Climbing the Ladder: Inward Sourcing as an Upgrading Capability in Global Value Chains

William Chongyang Zhou, Daying Yan and Sunny Li Sun

Research Policy, 2022, vol. 51, issue 3

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.

Keywords: Global value chains; Inward-sourcing capability; Routines; Capability building; Innovation performance (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:51:y:2022:i:3:s0048733321002328

DOI: 10.1016/j.respol.2021.104439

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