Economic and Social Upgrading in Global Value Chains and Industrial Clusters: Why Governance Matters

© 2014, Springer Science+Business Media Dordrecht.The burgeoning literature on global value chains (GVCs) has recast our understanding of how industrial clusters are shaped by their ties to the international economy, but within this context, the role played by corporate social responsibility (CSR) continues to evolve. New research in the past decade allows us to better understand how CSR is linked to industrial clusters and GVCs. With geographic production and trade patterns in many industries becoming concentrated in the global South, lead firms in GVCs have been under growing pressure to link economic and social upgrading in more integrated forms of CSR. This is leading to a confluence of “private governance” (corporate codes of conduct and monitoring), “social governance” (civil society pressure on business from labor organizations and non-governmental organizations), and “public governance” (government policies to support gains by labor groups and environmental activists). This new form of “synergistic governance” is illustrated with evidence from recent studies of GVCs and industrial clusters, as well as advances in theorizing about new patterns of governance in GVCs and clusters.

Global value Chains, rising power firms and economic and social upgrading

© Emerald Group Publishing Limited.Purpose – The purpose of this paper is to introduce the global value chain (GVC) approach to understand the relationship between multinational enterprises (MNEs) and the changing patterns of global trade, investment and production, and its impact on economic and social upgrading. It aims to illuminate how GVCs can advance our understanding about MNEs and rising power (RP) firms and their impact on economic and social upgrading in fragmented and dispersed global production systems. Design/methodology/approach – The paper reviews theGVCliterature focusing on two conceptual elements of the GVC approach, governance and upgrading, and highlights three key recent developments in GVCs: concentration, regionalization and synergistic governance. Findings – The paper underscores the complicated role of GVCs in shaping economic and social upgrading for emerging economies, RP firms and developing country firms in general. Rising geographic and organizational concentration in GVCs leads to the uneven distribution of upgrading opportunities in favor of RP firms, and yet economic upgrading may be elusive even for the most established suppliers because of power asymmetry with global buyers. Shifting end markets and the regionalization of value chains can benefit RP firms by presenting alternative markets for upgrading. Yet, without further upgrading, such benefits may be achieved at the expense of social downgrading. Finally, the ineffectiveness of private standards to achieve social upgrading has led to calls for synergistic governance through the cooperation of private, public and social actors, both global and local. Originality/value – The paper illuminates how the GVC approach and its key concepts can contribute to the critical international business and RP firms literature by examining the latest dynamics in GVCs and their impacts on economic and social development in developing countries.

Public-Private Partnership Design for Inclusive Cocoa Global Value Chains in Ghana

Within 10 years, there could be a severe global shortage in the supply of cocoa, according to industry practitioners and other experts. Due to global population growth and the emergence of a growing global middle class, by 2025 the cocoa crop would need to increase by nearly 50 per cent to keep up with projected demand. A potential shortage of supply is a direct threat to the business model of lead firms – including cocoa grinders and processors, chocolate confectioners, and retail distributors. But these international firms – the ones that will suffer the most if there is a shortage of cocoa supply – are helping create the market failure that is stifling sustainability. Functioning as a two-tiered consolidated oligopoly with a combined market share of approximately 89%, these firms enjoy the largest portion of value capture in the cocoa-chocolate global value chain (GVC). The smallholder cocoa producers, conversely, are trapped in low value-add segments of the GVC. In fact, most smallholder farmers survive on less than $1.00 per day per capita, on average in many cocoa exporting countries. In Ghana - the second largest producer of cocoa in the world - the government has accomplished little to help these smallholders upgrade and make cocoa an attractive sector for the next generation to inherit. The result – both in Ghana and around the world – is a lack of sustainability of the supply of cocoa. Demand is already beginning to outstrip supply. As a result of these underlying circumstances, the United States Agency for International Development (USAID) has posed the following policy question: "Under what conditions could USAID, as a development agency, support and enhance potential public-private partnerships in order to improve the bargaining power (and financial wherewithal) of smallholder organizations and farmers in the context of the global value chain for cocoa in Ghana?"

China in Global Value Chains: Implications for Industrial Policy and Development

Rapid technological advances and liberal trade regimes permit functional reintegration of dispersed activities into new border-spanning business networks variously referred to as global value chains (GVCs). Given that the gains of a country from GVCs depend on the activities taking place in its jurisdiction and their linkages to global markets, this study starts by providing a descriptive overview of China’s economic structure and trade profile. The first two chapters of this paper demonstrate what significant role GVCs have played in China’s economic growth, evident in enhanced productivity, diversification, and sophistication of China’s exports, and how these economic benefits have propelled China’s emergence as the world’s manufacturing hub in the past two decades. However, benefits from GVC participation – in particular technological learning, knowledge building, and industrial upgrading – are not automatic. What strategies would help Chinese industries engage with GVCs in ways that are deemed sustainable in the long run? What challenges and related opportunities China would face throughout the implementation process? The last two chapters of this paper focus on implications of GVCs for China’s industrial policy and development. Chapter Three examines how China is reorienting its manufacturing sector toward the production of higher value-added goods and expanding its service sector, both domestically and internationally; while Chapter Four provides illustrative policy recommendations on dealing with the positive and negative outcomes triggered by GVCs, within China and beyond the country’s borders. To the end, this study also hopes to shed some light on the lessons and complexities that arise from GVC participation for other developing countries.