This book is in many ways a follow-up to our earlier edited book (Nathan, Tewari and Sarkar, 2016). While that book dealt with labour conditions and labour issues in global value chains (GVCs) in Asia, this book deals with the manner in which upgrading and innovation have taken/can take place in GVCs; once again, with a focus on the Asian experience.

This ‘Introduction’ starts out by listing the various dimensions of a GVC; within this, emphasis is placed on the GVC as embodying a division, albeit a changing division, of knowledge and capabilities across geographies. After this, we define the ways in which firms may or may not strategically interact with GVCs. This is followed by listing the different types of upgrading, commonly discussed in the GVC literature. However, different types of upgrading enable the capture of rents, whether process or product rents, which are discussed in the next section. This passage through different types of rents itself depends on the manner in which knowledge is developed, both within and around value chains.

Thus, this introduction stresses upon a scheme where knowledge (which results in both process and product innovations and their corresponding rents) is crucial to development within and around value chains. There are many analyses of innovation, and in the context of many countries having made it from low-income to middle-income status, there is much discussion of the ‘middle-income trap’. Some books on the challenges of China's current economic development explicitly place it in the context of overcoming the middle-income trap (for example, Woo et al., 2012; David Shambaugh, 2016; Lewin, Kenney and Murmann, 2016).

Through case studies in Asian countries such as China, India, the Philippines, South Korea, and Sri Lanka, with an examination of diverse industries (electronics, telecom equipment, mobile phones, pharmaceuticals, automobiles, and even garments) this book looks at facets of the processes of industrial catch-up (Nayyar, 2013) and life after catch-up in the context of GVCs. How do firms and economies upgrade and innovate and move from being suppliers to becoming headquarter economies (Baldwin, 2016) or, in GVC-terms, how do firms in these economies becoming lead firms?

Introduction

With the rise of global value chains (GVCs) and the tiered, internationally dispersed organization of production associated with GVCs, important questions have arisen about the conditions under which small suppliers and dependent contractors in supplier countries can create value and rise up from their position at the bottom of these chains (Carré, 2017; Bair and Gereffi, 2001; Gereffi 1999). A vast literature has arisen on the processes and prospects of upgrading within GVCs and production networks (Humphrey and Schmitz, 2002; Sturgeon et al., 2008; see Pipkin and Fuentes, 2017, for an excellent review). A vexing puzzle, however, persists about the substantial variation in the upgrading and learning outcomes among similarly situated firms located in the region, the same policy environment and even in the same sector. For example, I interviewed over forty component suppliers in the Indian automotive industry between 2000 and 2013, following about fifteen of them longitudinally through repeated interviews over time. During this period – a time of immense churn and growth in the Indian automotive sector with the arrival of many global auto-manufacturers and their suppliers into the country – some of the smallest suppliers in my sample thrived while others of similar size and in similar locations stagnated or went out of business.

Why do some firms succeed in upgrading and growing while other similarly situated firms are unable to do so? How and under what conditions can small suppliers in the lower reaches of GVCs and production networks learn to upgrade and improve their position within these value chains and networks?

This chapter contributes to the literature on upgrading among small producers in lower tiers of competitive GVCs. It explores the learning sequences associated with the upgrading pathways of suppliers that are usually regarded to be at risk of being trapped at the bottom of fast-moving GVCs (Barnes and Kaplinsky, 2000), or vulnerable to being displaced by more powerful, sophisticated and better connected top-tier suppliers of global original equipment manufacturers (OEMs) (Humphrey, 2003). The question of learning and upgrading among small suppliers is important because the vitality of an economy's manufacturing sector and its ability to compete and innovate in the face of global competition is shaped in part by the depth, quality and robustness of its locally rooted supply base.

Introduction

In the early hours of a bright Sunday morning on the 25th of November 2012, an unexpected ripple of shock spread through a gathering of academics, policy makers, and social activists who had gathered in Dhaka, Bangladesh to discuss inclusive development in global value chains—such as those in the clothing industry that have helped generate $20 billion annually in foreign exchange for Bangladesh from garment exports to major markets such as the US and the EU. The shock was caused by the disturbing news that a horrific fire had broken out in a garment factory outside Dhaka, and over 120 workers, mostly women, were feared dead. A few hours later, news channels confirmed the fire and the official number of lives lost was placed at 112, the majority of them women.

The investigations that followed revealed huge safety gaps at the factory and pointed to a number of probable causes for the conflagration—missing fire safety certification, a missing external fire exit, no fire extinguishers, illegal construction of six extra floors on top of a building that had structural clearance for only three, poor circulation, unsafe wiring, cramped working conditions, doorways that were locked or blocked with piles of clothing and most egregiously, coercion—the supervisors had paid no heed to the fire alarm, calling it a test and ordering the women who tried to leave the 5th floor (where the fire first broke out) back to their workstations even as they complained of the smell of smoke and suffocation (Yardley, 2012, Manik and Yardley, 2012).

Contrary to what these poor working conditions might suggest, Tazreen Fashions, the factory where the fire broke out, was not a small sweatshop churning out cheap clothing for non-descript low-end local markets. This factory of 1400 workers was a supplier to some of the world's most powerful brands—Walmart and Sears, among others—each of which had their own well-established, well-publicized, and third-party-audited codes of conduct. Yet, the presence of these codes and elaborate protocols of inspection had failed to ensure safer working conditions that could have prevented the blaze. Why did the company codes not filter down to Tazreen?

The editors and many of the authors have spent much of the last decade researching various dimensions of Global Value Chains (GVCs). This is also the decade in which GVCs have grown in importance as the manner in which global production and trade is organized today. There are many aspects of the rise of GVCs and its implications for labour that demand closer analysis and examination as we move from trade in goods to trade in tasks. This book concentrates on the two-way interaction of GVCs with labour in supplier firms in late industrializing economies. This dialectic between employers, suppliers and labour within GVCs plays out in terms of both the volume and quality of employment that GVCs generate in supplier economies; and the recursive impacts of labour on the re-formation of GVCs. Both of these relations of labour within GVCs are relatively under-researched and under-theorized. An attempt to fill these gaps at the empirical and theoretical levels provides the raison d'etre of this book.

The splintering of production implies a deeper and finer division of labour in the organization of work. As the foundations of production and technology shift in the new ‘knowledge economy’, researchers have begun to read this new division of labour as a division of tasks and indeed, a division of knowledge. Splintered tasks, and the differentiated knowledge and skills associated with them, have also to be coordinated or governed. This book is organized on the basis of the manner in which tasks are divided and governed. The case studies in the book shed light on the knowledge intensity and complexity of these tasks and of the often contested organizational arrangements that govern them. The organizational arrangements that the book focuses on lie at the intersection of global value chains and the vast array of institutions that lead firms and their suppliers interact with in places where they originate, and where they touch down. These institutions range from market mediated ties, to links with state and civic actors as well as workers’ own agency. At their most basic these varied relationships and governance systems result in what the literature calls captive, modular or relational governance structures. Each assigns differing distributions of knowledge and degrees of power to the actors involved— lead firms, suppliers, states, and workers, and lead to varied distributions of the capture of value in the GVCs.