Victor Kummritz
There is now widespread consensus that participation in global value chains (GVCs) can foster economic development in the Global South (World Bank 2019). Previous Vox columns have shown how, by entering GVCs, supplier firms in developing countries can economically upgrade by making better quality products, improving production processes, and capturing more value-added (Kummritz 2015, Gereffi and Luo 2014). Participation in GVCs can also facilitate knowledge and technology transfers from lead-firms in the global North to suppliers in the global South, who can in turn benefit from improved economic returns (Baldwin and Lopez-Gonzalez 2015, Amendolagine et al. 2018).
However, there is also evidence that suppliers in the Global South are at risk of being ‘locked’ into segments of the value chain characterised by low value-adding potential and shrinking profits (Kaplinsky 2019 and Diao et al. 2021). For instance, Bohn et al. (2021) and Fu (2018) find that much of the value-added generated in GVCs is disproportionally captured by lead firms in the Global North, thereby limiting the upgrading potential of their Southern suppliers. Lead firms achieve this by governing the outsourcing of value-added tasks and distribution of profits (and risks) through stringent and costly contractual arrangements. This significantly constrains Southern suppliers’ opportunities to participate and upgrade in GVCs (Barrientos 2019).