From Governance to Strategy: Injecting Management Studies into Global Value Chains

Abstract

The global value chain (GVC) governance framework by Gereffi et al (2005) posits that ‘governance’, i.e. the character of linkages in business networks, tends to vary in specific ways (market, modular, relational, captive, hierarchy) depending on transactional characteristics (complexity, knowledge codifiability, supplier capability). While these characteristics vary by industry, the framework has been criticized for ignoring intra-industry variations in governance across firm, time, and location. This paper takes these variations, including firm-level heterogeneity, seriously, to improve the utility of the GVC framework for managers, entrepreneurs, and policy makers. We propose three refinements, involving injecting management theories into GVC research: first, linking ‘governance’ to corporate strategy which enables theorizing about firm boundaries and buyer portfolio; second, adapting the profiting from innovation framework to consider how firms profit from upgrading; and third, extending ‘distance’ to involve not just geographic but institutional distance, which affects governance mode, corporate strategy, and location decisions. We then present a modified framework for corporate strategy in GVCs. Firm-level GVC strategy is about configuring governance modes in line with the company’s strategic goals. Firms have a varying degree of choice over decisions about governance, upgrading, and distance. We illustrate the utility of the modified framework by demonstrating firm-level variations in four industrial and service sectors.