Missing elements in the GVC literature and possible contributions

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Theoretical underpinnings of governance

The governance construct in GVC has been derived from a broad range of literatures on inter-firm governance and industrial organisation. The particularly well-traversed literatures are the economics of organisation (transaction cost economics), economic sociology and capabilities literature of business and management (Bair, 2008a; Sturgeon, 2006). Key concepts drawn from the aforementioned disciplines and combined include ‘asset specificity,’ trust, repeat transactions and learning and core competencies (Sturgeon, 2006, 2009).
Williamson (1975) created the theory of transaction cost economics to provide an answer of the question posed by Coase (1937) about why the market does not govern all transactions. Another way to phrase this would be to ask why some activities are bundled within the firm (Sturgeon, 2009). Williamson’s answer was that intra-firm organisations grew out of the efficient ways in which individual firms solve the transaction costs involved in doing business (Hamilton & Gereffi, 2009). Some transactions, in particular those which are likely to recur and involve uncertainty and transaction-specific investments, are costly to coordinate in the market and hence are bundled inside the firm (Williamson, 1975, 1981).
Although Williamson’s theory initially focused on elaborating the circumstances under which hierarchy (i.e., firms) can represent an efficient alternative to markets (Bair, 2008a), he later acknowledged intermediate forms of organisation that blend elements of market and hierarchy, and subsequently introduced the hybrid mode (Williamson, 1991, 2010). These hybrid organisational forms include different kinds of long-term contracting arrangements that entail repeated exchanges between autonomous parties that share some degree of mutual dependence (Williamson, 1985, 1991, 2010).
In contrast, with an opportunistic view of human action underpinning transaction cost economics (Sturgeon, 2009), Granovetter (1985) produced a theory that took a relational view of economic activity as embedded in social relationships and trust. Granovetter’s main criticism of the transaction cost theory was that it operated with an under-socialised conception of human action (Bair, 2008a; Granovetter, 1985). The central contention of the relational view or sociological aspect of economics is that the rational actor is also a social one whose behaviour is shaped by the social context in which he or she is embedded (Granovetter, 1985, 2008). The relational view of economic life suggests that inter-firm relationships can be sustained in the face of asset specificity and even goodwill can build up in the interpersonal relationships that inevitably underlie inter-firm relationships (Bair, 2008a; Sturgeon, 2009). Granovetter (1985; 2008) argues that social relations—rather than institutionalised arrangements—are mainly responsible for the production of trust in economic life. For example, contracts between firms in the apparel industry in many cases are informal agreements backed by promises and reputation rather than law (Tokatli, 2007).
Capabilities in the supplier base are drawn from the competencies and capabilities literature from within the field of business and management. The literature assumes that firms compete on the basis of internal resources or capabilities that take time to develop (Penrose, 1959). The basic assumption of a resource-based view of a firm is that the firm’s capabilities are heterogeneous (Barney, 1991) and resource heterogeneity creates rents (Peteraf, 1993).
Hence, heterogeneity is preserved from imitation (through property rights and information asymmetries) and sustained rents are ensured (Rumelt, 1987). Because firm capabilities may be difficult to replicate, it may be impossible for lead firms to internalise functions or find substitute suppliers in time to compete effectively (Sturgeon, 2009). Since buyers and suppliers depend on each other’s resources and knowledge, they co-ordinate to achieve their respective goals (Wong & Johansen, 2008).
The way in which GVC analysis has combined the aforementioned key insights from various literatures is critical. Sturgeon has put considerable effort into showing how these key concepts are combined in the GVC (see Sturgeon, 2006; Sturgeon, 2009; Sturgeon, Biesebroeck, & Gereffi, 2008; Sturgeon & Gereffi, 2011). Based on case studies analysed by Gereffi et al. (2005), asset specificity was recognised as a potential hazard in inter-firm relationships. Where transactions comprise a high level of complexity, the lead firm will exert greater co-ordination control or will eventually internalise their functions, because asset specificity tends to increase over the period of an inter-firm relationship (Williamson, 1975). Similarly, when the capabilities of suppliers are low, buyers may be forced to establish their own production capabilities, which results in hierarchical networks.
At the same time, long-term relationships based on trust and repeat transactions were also observed in case studies analysed by Gereffi et al. (2005). In addition, the capabilities literature identifies access to expertise and competencies as ample motivation for entering into external relationships with other firms, even when asset specificity is significant (Sturgeon, 2009). This suggests that lead firms have long-term relationships with their suppliers on the basis of trust developed through repeated transactions, combined with capabilities in the supplier base that are difficult to find or imitate. These capabilities may be learnt and developed by working with lead firms in GVCs for a long period. This is evident, for example, in the case of the contractors in Hong Kong, Korea and Taiwan who mastered the capability to manage diversified global production networks due to long history of doing business with the most demanding global markets (Tewari, 2005). As the competencies or capabilities of suppliers increase, governance through the lead firm is expected to lessen and inter-firm networks based on trust and mutual dependence emerge.
However, there are circumstances where lead firms switch suppliers without incurring major costs by dominating their low capable suppliers, in particular captive networks (Bair, 2008a; Sturgeon, 2009). The opposite scenario is when asset specificity is avoided by passing on information in a codified form, while keeping tacit knowledge contained within each firm (modular chains) (Bair, 2008a; Sturgeon, 2009). Hence, three main types of networks (namely captive, relational and modular) were observed between market and hierarchical networks.

