Institutions and Economies

Catching Up Along the Global Value Chain in Asia: Strategies and Implications

VGR Chandran — 2023-10-01

Thailand and the Middle-Income Trap: An Analysis from the Global Value Chain Perspective

Upalat Korwatanasaku — 2023-10-01

The study provides a critical analysis through the lens of the global value
chain (GVC) framework with empirical data on value-added trade to explain Thailand's
middle-income trap (MIT) by matching GVC data at the firm, industry, and country
levels with the economic development trajectory. The results show that participation in
GVCs contributes to initial industrialisation and economic development. However, it
does not guarantee subsequent technological upgrading, as there is a risk of falling into
the middle-income technology trap (MITT). Thailand is highly dependent on passive
technology and specialisation imposed by headquartered countries, trapping the country
in the middle of value chains with limited knowledge and technology transfer. As a result,
Thailand has fallen into the MITT, where it cannot sustain growth and catch up with
the more innovative advanced economies, leading to it falling into the MIT. To escape
both traps, the government can consider policies that address inadequate knowledge and
technology transfer and the lack of capacity of local firms.

Global Value Chain Participation and Labour Productivity among Manufacturing Firms in Vietnam

Tran Thi Hue — 2023-10-01

This study assesses the state of global value chain (GVC) participation
by manufacturing firms in Vietnam and examines the impact of GVC participation
on labour productivity. Utilising firm-level data from the Vietnam Technology and
Competitiveness Survey and Vietnam Enterprise Survey from 2009 to 2018, we
employ panel fixed-effect regression to analyse the dynamics. The findings show that
Vietnam’s GVC participation has been driven mainly by backward rather than forward
linkages, signifying a reliance on foreign inputs for exports. The study found a positive
impact of backward and forward GVC participation on labour productivity. However,
the results show a stark contrast when considering the degree of GVC participation
(i.e. GVC participation index). While forward GVC participation positively impacts
labour productivity, backward GVC participation demonstrates a negative effect. The
results partly reject the learning-to-learn hypothesis while supporting the notion that
productivity improvements in Vietnam are associated with learning-by-exporting and
learning-by-supplying. We suggest that the prioritisation of forward GVC participation
should be accompanied by well-designed backward participation strategies to promote
labour productivity. The study concludes with a few policy implications.

Upgrading and Reconstruction of Global Value Chain: Case of Chinese Firm’s Catching Up Trajectory

Mingfeng Tang — 2023-10-01

This study aims to evaluate and, more importantly, examine the path of a
successful young Chinese high-tech firm in upgrading and reconstructing its position
in the global value chain (GVC) of the chip industry. We examine the existing GVC
positions of chip firms, the motivations for the firm’s entry into the market, the choice
of path to upgrading, and the attempt to restructure the GVCs. The study uses a
qualitative approach, mainly interviews and secondary data. The findings suggest that
devising and consistently implementing a targeted differentiation strategy, overcoming
technological bottlenecks and developing products towards a high-value location, and
targeting customers through open innovation and entrepreneurship are key for laggards
to improve their position in the GVCs. Building an ecological alliance based on the
existing ecosystem is an important means for upgrading a firm and rebuilding the GVC.
This is possible for young firms in the emerging segments of Industry 4.0, which are
moving into a highly digitised world where there are numerous market opportunities both
internally and globally. We argue that the ability to upgrade requires not only internal
capabilities, but also the creation of appropriate markets to support the development of
capabilities. Our study also provides some managerial implications.

Spatial Re-Localisation in Global Value Chains and Global Production Networks: Path Creation Perspective

VGR Chandran — 2023-10-01

The article provides insights into the drivers of spatial re-localisation within
the production networks of the solar photovoltaic (PV) industry. In doing so, we combine
the perspectives of Global Value Chain (GVC), Global Production Network (GPN)
and institutional path creation perspective to analyse the relocation and upgrading of
multinational corporations (MNCs) in Malaysia using interviews and trade data. Our
findings show that institutional path creation has helped to promote the completeness
of the entire solar PV value chain in Malaysia, with the state actively intervening and
creating new pathways by learning from the experience of the electronics industry,
especially in the pre-foundation phase. Nevertheless, the path creation is also limited in
that they have only been able to open windows of investment and trade opportunities
within the different segments of the GVC without doing much to promote technological
learning and spillover effects as the governance structure of the value chain is integrated.
We find that other factors are less helpful in promoting local spillovers – exportoriented
policies, energy policies and domestic industry dynamics due to lack of policy
coordination. The results draw attention to some important issues that deserve closer
consideration and contribute to the theoretical discussion within the GVC and GPN
literature. First, path creation occurs at both levels - at the level of institutions and at the
level of firms’ strategic decisions. Second, institutional path creation acts as exogenous
shocks to firm path creation leading to different strategic choices, and the two reinforce
each other. In other words, we have shown the complexity of path creation in the context
of GVC and GPN. Third, institutional path creation is subject to dynamic coordination
among agencies, without which path formation is constrained.

Upgrading within Global Value Chains and Innovation Capabilities: Lessons from Indian Information Technology Sector

Swati Mehta — 2023-10-01

This study examines the process, nature, and drivers of upgrading among
Indian information technology (IT) services firms in the global value chain (GVC) by
analysing the sector as a whole and examining three cases – Tata Consultancy Services
(TCS), Infosys and Wipro. It uses a qualitative research approach and data obtained from
secondary sources such as the Organization for Economic Co-operation and Development
(OECD) Trade in Value Added (TiVA) online database, company websites and annual
reports. The study found that the contribution of India’s IT sector to GVC is relatively
high among service sectors. It is increasingly delivering high-value products, reflecting
its upgrading within the GVC. Indian IT firms have gradually transformed from being
subcontractors providing low-value-added products and services to providing complete
projects and solutions. The three cases show that upgrading of India’s IT firms was
mainly due to continuous efforts to build innovation capacity by forging partnerships
with other technology leaders, start-ups, and academic institutions, and through
acquisitions. India needs to design specific industrial policy with enabling institutions
to increase domestic value-added (DVA) and develop a foreign direct investment (FDI)
policy that focuses on attracting multinational corporations (MNCs) with GVC linkages.