Role of 'Right' Friends in GVC Participation: Evidence of the Importance of Network Connections From India’s Automotive Sector

Abstract

Several studies in the area of networking have attested to the fact that network connections are an important source of competitive advantage for firms. In the networks and trade literature, the gains from networking have been broadly associated with lowering of information costs (thus improving information channels within and across borders) as well as diffusion of preferences. In this paper we establish how firms are affected by their local and national networks in the context of Global Value Chains in terms of impact the odds of the participation in the sectoral GVCs. We show through a theoretical model that network characteristics can prove vital in mitigating the handicaps due to size of firm by enhancing productivity through the diffusion of general innovation (sans R&D). This question is especially pertinent for small and medium firms that face natural disadvantages owing to their size. We then also provide proof for this proposition (that the drawbacks due to firm characteristics like size can be mitigated by forming the “right” alliances – both locally and nationally) empirically from Indian Automotive Sector network.