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Upgrading

Related to governance is upgrading, which is defined as “the process by which actors (principally firms) seek to reposition themselves along the chain in order to increase the benefits (e.g., security, profits, technology or knowledge transfer) that they receive from participating in it” (Bair, 2008b, p. 5). Upgrading results in higher profits due to shifting to high value-added activities (Gereffi, 1999). The possibility of upgrading is better under certain governance regimes (Humphrey & Schmitz, 2001). There are four types of upgrading (Humphrey & Schmitz, 2002), also termed economic upgrading, which may take place in GVCs. These are process, product, chain and functional upgrading. Process upgrading involves transforming inputs into outputs more efficiently or introducing innovative technology. Product upgrading refers to moving into sophisticated product lines with increased unit values, in which production processes may or may not remain the same (Sturgeon, 2006). Chain upgrading occurs when economic actors move into different sectors, whereas functional upgrading involves acquiring new functions in the chain, or abandoning existing ones.
Upgrading occurs in GVCs as a result of learning and innovation. Learning and innovation in GVCs take place as a result of firms’ interactions with the lead firm. The interaction and learning within GVCs is also influenced by the governance structures of networks (Dolan & Humphrey, 2000; Henderson et al., 2002; Humphrey & Schmitz, 2004) and the extent to which the knowledge is created, adopted and transferred along the GVC, which varies dramatically (Saliola & Zanfei, 2009). For example, captive networks offer product and process upgrading to participating firms but prospects for functional upgrading are limited (Bazan & Navas-Aleman, 2004; Dolan & Humphrey, 2000; Humphrey & Schmitz, 2000, 2002; Schmitz, 2004, 2006). Conversely, lead firms may be more interested and foster upgrading of sectors or actors in GVCs in which intense interaction is required to transfer complex (tacit) knowledge (Giuliani et al., 2005; Morrison, Pietrobelli, & Rabellotti, 2008), particularly in relational networks. In chains characterised by market-based relationships, process and product upgrading are not fostered by lead firms and thus tend to be slower, though functional upgrading is more likely (Humphrey & Schmitz, 2002). In modular chains, suppliers learn how to produce components to fully specified technical standards, and the need to adhere to these standards is important for inducing learning (Morrison et al., 2008). Hence, lead firms act as an external stimulus for learning and innovation among suppliers and impose pressure (on their suppliers) to innovate but do not become directly involved in the learning process (Morrison et al., 2008).

CHAPTER ONE: INTRODUCTION AND CONTEXTUAL FRAMEWORK
1.1 Background of the study
1.2 Purpose of research .
1.3 Overview of the empirical data and case studies
1.4 Country profiles
1.4.1 Sri Lanka
1.4.2 Banglades
1.5 Structure of the thesis
CHAPTER TWO: CONCEPTUAL LENS OF THE STUDY
2.1 Chapter overview.
2.2 Global chain studies .
2.2.1 The commodity chain construct .
2.2.2 The global commodity chains construct
2.2.3 The global value chain framework
2.3 Dimensions of GVC analysis .
2.4 Governance .
2.5 Upgrading.
2.6 The global apparel industry and the GVC framework .
2.7 Missing elements in the GVC literature and possible contributions
2.8 Conclusion
CHAPTER THREE: RESEARCH METHOD .
3.1 Chapter overview.
3.2 Research paradigm/philosophy .
3.3 Research strateg
3.4 Levels and units of analysis
3.5 Sample
3.6 Site and participant selections .
3.7 Data collection methods .
3.8 Data management and analysis .
3.9 Ensuring generalisability, reliability and validity issues in the research .
3.10 Ethical issues .
3.11 Conclusion
CHAPTER FOUR: THE GOVERNANCE AND INSTITUTIONAL
UNDERPINNINGS OF GVC
CHAPTER FIVE: ENVIRONMENTAL UPGRADING OF SOUTH ASIAN
APPAREL FIRMS IN GLOBAL VALUE CHAINS .
CHAPTER SIX: ECONOMIC AND SOCIAL UPGRADING: SUPPLIER VIEWS
FROM THE APPAREL INDUSTRY OF BANGLADESH AND SRI LANKA .
CHAPTER SEVEN: CONCLUSIONS
REFERENCES