Local Technology Linkages and Supplier Upgrading in Global Value Chains: The Case of Swedish Engineering TNCs in Emerging Markets

Abstract

We complement the existing global value chain literature by presenting empirical evidence on technology upgrading among domestic suppliers operating in the less-investigated producer-driven engineering industries. Unique firm-level data from 22 Swedish manufacturing affiliates and their 1349 suppliers in China, India, Brazil and Mexico show that domestically-owned suppliers are generally provided with substantial technological support by their TNC customers as part of regular business relations. The transfer of product and process technology is especially facilitated through a combination of local business linkages, which enhance tacit learning, and global business linkages, where the management challenges related to operating global sourcing strategies enhance mutual commitments from both buyers and suppliers. Thus, rather than resulting in ‘captive’ governance structures, our findings suggest that in these types of value chain ‘developmentaly’ buyer-supplier relations are likely in many emerging markets, resulting in technological upgrading of less capable, domestic suppliers.