Value Chain Upgrading Research Articles

Innovation, upgrading, and governance in cross-sectoral global value chains: the case of smartphones

Abstract The fourth industrial revolution challenges the existing understanding of innovation and upgrading in the global economy. It blurs traditional sectoral boundaries based on distinctive products and technologies and calls into question a traditional global value chain (GVC) perspective, which, similar to the sectoral systems of innovation approach, examines innovation and upgrading from a sector-based orientation. Building upon the recent reformulation and extension of GVC governance theory, this article proposes the notion of cross-sectoral GVC governance to capture the new stage of platform-based industrial development. It specifies the conceptual dimensions of cross-sectoral GVC governance in terms of the mode of governance (i.e., driving, linking, and normalizing), the overall GVC structure in terms of polarity, and firm strategies of managing GVCs. The proposed framework is illustrated using the case of smartphones as a platform product, focusing on four lead firms—Samsung, Apple, Huawei, and Google—to showcase divergent firm strategies for governing cross-sectoral linkages related to innovation and upgrading.

Global Value Chain Upgrading and Business-academia Collaborations: Case Studies of Successful Innovators

Abstract The article links upgrading in the global value chains with the triple helix concept by focusing on business-academia collaborations that played a part in firms’ capacity to upgrade. Both are crucial for Central Eastern European countries, which face the need to restructure their economies and escape the “middle income trap”. The article asks the following research question: how can public policy encourage business-academia collaboration or other types of activities that contribute to firm upgrading? Data on four different case studies in Lithuania is analysed to answer this question. Results indicate that building endogenous technological capacity through a variety of business-university collaboration types is needed to attract higher-value foreign direct investment and facilitate intersectoral and functional global value chain upgrading. Furthermore, besides research and development, educating and training the labour force are likely to be even more poweful drivers for business-academia collaboration in Central and Eastern Europe.

Digital power: Value chain upgrading in an age of digitization

We investigate whether and how digitization may affect the power relationships that constrain the upgrading of small and medium-sized enterprises (SMEs) in global value chains (GVCs). Combining GVC literature and Resource Dependency Theory, we examine the three features that shift upgrading constraints: asset-specificity, market disintermediation, and innovation sources. The outcomes of a multiple case study encompassing Brazilian firms intentionally sampled from the Digital Games Industry refine our propositions, leading to the concept of digital power as the potential difference in the power imbalance that a supplier may experience in relation to lead firms when performing similar functions in value chains with different digitization degrees. We contribute to International Business literature regarding the relatively unaddressed effects of digital technologies on power relationships in value chains, and deepen the extant understanding of value chain upgrading as a phenomenon. For practitioners, our results inform ways of benefiting from digital industries.

Technology strategy and MNE subsidiary upgrading in emerging markets

• We connect technology strategy to organizational capability to investigate MNE subsidiary upgrading in emerging markets. • We suggest technology strategies to be delineated by subsidiaries’ manufacturing orientation (local or global) and knowledge transfer type (uni-directional or multi-directional). • We outline four technology strategies that MNE subsidiaries in emerging markets pursue for process, product and functional upgrading in global value chains. This paper investigates technology strategy in subsidiaries of Multinational Enterprises (MNEs) in emerging markets and suggests implications for subsidiary upgrading in Global Value Chains (GVCs). Technology strategy is delineated by the MNE subsidiary's manufacturing orientation (local or global) and knowledge transfer type (uni-directional or multi-directional). Drawing upon a multiple case study of seven of the largest Brazilian subsidiaries of Swedish MNEs, the study identifies four different MNE technology strategy types: 1) technical; 2) improvement; 3) development; and 4) creation. The findings suggest that technology strategy influences subsidiary upgrading through development of operational and dynamic capabilities.

