Abstract
South-South value chains have grown to play a central role in the organisation of global trade, yet little is known about how this phenomenon affects suppliers’ upgrading prospects. This article theorises whether and how links to North-South and South-South value chains differently affect suppliers’ delivery of product quality and value-added tasks, as well as their improvement over time (respectively defined as product and functional upgrading). To empirically evaluate this question, we draw on a combination of firm-level export data and interviews across the Kenyan leather sector. Results show that product quality and value-added tasks are higher for exports to the North than to the South, but that there is no systematic difference in product and functional upgrading to the two aggregate destinations. Digging deeper, however, we show significant variation in outcomes across Southern destinations. On the one hand, China-led value chains present similar product quality and steeper functional upgrading than North-South value chains. On the other hand, intra-Africa value chains emerge as platforms for small suppliers to specialize in higher value-added tasks. These findings contribute to scholarship on global value chains and the global factory, enhancing our understanding of the implications for suppliers participating in value chains with different product standards and consumer preferences.
Highlights
Between 2001 and 2018 South-South trade increased at a compound rate of 11.3 %, significantly faster than the 6.9 % growth experienced by North-South trade
The analysis shows that Kenyan suppliers specialize in lower quality products and lower value-added tasks when exporting to the South than they do when exporting to the North
This leads to our last hypothesis: Hypothesis-4.: over time, suppliers in developing countries experience a faster specialisation in higher value-added tasks when exporting to Northern buyers than when exporting to Southern buyers
Summary
Between 2001 and 2018 South-South trade increased at a compound rate of 11.3 %, significantly faster than the 6.9 % growth experienced by North-South trade. One set of studies has argued that less sophisticated products in developing countries provide suppliers access to comparatively less advanced knowledge, reducing their ability to improve product quality (product upgrading) (Dahi & Demir, 2016; Horner, 2014; Kaplinsky, Terheggen, & Tijaja, 2011) Another set of articles, again, has countered that lower pressure from Southern buyers, owing to similar institutional settings and lower product standards, enables suppliers to move into production tasks with larger shares of value-added (functional upgrading) (Brandt & Thun, 2010; Navas-Aleman, 2011).
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