What is it about?
Suppliers in developing countries face significant entry barriers to operate in the most profitable functions of global value chains (GVCs). Securing highly profitable functions in GVCs (also known as functional upgrading) is particularly challenging for small-size suppliers who are disadvantaged due to limited resource endowment and their exposure to an adverse external environment. A review of forty-four empirical studies reveals three possible strategies that allow disadvantaged suppliers to capture higher profits in GVCs by other means than functional upgrading or in addition to it. First, disadvantaged suppliers successfully increase their profit margins within the function they already occupy through the establishment of legitimacy in the eyes of their foreign buyers. Second, disadvantaged suppliers’ reduce their dependency on a single GVC and diversify to wider ranges and types of GVCs. Third, disadvantaged suppliers handle external pressures and quickly adapt to changing competitive demands and stabilize profit margins.
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Why is it important?
The findings point to the understanding and importance of a more contextually shaped and agency-oriented view of upgrading, in which suppliers actively design and implement strategies to capture higher profits in GVCs. These strategies help to understand the conditions under which disadvantaged suppliers can cope with their limited resources, adverse institutions and competitive pressures to transform their operations profitably.
Perspectives
Participation in global value chains (GVCs) is suggested to benefit suppliers in their growth and performance. Yet, it is difficult to access GVCs, especially for disadvantaged suppliers. The paper reviews the literature and offers examplary strategies that suppliers can pursue.
Professor Rudolf R Sinkovics
University of Glasgow
The paper offers different perspectives on 'upgrading'. It zooms in on disadvantaged suppliers and exhibits different strategies that these can deploy to improve profit margins.
Dr Noemi Sinkovics
University of Glasgow
In this article, we have distinguished the suppliers within developing countries in two categories: privileged suppliers and disadvantaged suppliers. We particularly focus on the disadvantaged suppliers, the distinctive challenges they face, and the strategies they develop to overcome those challenges.
Dr Umair Shafi Choksy
University of Kent
Read the Original
This page is a summary of: Exploring the relationship between upgrading and capturing profits from GVC participation for disadvantaged suppliers in developing countries, Canadian Journal of Administrative Sciences / Revue Canadienne des Sciences de l Administration, November 2017, Wiley,
DOI: 10.1002/cjas.1455.
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