Measurement of innovation in the informal sector in Africa: the importance to industrial policy

ABSTRACT Innovation is key to industrialization in Africa and must be aligned with industrial policy. A challenge for African countries is to design and implement innovation and industrial policies that take into account the unique structural nature of African economies, in which the informal sector is prevalent. This paper argues that a measurement programme focused on innovation in the context of local economic development is imperative for setting industrial and innovation policy in Africa. Policies tend to speak and respond to those phenomena that have been subjected to measurement programmes. Is there space for designing new measures of innovation in Africa that include the informal sector? We propose a novel methodology and framework for measuring informal sector innovation, based on a local innovation and production systems approach. We end the paper with a proposal for using the evidence gathered from this methodology and a continental strategy that lends itself to direct policy intervention that has local economic development and upgrading of value chains as a goal.

China’s functional upgrading in global value chains and its drivers: a multi-country chaining structural decomposition analysis

ABSTRACT The functional activities, such as management, marketing, R&D and fabrication, carried out by a country or industry is of great importance for its governance and upgrading on the global value chains (GVCs). This paper provides a long-term macro-economic analysis on China’s functional upgrading in GVCs and its drivers between 1999 and 2011. We combine the world input-output database with the newly compiled labour occupations database to measure China’s functional income growth in internationally fragmented production networks, and then incorporate the concept into the chaining structural decomposition analysis (SDA) to explore its drivers. We find that China has achieved functional upgrading to some degree, reflected in the growth of China’s domestic value added in headquarter activities, such as R&D, at the aggregate and industrial levels. However, fabrication activity still stands out, indicating that China still has a long way to go on upgrading in GVCs. Finally, through the chaining SDA, we find that among the GVC production, technology and consumption effects, the consumption level (consumer demand) is the main factor driving the growth of China’s functional upgrading.

Institutional Factors that Influence Social Upgrading in Global Value Chains in the Soccer Ball Industry

This research examines how institutional factors (public, private and social governance) Influence social upgrading in supplier firms in global value chains (GVCs) in the soccer ball industry of Pakistan. Using primary multi-source data, we found that institutional factors in GVCs play a critical role in the social upgrading of the industry. Furthermore, we revealed that social upgrading is an outcome of an interplay between public, private and social governance in GVCs.

Regional economic integration and economic upgrading in global value chains: selected cases in Africa

This study examined the impact of regional economic integration on economic upgrading in global value chains (GVCs), of the East African Community (EAC), Southern African Customs Union (SACU) and the Economic Community of West African States (ECOWAS), from 2000 to 2015. Using the Least Square Dummy Variable (LSDV) technique, the results showed that regional economic integration is not a significant driver of the economic upgrading of their Members, in GVCs but one-period lagged backward participation in GVCs is. Considering labour productivity as an alternative measure of productivity in the place of productivity linked with participation in GVCs (economic upgrading), regional economic integration turned out to be a weak positively significant determinant. At a disaggregated level, regional economic integration significantly determined labour productivity in both EAC and SACU but not in ECOWAS. More regional efforts are needed to sufficiently aid the contribution of these African RECs to their Members’ economic upgrading in GVCs.

Digital Technologies and Product Upgrading in Global Value Chains: Empirical Evidence from Indian Manufacturing Firms

This paper provides empirical evidence on the impact of digitalisation on product upgrading in Global Value Chains (GVCs). Analysis is done for a sample of Indian manufacturing GVC firms in the period 2001–2015 from the firm-level database Prowess, using the methodology of System Generalised Method of Moments. Product upgrading is captured by a novel sales-weighted average product sophistication indicator constructed at the firm level. Digitalisation is captured through a digital capability index, constructed using principal component analysis, which draws information on both ‘hard’ and ‘soft’ digital assets for firms. Empirical results indicate that an increase in digital capability of an Indian GVC firm has a significant and positive impact on its product sophistication, implying that by investing in digital capabilities, Indian manufacturing firms can produce better and more sophisticated products in GVCs, enabling them to upgrade and climb up the value-chain ladder. Firms that are Digital Leaders produce 4–5% more sophisticated goods than Digital Laggards.

