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Cornelia Staritz and Lindsay Whitfield

Growth in the number and size of internationally competitive local firms is an essential driver of economic development. This chapter is concerned with how local firms learn in order to enter, remain competitive and capture greater value within global value chains, focusing on the early stage of industrialization in less-developed countries. The global value chain approach with its focus on transnational interfirm governance contributes importantly to understanding local firms’ value chain entry and upgrading. However, local firm-level processes of learning, which are crucial to understanding why local firms are successful (or not), are generally not analysed. This chapter argues that combining the determinants of capability building and upgrading stressed in the global value chain literature and the technological capabilities approach allows us to expand our understanding of the challenges that local firms in less-developed countries face in entering and remaining in global value chains, as well as the factors shaping how local firms build their capabilities related to different upgrading paths. More generally, linking technological capability building with upgrading permits for a better conceptualization of upgrading paths and outcomes at the firm, sector and country levels.

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Mike Morris and Cornelia Staritz

Structural transformation to higher productivity and value-added activities remains a key objective for developing countries. Industrial policy has historically had an important role in supporting such transformation processes. Today, the external context is fundamentally different with the rise of global value chains (GVCs). This requires a reconceptualization of how GVCs shape industrialization paths and industrial policy options in developing countries. The chapter does this by (1) providing a critical discussion of opportunities and challenges for industrialization in developing countries related to the rise of GVCs; (2) highlighting the importance of different GVC types and of the contested nature of upgrading; and (3) stressing industrial policy implications relating to the importance of connecting to and leveraging lead firms, of thinning, stretching and thickening in different GVC types and integration phases, of strategically linking global, regional and domestic markets, and of building locally embedded productive capacities.