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

• Author: Jeremy Clegg,Hinrich Voss,Miguel Dindial
• DOI: http://doi.org/10.1002/gsj.1382
• Date: 01 August 2020
• Published date: 01 August 2020

SPECIAL ISSUE ARTICLE

Between a rock and a hard place: A critique

of economic upgrading in global value chains

Miguel Dindial

1

| Jeremy Clegg

2

| Hinrich Voss

2

1

Centre for Strategy and Competitiveness, The Arthur Lok Jack Global School of Business, The University of the West

Indies, Mt. Hope, Trinidad and Tobago

2

Leeds University Business School, University of Leeds, Leeds, UK

Correspondence

Miguel Dindial, Centre for Strategy and

Competitiveness, The Arthur Lok Jack

Global School of Business, The University

of the West Indies, Mt. Hope, Trinidad

and Tobago.

Email: m.dindial@lokjackgsb.edu.tt

Abstract

Research Summary: Researchers have tried to under-

stand 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 symbi-

otic. 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 Summary: The fragmentation and dis-

persion of the multinational enterprises’(MNE) value-

adding activities allows DCFs to insert themselves in

the MNEs’value chain. Within both academic and pol-

icy 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

Received: 15 February 2018 Revised: 29 March 2020 Accepted: 15 April 2020

DOI: 10.1002/gsj.1382

Global Strategy Journal. 2020;10:473–495. wileyonlinelibrary.com/journal/gsj ©2020 Strategic Management Society 473

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 mem-

bers. We address this assumption by introducing

power-dependence and bargaining power to explicate

the conditions under which an economic upgrading tra-

jectory can positively influence the DCF’s value-added

appropriation.

KEYWORDS

bargaining power, dependence, global value chains, upgrading,

value-added appropriation

1|INTRODUCTION

The economic phenomenon of rising fragmentation of production networks has been driven by

the actions of multinational enterprises (MNEs) and technological progress (Organisation for

Economic Co-operation and Development, 2013). Since the 1960s, researchers have noted the

organizational shift of U.S. multinationals towards the fine slicing of various activities via out-

sourcing strategies (Gereffi & Lee, 2012). This trend has intensified in today’s economic land-

scape and foreign direct investment is no longer considered the primary mechanism for the

internationalization of value chains (Banga, 2013; Feenstra, 1998). MNEs are now increasingly

willing to engage in various forms of nonequity production strategies and it is estimated that

almost 60% of MNE-related trade is contractually based (United Nations Conference on Trade

and Development [UNCTAD], 2013).

This increased fragmentation of international production has given rise to studies on eco-

nomic upgrading. Disaggregated value chains have allowed developing country firms (DCFs) an

increased opportunity to insert themselves into global production. To a large extent, the notion

of economic upgrading through the participation in MNE-led global value chains (GVCs) is

supported by the assumption of MNEs’technological superiority (Humphrey & Schmitz, 2002;

Ivarsson & Alvstam, 2010). From this perspective, MNEs are in possession of knowledge,

resources and experience that allows for firm-specific advantages (Hansen, Pedersen, &

Petersen, 2009; Rodríguez-Clare, 1996). It is common for GVCs studies to start with the

implicit assumption that relationships with the MNE will place DCFs on dynamic learning cur-

ves through the unidirectional flow of technological, managerial and financial support, learning

by doing and the existence of other knowledge-based externalities (Gereffi, Humphrey, &

Sturgeon, 2005; UNCTAD, 2013).

Our paper builds on this perspective by focusing on instances of upgrading that occur

through the MNE–DCF relationship and are manifested in knowledge and resource transfers

from the former.1 We adopt this perspective acknowledging that GVC studies have, to a lesser

extent, explored other factors that can facilitate economic upgrading, for instance, broader insti-

tutional settings (McDermott, Corredoira, & Kruse, 2009; Tokatli, 2007) and domestic cluster-

ing (Bair & Gereffi, 2001; Humphrey & Schmitz, 2002). Even so, the interfirm governance

relationship between the MNE–DCF is frequently posited as the strongest conduit for DCF

474 DINDIAL ET AL.