The impact of Two-way FDI on the upgrading of global value chain of China’s manufacturing industry

Manufacturing industry is the leading industry in China’s national economy. The participation of global value chain (GVC) in China’s manufacturing industry is very high, whereas its GVC status is very low. The inward foreign direct investment (IFDI) and outward foreign direct investment (OFDI) are the main ways for China’s manufacturing industry to integrate into the global value chain. Previous studies mainly focused on the upgrading of GVC in China’s manufacturing industry from the perspective of single IFDI or single OFDI. This paper takes the perspective of “Two-Way FDI” as the starting point. Using the panel data of China’s manufacturing sub-industries, this paper analyzes the mechanism of IFDI, OFDI and two-way FDI influencing GVC. The Fixed Effect Model is established to analyze the impact of IFDI, OFDI and two-way FDI on GVC upgrading of China’s manufacturing industry.

Measuring the value chain participation of the agricultural sector

The development literature has long supported the view of connecting the agricultural sector to value chains to boost productivity, expand markets and improve sector competitiveness. While there are several market failures that make this a daunting task, there are opportunities for the private sector to step in and initiate or expand these linkages. This paper is first in a series that discusses a proposed agricultural value chain connectivity index based on the framework proposed by Trienekens (2011). This index will allow the authors to measure the potential of the Philippine sector to upgrade its value chains connection and identify the areas of weaknesses that need to be addressed to further integrate various agricultural sectors into the value chain. This index can also help identify and recommend areas where the private sector can participate in addressing these constraints and maximize the development potential of value chain upgrading. This paper will present the conceptual framework underlying the index and discuss its general structure and an overview of the variables that will be considered for inclusion in the measure.

Dairy Value Chain Upgrading in Bishoftu Town, East Shewa, Oromia, Ethiopia

Despite tremendous potential for dairy production in Ethiopia, the sector is not upgraded generally in the country and specifically in Bishoftu town. Dairy value chain upgrading was analyzed with objectives of identifying actors in dairy value chain upgrading and measuring their performances. Data were collected in the town at dairy producers’ level, traders (retailers) level and expert level through structured questionnaire and key informant interviews. Censuses of 141 dairy producers were conducted by dividing them into three different scale farm producers. Accordingly producers who have 1-5 dairy cows were categorized as small scale producers, 6-10 medium scale producers and >11 dairy cows were taken as large scale dairy farms. Based on this classification there were 100, 34, and 7 small, medium and large scale dairy respectively in the town. It was assumed that all large scale were processors, but one producer was found to be non-processor and was omitted from census survey. So, the survey was conducted with 140 dairy producers in the town. Data were analyzed by value chain analysis. The results from the descriptive statistics shows that from total dairy producers 46% were processing dairy /milk into yogurt, cheese and butter. Twenty four percent of the producers convert milk into yogurt, 11% process into cheese and butter, and another 11% process dairy into yogurt, cheese and butter. Therefore, producers’ socioeconomic factors and institutional factors needed to be strengthened by supportive activities like training for capacity building of producers in order to upgrade dairy value chain in town. Keywords: Upgrading, Value chain, performances, Dairy, Bishoftu town DOI: 10.7176/FSQM/103-01 Publication date: December 31 st 2020

Participative Innovation Platforms (PIP) for Upgrading NTFP Value Chains in East Africa

Improving forest product value chains is considered a means to solve forest-related challenges in the Global South. The ‘Participative Innovation Platform’ (PIP) instrument has been developed to design and to continually adapt solutions and strategies for effective cooperation amongst value chain actors. The instrument is rooted in the action-oriented and social learning approach, combined with the concept of innovation systems. This paper presents findings from three PIPs conducted for upgrading non-timber forest product value chains in Ethiopia (bamboo, natural gums) and Sudan (gum Arabic). A comparative analysis of highest ranked contents revealed similarities in the challenges: lack of government support, poor infrastructure, producers’ lack of knowledge and skills, and lack of market information. Priority upgrading measures focused on producers’ knowledge, skills, and capacity to engage in collective action and to lobby interests, and on capital resources to invest in processing technology. It is concluded that although the PIP instrument presents an innovative way to upgrade forest-based value chains, the instrument requires a long-term process with frequently held platform meetings, conducted by neutral institutions with skilled moderators. Crucial in this process is the need to consistently verify and ensure that all actor groups of the chain are represented, and are confident they will derive benefits from the value chain upgrading.

