What drives the economic performance of suppliers in global value chains/global production networks–tier, ownership, size, specialization, or region?

Abstract

The paper investigates the economic performance of Czech electro-engineering companies in relation to their tier, ownership, size, level of specialization, and host region in order to scrutinize one of the key assumptions about functional upgrading, namely that lead firms and higher tier suppliers capture more value than lower tier suppliers. This issue has fundamental policy implications, as global value chain (GVC)/global production network (GPN) policy recommendations revolve mainly around two paradigms: to ‘plug-in’ into GVC/GPN and to ‘move-up the chain’, meaning to upgrade functionally. The paper contributes to the GVC/GPN literature by scrutinizing the underinvestigated electro-engineering industry, accounting for variegated levels of specialization of particular companies in the industry, combining sectoral and regional perspectives (i.e. the modes of strategic coupling), and providing disaggregated data for individual companies instead of values aggregated by tiers. The results show large variation in the economic performance of individual companies, yet ownership and tier are the key factors driving economic results. Companies operating outside the production networks performed strongly in terms of profitability, while maintaining the same level of wages as other domestic companies in the electro-engineering industry. Thus, the authors conclude that ‘plug-in’ imperative should be carefully considered within specific industrial and regional contexts.