10. Governance, institutions, and upgrading in GVCs Flashcards
What is a Global Value Chain?
A phenomenon where production is broken into activities and tasks carried out in different countries
Economic integration within a chain goes beyond international trade in raw materials and final products to include internationally dispersed but centrally coordinated production of a given product
What are the types of governance in GVCs?
Gereffi et al. (2005)
hierarchy -> vertical intergration; dominat governance form from the HQ to affiliates and subsidiaries
captive -> small suppliers are reliant on larger buyers and it is too costly to switch; tightly monitored and controlled
relational -> complex interactions between buyers and sellers which creates mutual dependence
modular -> turn key suppliers make products to customers’ specifications and have in turn other component and material suppliers
market -> persist over time and transactions repeat; the cost of switching to new partners is low for both parties
What are the determinants of value chain governance?
Gereffi et al. (2005)
- complexity of transactions
- how information is codified -> complexity of info can be reduced through internationally adopted standards
- capabilities of suppliers
What are the dynamics of GVCs?
Gereffi et al. (2015)
- Not static nor monolithic
Information complexity changes as lead firms seek to obtain more complex outputs and services from their suppliers
- Constant tensions between codification (preventing knowledge spillovers) and innovation (requires openness and collaboration)
- Supplier competencies change over time (when new suppliers are introduced, or when old suppliers learn new things)
- not evolving along a single trajectory
- standards for codification are different from industry to industry, they can become obsolete as tech changes, they can compete with each other
What does upgrading imply?
Neilson (2014)
a ‘process of improving the ability of a firm or an economy to move to more profitable and/or technologically sophisticated capital and skill-intensive economic niches’
Ponte (2020) - upgrading with regards to sustainability
Happens when lead firms in GVCs are leveraging sustainability for profit maximization, while suppliers build new competencies or sharpen existing ones to meet these demands
What are the different kinds of upgrading happening GVCs?
Ponte (2020)
4 Kinds of economic upgrading:
- product upgrading - moving into more sophisticated products with an increased unit value
- process upgrading - achieving a more efficient transformation of inputs into outputs through reorganization of productive activities
- functional upgrading - acquiring new functions (or abandoning old ones) that increase the skill content of activities
- inter-chain upgrading - applying competencies acquired in one function of the chain to a different sector/chain
Social upgrading - the process of improvement in the rights and entitlements of workers as social actors, which enhances the quality of their employment
- economic upgrading is a necessary but not sufficient condition for social upgrading
Environmental upgrading - minimize the impact of GVC operations or alter the production system (seems to happen within unipolar value chains where power is in the hands of global buyers with high reputation risks)
Explain how upgrading processes have led to a “contested value regime”
Ponte (2020) argues that there are “hidden costs” of upgrading - costs not visible to consumers, governments, NGOs, and the general public - and that upgrading processes move these costs upstream towards the producers. Essentially, producers/suppliers/farmers are pressured to comply with certain regulations that are costly for them, but they don’t receive any benefits from upgrading (for example price premiums). The value produced by them is captured by consumer-country operators.
There is a transfer of value happening from the Global South to the Global North, from producers to global buyers, and from labor to capital
Can governance forms in GVCs change over time? Provide empirical example.
In short, yes. Governance forms change due to the nature of GVCs -> dynamic, but also as a response to changes in the market (new technologies, new suppliers, new requirements & trade rules, etc.)
EMPIRICAL EVIDENCE
Gereffi et al. (2015)
- The apparel industry in SEA: From captive to relational value chains
Due to the expansion and growing capabilities of its global supply-base, the apparel industry moved very fast from captive (just assembling imported goods in EPZs) to more complex relational value chains (more domestic integration and full package supply, involving more complex forms of coordination, knowledge exchange, and supplier autonomy). This allowed local firms to learn how to make internationally competitive consumer goods and generated substantial backward linkages to the domestic economy.
- Fresh vegetables imported from Kenya to the UK: From market coordination to explicit coordination
This change has been driven by the importance of the competitive strategies of UK supermarkets: in the mid-1980s, UK supermarkets began to use the quality and variety of their produce offerings as a main source of competitive differentiation, and in doing so generated several distinct forms of governance at different stages in the chain.
At the same time, the supermarkets were forced to respond to an increasingly complex regulatory environment related to food safety (particularly pesticide residues and conditions for post-harvest processing), environmental and labor standards. Supermarkets developed closer relationships with UK importers and African exporters, and moved to renewable annual contracts with suppliers whose capabilities and systems were subject to regular monitoring and audit. Thee changes created more complex and relational interactions within the chain.
- The US electronics industry: From hierarchy to modular value chains
Initially, the industry has been dominated by large, vertically integrated firms. Then, with outsourcing, production has been split up and concentrated into a handful of huge globally operating contract manufacturers (high degree of modularity). This shift has been enabled by the codification of complex information (for example, through computerized product design and automated process technologies) -> lead firms trying to protect against intellectual property leakage and buyer-supplier lock-in
How did Gereffi’s GVC framework affect development interventions?
Neilson (2014) says that there were 2 aspects of specific development interventions that followed the GVC framework:
1) Institutional settings were interpreted as business enabling environments -> in other words support for free market reforms followed (regulatory framework were looked as from the perspective of enabling or disabling the movement of a product through the value chain)
2) Lead firms were seen as conduits of development assistance
Lead firms become strategic development partners; the needs of the firm are conflated with the needs of the local community
What is governance?
Gereffi (1994) defines it as authority and power relationships that determine how financial, material, and human resources are allocated and flow within a chain
