Upgrading within global value chains: backward linkages, forward linkages and technological capabilities

Abstract

ABSTRACT The aim of the paper is to present a hypothesis of upgrading within global value chains (GVCs). In Stage I, both backward and forward linkages are low at lower level of productivity growth, but it provides ‘window of opportunity’ to increase participation in GVC. Firms enter Stage II with increasingly backward linkages. Only those firms with enough accumulated technological capabilities for transforming into high value-added activities participates in GVC with increasingly forward linkages in Stage III. In Stage IV, both backward and forward linkages again decrease, albeit at a higher level of productivity growth, wherein the firms manage production processes fragmented at different locations. This hypothesis of ‘upgrading within GVC in four stages’ is verified while examining the pattern of backward and forward linkages of global electronics industry with a specific focus on the electronics industry of South Korea, Taiwan and Mexico. It was found that the electronics industry of South Korea and Taiwan exhibited the pattern of ‘upgrading within GVC in four stages’ while Mexican electronics industry got caught in the ‘Stage II’ or ‘low value-added trap’. The proposition is examined from technological capability-building aspects of the systems of innovation approach.