Knowledge Transfer and Service Embedding for Upgrading in Global Value Chains

Abstract

A global value chain (GVC) comprises the whole sequence of production stages and business processes that are organized across different countries. Upgrading in GVCs is the process of shifting to activities, products or economic sectors, which generate a higher level of value-added. In the light of selected bibliographic sources, improved competitiveness is viewed as the result of upgrading and we begin with the assumption that a growth in marketshare is a gauge of both competitiveness and upgrading. The primary goal of this paper is to evaluate the proposition that upgrading in global value chains is a result of increasing GVC participation and of a rise in the share of domestic services value-added included in gross exports. A random effect regression model of panel data was the research method applied to verify this hypothesis in the manufacturing sector in Central and Eastern EU member states. The main results lead to a positive impact of both GVC participation and share of domestic services value-added in gross exports on GVC upgrading. This allowed for the option of making a few recommendations for a more widespread and intense involvement in GVCs, where the knowledge transmission can be exploited. The possible practical implications of the paper are that the learning effects coming from other partnersin GVC should be nurtured and used to improve market share or evolve to higher value-added activities. Servicification of manufacturing can lead to a more competitive position along the GVC, especially if the included services lead to innovation and increased productivity. The investigation of the interaction between GVC participation and service inclusion in production and their effects on upgrading and competitiveness constitutes the paper's novel contribution.