Global Production Networks, Knowledge Diffusion and Local Capability Formation

Abstract

This paper develops a conceptual framework that links knowledge about global production networks (GPNs), international knowledge diffusion and local capability formation. The authors analyze the forces behind the rise of GPNs, such as liberalization, information and communication technologies as well as global competition. They then discuss the network flagship model and examine through which mechanism knowledge diffuses. The authors conclude that the major determinant for successful knowledge conversion by local suppliers is their absorptive capacity. The authors advise such firms to invest in highly skilled labor and train also their own suppliers.

Keywords: International business strategy, Global production networks, Multinational Corporations, Organizational Knowledge, Knowledge diffusion, capability formation, local suppliers

JEL Classification: O3, O38, O53