Global Value Chains: Lead Firm Social/Relational Factors

Abstract

While much of the literature on global value chains (GVC) has addressed strategy, structure, and governance, less is known regarding the relationship between lead firms and global value chain performance. Lead firms are influential, organizing, and strategic actors inside global value chains which drive the value addition and distribution by externalizing low value-added activities. The purpose of our paper is to explore the linkage between the lead firm's and GVC performance. We incorporate social capital theory, relational embeddedness, and global value chain governance to propose that lead firms may: (1) facilitate successful strategic alliances in global value chains through partner selection, (2) enable success over and beyond formal contracts by enabling embeddedness, and (3) reduce exchange costs and enable investment into new capabilities by facilitating knowledge transfer and learning by the mechanism of lead firm social capital. We also discuss global value chain performance measures in terms of the processes and activities which contribute to comparative location advantages or sustained competitive advantage of the value chain members. Our model contributes to the literature on global value chain governance by delineating the lead firm's resources through social capital theory.