The hidden costs of environmental upgrading in global value chains

Sustainability has become important in the operation of the global economy and its regulatory structure, leading significant shifts in the way powerful ‘lead firms’ in global value chains approach sustainability. In this paper, I argue that private, value chain-oriented forms of sustainability governance are not addressing the environmental problems they are putatively designed to solve. Through the analysis of how lead firms stimulate environmental upgrading along their value chains, I show that the mainstreaming of sustainability in business operations has allowed global buyers to accumulate ‘green’ profits and capital in ways that extract value from suppliers – especially those based in the global South. Drawing from analyses of the wine and coffee value chains, I show how lead firms push the hidden costs of sustainability compliance and related risks upstream towards producers. These processes have important redistributive repercussions as they raise entry barriers for smaller, less organized and/or more marginalized actors. Under the mantle of achieving environmental sustainability, lead firms in value chains stealthily capture value for themselves, while extracting more demands from their suppliers and promoting a further consolidation of their supply base. In the meanwhile, serious environmental challenges remain unaddressed.

Upgrading Path and Value Chain Upgrading Strategy of China's Marine Equipment Manufacturing Industry

Dong, S.-S., and Sun, Y.-L., 2020. Upgrading path and value chain upgrading strategy of China's marine equipment manufacturing industry. In: Qiu, Y.; Zhu, H., and Fang, X. (eds.), Current Advancements in Marine and Coastal Research for Technological and Sociological Applications. Journal of Coastal Research, Special Issue No. 107, pp. 157-160. Coconut Creek (Florida), ISSN 0749-0208.The upgrading of Marine Equipment Manufacturing Industry (MEMI) and value chain is of great value to the implementation of the strategy of building a strong marine country and the sustainable development of marine industry economy. Based on this, this paper first studies the upgrading mechanism of China's MEMI, then analyzes the upgrading principle and path of MEMI and value chain, and finally gives the upgrading path and value chain construction strategy of MEMI.

Chinese Manufacturing Suppliers’ Upgrading in Global Value Chains

This research investigates the institutional challenges faced by Chinese manufacturing suppliers and their corresponding strategic responses through an institutional theory lens. The empirical research is based on a multiple case study involving nine case companies of three company size categories in the Chinese nonwoven fabric product industry. Data were collected over a period of three years from 2015 to 2017. This paper identifies three categories of institutional challenges, i.e., macro-institutional challenges, meso- institutional challenges, and micro-institutional challenges, faced by Chinese suppliers. Furthermore, it identifies the strategic responses undertaken by these companies in response to the above challenges, i.e., economic upgrading, environmental upgrading, and social upgrading, which in turn are associated with the companies’ size and level of maturity in upgrading practices. Finally, a maturity framework is developed with five positions that reveal a four-stage upgrading trajectory and strategic changes on the trade- off between institutional efficiency and legitimacy. As most extant research on the phenomenon of sourcing from China approaches it from the viewpoint of global buyers, this research examines the phenomenon from the viewpoint of Chinese suppliers. Through applying the theoretical lens of institutional theory to investigate GVC upgrading, this study contributes to the literature streams on both GVC and institutional theory.

Policy options for mitigating impacts of COVID-19 on domestic rice value chains and food security in West Africa

Rice plays a strategic role in food security in West Africa. However, the region increasingly relies on rice imports due to a growing and structural deficit, and domestic value chains face constraints in technology, finance and coordination. As a result, West Africa is very vulnerable to international and local trade disruptions, such as the ones currently inflicted by the COVID-19 pandemic. We build on evidence of the current state of domestic rice value chain upgrading in West Africa to anticipate the impacts of the COVID-19 pandemic on rice value chains’ resilience and their capacity to sustain food security in the region. Several policy options are proposed to help West African governments mitigate the impacts of the COVID-19 crisis on food security.

