Economic and Social Upgrading in an Industrial Cluster in GVCs

You, Weimu; Virtanen, Yuan

doi:10.5465/ambpp.2020.16639abstract

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“…Besides an increasing tendency towards growing unequalisation (Kadarusman & Nadvi, 2013;Kaplinsky, 2000;Pahl & Timmer, 2020;Zhu & He, 2018), some suppliers in developing countries are found to be be locked in the low end of global supply with the lowest returns and the most intense competitive pressures (Gereffi, 2019;International Labour Office, 2003;Kaplinsky, 1993). Although there is widespread agreement that the most viable response for embedded suppliers is to "innovate and upgrade" -to make better products, make them more efficiently, or move into more skilled activities (Dong & Sun, 2020;Kaplinsky, 2000;Porter, 1990;You & Virtanen, 2020), the question remains of how can local suppliers in developing countries generate more innovation, giving the complex power dynamic context of vertical global supply chain relationship and horizontal market competition.…”

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confidence: 99%

Global Supply Chain Relationship, Local Market Competition, and Suppliers’ Innovation in Developing Economies

Lei

Atallah

Sun

2021

Technological and Economic Development of Economy

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This article examines how suppliers’ innovation in developing countries is affected by the interaction of vertical global supply chain relationships and horizontal market competition structure. We devised a bidirectional dynamic game model consisting of competing suppliers in a developing economy and an overseas buyer in a developed economy for innovation decision process in a suppliers cluster. Our research shows that global supply chain relationship is the primary factor to influence local cluster innovation and profit. Total innovation of the cluster is proved to be greater in global supply relationship with a powerful buyer than a non-powerful buyer. However, suppliers in a powerful buyer chain are not able to capture the value they created from innovation. Local competition structure plays its secondary role on cluster innovation through interaction with vertical chain relationship. Based on prior innovation research on either vertical supply chain power dynamics or horizontal competition intenseness, our study contributes as the first to employ a theoretical suppliers’ innovation model for an integrative analysis encompassing both global and local power dynamics.

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