Discussion Papers

No.799 Rethinking the Role of Suppliers in Global Value Chain Theory

by John Humphrey

September 2020


GVC governance theory explains the management of interfirm relationships in the context of offshoring and outsourcing in the latter part of the 20th century. It emphasises the power of lead firms to shape the new global supply chains that were developed at this time. Parsimonious theorising combined with lead firm power has led to criticisms that the theory is determinist and fails to allow for the agency of the non-lead firms that are often referred to as suppliers. Critics have argued that more attention needs to be given to supplier agency and capability formation in the places where value chains touchdown in the global economy. This contribution argues that the weaknesses of GVC governance theory lie in its limited conception of the capability approach to industrial organisation and its focus on efficient government solutions at a given point in time. Introducing a dynamic capability perspective makes it possible to understand the circumstances in which suppliers are likely to possess capabilities that are valuable to their customers and allows a movement away from a static, equilibrium perspective. However, this view of suppliers does not rule out the importance of structural constraints on firm opportunities. The role of architectural manipulation in creating power asymmetries in GVCs is discussed.

Keywords: global value chains, governance, suppliers, capabilities, globalisation

JEL classification: D23, F2, L14, L20

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