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

This chapter deals with the development trajectory of the major Indian information technology (IT) software service companies. They have established themselves through their initial innovation of the global delivery model (GDM), where they combined high-cost, on-site work with low-cost, off-site work in India in order to cheapen the cost of providing IT services. Whilst they started out at the low complexity end of programming in IT services, they have faced increased competition as the GDM has been copied by other IT service providers, including the global majors such as IBM and Accenture. The end-toend service provision capabilities of these global majors have enabled them to take up the important managed service function, where they provide an entire IT service to a client. At the same time as the Indian IT majors failed to move into managed services, higher salaries have also eroded their margins. This decline in margins has forced some of them to change their business models, so far based largely on labour arbitrage. In dealing with declining margins, they have the options of either developing as IT product companies, such as SAP or, as in a recent development of Infosys, moving to innovate and automate the service delivery function.

The next section lays out the global IT value chain. We then locate Indian IT firms within the IT GVC. The limitations of this location are discussed in the context of the Airtel outsourcing decision. This is followed by a brief discussion of the trends in earnings. Ways of responding to the declining trends are also discussed. The next section discusses the upgrading strategy and its link with employment strategy. The concluding section tries to draw broader lessons on the nature of upgrading and the role of the state.

IT Services GVC

IT services production has its own production network or value chain, which does not vary with the type of client. Its production stages can be summarized as in Figure 8.1.

The high-end of IT services production is that of consulting, conception, and architecture and design. This is the beginning of the process. Whilst customers have a role to play in setting the requirements, this first step in IT services is increasingly outsourced.

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.