Climbing the Ladder: Inward Sourcing as an Upgrading Capability in Global Value Chains |
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| Institution: | 1. Robert J. Manning School of Business, University of Massachusetts Lowell, 72 University Ave., Lowell, MA 01854, United States;2. Center for Transnationals’ Studies, School of Economics, Nankai University, No. 94 Weijin Road, Tianjin, 300071, China;1. Tilburg School of Economics and Management, Tilburg University, Tilburg, Netherlands;2. Leeds School of Business, University of Colorado, Boulder, CO 80309-0419, United States;3. Indian School of Business, Hyderabad, India;1. Science Policy Research Unit, University of Sussex, Institute of Development Studies, and Open University, United Kingdom;2. Science Policy Research Unit, University of Sussex, United Kingdom;1. Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, P.R. China;1. Department of Economy, Management and Territory, University of Foggia, via da Zara 11, Foggia 71121, Italy;2. Department of Business and Economics, University of Naples Parthenope, Via Generale Parisi 13, Napoli 80132, Italy |
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| Abstract: | How can emerging-economy firms technically upgrade in global value chains (GVCs) and avoid being locked into low value-added activities? Inspired by catch-up cycles theory and “in-out-in” policy of GVC participation (Lee et al., 2017), we propose a novel concept of inward-sourcing capability – the ability to implement a dynamic transition from foreign sourcing to local sourcing in GVCs. We argue that inward-sourcing capability is critical for technical upgrade of emerging-economy firms. Using a full sample of Chinese manufacturing firms (714,117 firm-year observations) from 2000 to 2015, we investigate four antecedents of inward-sourcing capability and find that market-based institutions, openness to foreign multinational enterprises, and R&D intensity strengthen such capability-building, while state ownership impedes it. We also find inward-sourcing capability widens Chinese firms’ search breadth and strengthens innovation capability and technical impact. Our new concept and findings carry important policy implications for the second stage of “in-out-in” GVC participation. |
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