Between a rock and a hard place: A critique of economic upgrading in global value chains

AbstractResearch SummaryResearchers have tried to understand how insertion into global value chains (GVCs) can lead to economic upgrading for the developing country firms (DCFs) involved. Many of these studies operationalize upgrading as a DCF's movement into higher value‐added activities, where the creation and appropriation of value‐added are assumed to be symbiotic. In doing so, they divorce economic upgrading from its effect on interfirm bargaining power. We address this core assumption by introducing insights from theories on power‐dependence relations. We argue that pursuing an economic upgrading trajectory can be positioned a necessary but insufficient condition for DCF value‐added appropriation. In so doing, we theoretically explicate the conditions under which an economic upgrading trajectory is likely to result in DCF value‐added capture.Managerial SummaryThe fragmentation and dispersion of the multinational enterprises' (MNE) value‐adding activities allows DCFs to insert themselves in the MNEs' value chain. Within both academic and policy spheres, DCFs are encouraged to participate in GVCs as it allows for knowledge and resource transfers from the MNE (upgrading opportunities). In this paper, we offer a critique on this notion of economic upgrading. We argue that researchers have focused on the benefits that new or improved value chain activities can bring, but have largely ignored how these benefits are shared between the chain participants OR members. We address this assumption by introducing power‐dependence and bargaining power to explicate the conditions under which an economic upgrading trajectory can positively influence the DCF's value‐added appropriation.

A Strategic Approach to Value Chain Upgrading—Adopting Innovations and Their Impacts on Farm Households in Tanzania

The level of agricultural productivity in Sub-Saharan Africa remains far below the global average. This is partly due to the scarce use of production- and process-enhancing technologies. This study aims to explore the driving forces and effects of adopting innovative agricultural technologies in food value chains (FVC). These enhancing FVC technologies are referred to as upgrading strategies (UPS) and are designed to improve specific aspects of crop production, postharvest processing, market interaction, and consumption. Based on cross-sectional data collected from 820 Tanzanian farm households, this study utilized the adaptive lasso to analyse the determinants of UPS. To measure the impact of their adoption on well-being, this study applied the propensity score matching approach (PSM). Results from the adaptive lasso suggested that access to credit, experience of environmental shocks and social capital were the main drivers of UPS adoption. In contrast, the engagement in off-farm wage employment impeded adoption. The results from the PSM suggested that UPS adoption has a positive and significant impact on well-being among sampled households, especially with respect to their total value of durable goods and commercialization. The paper suggests that the promotion of social capital and access to financial capital is pivotal in enhancing the adoption of innovative UPS in the farming sector.

Technological Capabilities, Upgrading, and Value Capture in Global Value Chains: Local Apparel and Floriculture Firms in Sub-Saharan Africa

abstract Many local firms in sub-Saharan African countries are failing to enter and upgrade in new manufacturing and agribusiness export sectors. This article argues that we need to look more closely at the costly, risky, and uncertain firm-level processes of building capabilities in order to understand this challenge. However, local firm agency is constrained and has to be situated in asymmetric structures that are determined by transnational interfirm relations in global value chains (GVCs) as well as the country and region in which local firms are embedded. The article presents a new framework for researching how firms build capabilities in GVCs, and demonstrates how it can be applied using the cases of apparel and floriculture export sectors in Ethiopia, Kenya, and Madagascar. The cases show that firms build specific capabilities linked to export strategies, leading to uneven capability-building, specific upgrading paths, and value capture trajectories. Variations in local firms’ export strategies and success with those strategies are explained by differences in the financial capital, tacit knowledge, and social networks that they can leverage in building capabilities. The nature and extent of these intrafirm resources, especially in the early period of export industry development, are shaped by shared networks between local and foreign supplier firms, regional proximity to existing supplier countries, strategic interests of global buyers, and government industrial policy.