Upgrading to Escape the Low Value-Added Trap in Global Value Chains: The Mediating Role of Strategic Learning Capability

Abstract

Combining both internalizing and externalizing logics in governance has been argued to enhance the efficiency of global value chain (GVCs); however, its implication for suppliers’ upgrading remains contested. The fragmentation of value chain activities has increased interdependencies between multinational enterprises (MNEs) and suppliers in developing economy that can be managed through effective governance strategies. While previous studies often claim that MNEs’ governance strategies determine suppliers’ upgrading potential in GVCs, the findings have been inconclusive, prompting calls for more research on this relationship. In this study, we draw from resource dependence and relational exchange theories to explore how buyer–supplier relationships manage external dependencies in GVCs, and the implications of these dependencies for supplier upgrading and performance. We argue that socially embedded relational governance when interacting with relationship length facilitates strategic learning capability, which in turn influences both low and high value-added upgrading of suppliers as well as their performance. Our findings reveal that strategic learning capability serves as the mechanism through which the benefits of a socially embedded relational governance are transformed into suppliers’ upgrading. Moreover, high value-added upgrading has a stronger impact on suppliers’ performance than low value-added upgrading. These findings suggest that strategies for managing external dependencies are influenced not solely by external and internal factors but rather their interaction. We draw implications of these findings for research and practice.