Exploring the relationship between upgrading and capturing profits from GVC participation for disadvantaged suppliers in developing countries

Abstract

The existing literature on global value chains (GVCs) suggests that functional upgrading is a key determinant of whether suppliers are able to capture higher profits in GVCs. However, it is unclear whether the same argument holds for disadvantaged suppliers who face high barriers to achieving functional upgrading. Through a review of existing empirical studies, the present paper aims to explore how disadvantaged suppliers in developing countries increase their profits in the face of barriers to functional upgrading. The findings from the literature analysis suggest that the ability of disadvantaged suppliers to benefit from GVC participation depends on the extent of their managerial agency and their ability to leverage multiple upgrading/downgrading trajectories (whether product, process, or functional) and transform them into profitable outcomes. Copyright © 2017 ASAC. Published by John Wiley & Sons, Ltd.Keywords: upgrading, functional upgrading, position, global value chains, profit margins Résumé Pour les auteurs des travaux existants sur les chaînes de valeur mondiales (GVC), c'est la modernisation fonctionnelle qui détermine si les fournisseurs sont en mesure de réaliser des profits importants dans le cadre des GVC. Mais ces auteurs n'indiquent pas si ce postulat s'applique également aux fournisseurs défavorisés qui, pour réaliser leur modernisation fonctionnelle, doivent faire face à des obstacles majeurs. Dans le présent article, nous explorons, grâce à une revue des travaux empiriques existants, la manière dont les fournisseurs défavorisés des pays en voie de développement augmentent leurs profits en dépit des obstacles qui entravent leur modernisation fonctionnelle. Nos résultats révèlent que la capacité des fournisseurs défavorisés à tirer profit de leur participation aux GVC dépend de la taille de leur organisme managérial et de leur aptitude à transformer les multiples mouvements de modernisation/dégradation (des produits, des processus ou des fonctions) en revenus.

Knowledge Connectivity in an Adverse Context: Global Value Chains and Pakistani Offshore Service Providers

“…As a consequence, the micro-level strategic agency of smaller suppliers is comparatively under-investigated (cf. Choksy 2015; Choksy et al 2017;Hoque et al 2016). To this end, our study makes two over-arching contributions.…”

“…Jensen and Petersen's (2013) framework also does not include the strategies and actions of sourcing partners, directed at effectuating change in the interfirm relationship (cf. Choksy et al 2017;Sinkovics et al 2018).…”

“…It is possible for value chain participants to make changes to connectivity parameters over time, through negotiations, contestations and/or trust building (cf. Allen 2003;Choksy et al 2017;Kawakami and Sturgeon 2011). To understand how these changes happen, we need to turn our attention to micro-foundations (cf.…”

Handbook on Global Value Chains

“…To this end, using a microfoundations lens can contribute to GVC work focusing on firm-internal processes of disarticulation and counteraction (cf. Choksy, Sinkovics and Sinkovics, 2017;Ponte et al, Chapter 6 this volume;Raj-Reichert, Chapter 22 this volume). A microfoundations approach is well suited to investigate how capabilities emerge from individual actions and interactions in both MNEs and suppliers and what managers can do to create or change capabilities (Felin and Foss, 2005;Foss, 2009;Hoque, Sinkovics, and Sinkovics, 2016;Sinkovics, Hoque and Sinkovics, 2018a).…”

Environmental Upgrading and Suppliers’ Agency in the Leather Global Value Chain

“…Depending on the types of governance implemented by the lead firms of the chain-market, modular, relational, captive, or hierarchy-and the related power distribution, either the lead firm or the supplier can be the source of knowledge for improvement. In captive forms of governance-largely explored by GVC studies, especially with a focus on developing countries-the lead firm is the driver for upgrading, transferring knowledge, and sustaining the capability growth of suppliers, while suppliers may have more limited managerial capabilities to address upgrading autonomously [35]. Where the other forms of governance are concerned, suppliers may demonstrate the capability to enhance their product or processes or even to enlarge their competences by investing in new functions (i.e., design or brand, functional upgrading).…”