economic upgrading in global value chains

Abstract

AbstractResearch SummaryResearchers have tried to understand how insertion into global value chains (GVCs) can lead to economic upgrading for the developing country firms (DCFs) involved. Many of these studies operationalize upgrading as a DCF's movement into higher value‐added activities, where the creation and appropriation of value‐added are assumed to be symbiotic. In doing so, they divorce economic upgrading from its effect on interfirm bargaining power. We address this core assumption by introducing insights from theories on power‐dependence relations. We argue that pursuing an economic upgrading trajectory can be positioned a necessary but insufficient condition for DCF value‐added appropriation. In so doing, we theoretically explicate the conditions under which an economic upgrading trajectory is likely to result in DCF value‐added capture.Managerial SummaryThe fragmentation and dispersion of the multinational enterprises' (MNE) value‐adding activities allows DCFs to insert themselves in the MNEs' value chain. Within both academic and policy spheres, DCFs are encouraged to participate in GVCs as it allows for knowledge and resource transfers from the MNE (upgrading opportunities). In this paper, we offer a critique on this notion of economic upgrading. We argue that researchers have focused on the benefits that new or improved value chain activities can bring, but have largely ignored how these benefits are shared between the chain participants OR members. We address this assumption by introducing power‐dependence and bargaining power to explicate the conditions under which an economic upgrading trajectory can positively influence the DCF's value‐added appropriation.