Abstract
While COVID-19 has caused significant short-term disruptions in global value chains (GVCs), in the longer run, the pandemic will not be the primary catalyst in GVC evolution. As GVCs recover from the initial shock, managers will make GVC restructuring decisions guided by long-term strategic considerations. This article describes barriers that lead firm managers may encounter when rethinking location/control decisions for value chain activities and suggests that, in addition to structural changes, managerial governance adaptations are instrumental in enhancing GVCs’ long-term resilience. Lessons learned from responding to the pandemic can help managers enhance GVC efficiency in the increasingly uncertain global environment.
Highlights
global value chains (GVCs) efficiency is served through both structural governance decisions—that is, decisions on who performs which transactions, who owns or controls activities, where activities are performed, and how the network is organized—and managerial/strategic governance decisions, namely, decisions pertaining to learning and knowledge transfer in the GVC, relationship management, resource recombination, contractual details, coordination and monitoring, and other managerial routines/practices deployed within the GVC
In instances where structural GVC reconfigurations are not economically feasible, lead firms can engage in managerial governance adaptations, which provide a “countervailing force”[38] to GVC disruptions introduced by exogenous trends and reinforced by the pandemic
We classified the resulting managerial governance mechanisms into three groups: inter-firm adaptations; extra-GVC adaptations; and intra-firm adaptations.[43]
Summary
Internalization theory posits that economic actors select and retain the most efficient governance mechanisms to organize economic exchange.[6]. GVC efficiency is served through both structural governance decisions—that is, decisions on who performs which transactions, who owns or controls activities, where activities are performed, and how the network is organized—and managerial/strategic governance decisions, namely, decisions pertaining to learning and knowledge transfer in the GVC, relationship management, resource recombination, contractual details, coordination and monitoring, and other managerial routines/practices deployed within the GVC The latter are less observable, more difficult to measure, and, less prominently featured in international business literature11—we argue that it is the managerial governance responses that are likely to be instrumental in enhancing GVCs’ long-term resilience. Lead firms have responded by structural changes to their GVCs so as to maintain efficiency in the face of macro-level shifts: reshoring and retreating from global to regional geographic scope[20]; vertically integrating (at least partially) in an effort to control quality and ensure compliance with sustainability requirements[21]; and diversifying manufacturing locations to
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