The Dark Side of Trust in Global Value Chains: Taiwan’s Electronics and IT Hardware Industries

Abstract

This paper contributes to theory building efforts around the concept of knowledge connectivity and its role in suppliers’ new product innovation capability under different inter-firm knowledge pipeline conditions. We use the Taiwanese electronics and IT hardware industries as our study context, given Taiwan’s phenomenal success story in entering global value chains (GVCs) in these industries. Our results demonstrate that different pipeline conditions in the form of combinations of the levels of inter-firm trust and supplier functional sophistication indeed shape the way knowledge connectivity is activated and how it impacts on suppliers’ new product innovation capability and ultimately GVC status. Our results indicate that suppliers’ new product innovation capability is larger under low inter-firm trust conditions. Suppliers in such low inter-firm trust relationships are also more likely to use the ensuing increase in their GVC status to pursue new, better paying buyers than their counterparts in high inter-firm trust relationships. As a consequence, if multinational buyer firms in low trust relationships would like to benefit more from their suppliers’ enhanced innovation capabilities, they may need to strengthen their supplier relations using modalities other than trust.

Keywords: global value chains, knowledge connectivity, new product innovation capability, upgrading, Taiwan