Global Value Chains (GVCs): Theoretical Integration, Extension, and Empirical Analysis

Abstract

Despite the rise of global value chain (GVC) as an important global phenomenon, the theoretical understanding on GVC has been underdeveloped and narrow in scope. There have been different approaches from various disciplines to GVC, yet these studies are segmented and limited in capturing the entire mechanisms of GVC. In this respect, this study aims to integrate three different approaches – trade, foreign direct investment (FDI), and non-equity modes (NEMs) – to investigate the strategic options of creating and transferring values in a more comprehensive and systematic way. As the first step, this study proposes the three possible extensions for each of the three approaches (trade, FDI, and NEMs). Specifically, for trade approach, this study extends the unit of analysis from national to regional level by incorporating the cluster theory and suggests that it is not the comparative advantage based on traditional trade theories, but the cluster competitiveness which is a more fundamental factor that determines the locations of fragmented value chain activities. Secondly, for FDI approach, this study provides two possible directions for complementing the limitations of the current transnationality index (TNI) developed by UNCTAD to better assess and measure the degree of multinational corporations (MNCs) globalization. Lastly, for the NEM approach, this study introduces a new framework to explain the conditions for firms externalization decision to complement and extend the preceding studies which mainly focus on general drivers of globalization or FDI-related factors. Among the three extensions of each approach, this study particularly goes in more detail on the third extension by proposing three conditions for firms externalization governance mode (e.g., NEM). The three conditions comprise fast-growing business, commercial best practices, and multiple competences. This study further argues that if firms satisfy at least one of the three conditions, they are more likely to choose the externalization mode or NEMs. In order to prove the explanatory power of the integrated approach and the conceptual framework of the three conditions for externalization, this study conducted rigorous case studies of Apple and Samsung Electronics, by focusing on their smartphone sector. The case study finds that although Apple and Samsung Electronics are well known for their high degrees of externalization and internalization across GVC, both firms perform many of the value chain activities by combining both internalization and externalization modes simultaneously. This proves the usefulness of the integrated approach. On the other hand, the three conditions can also well explain their externalization choices in many different value chain activities. In addition to the case study, this research conducts a quantitative test for further generalization by expanding the scope of the industries and the number of sample firms. To be specific, this study tested the effects of the three conditions for the R&D partnership choices by Koreas high growth firms. The results support all of the three hypotheses developed on the conceptual framework of three conditions.