Subsidiary upgrading and global value chain governance in the multinational enterprise

• Published in: Global strategy journal 2020-08, Vol.10 (3), p.496-519
• Main Authors: Ryan, Paul, Buciuni, Giulio, Giblin, Majella, Andersson, Ulf
• Format: Article
• Language: English
• Subjects: Coordination; Corporate governance; evolution; governance; GVC; Hierarchies; hierarchy; Industrial Economics and Organisations; industriell ekonomi och organisation; MNE subsidiary; Multinational corporations; Subsidiaries; subsidiary; upgrading; Value chain
• ISSN: 2042-5791; 2042-5805; 2042-5805
• DOI: 10.1002/gsj.1387

Research Summary Upgrading and governance in global value chains (GVCs) have been understood mainly through studying the buyer–supplier transaction, where the supplier is typically an independent contractor from a developing economy. Little is known about how subsidiaries of multinational enterprises (MNEs) can upgrade in a GVC, whose core activities are coordinated through the “hierarchy” governance model. Using an in‐depth longitudinal single case study in the medical devices industry, we explain how a subsidiary can accomplish upgrading in an intra‐MNE GVC and, over time, increase its control of this GVC reaching a joint coordinator role for its governance. Our findings show that partaking in innovation may not be the final stage of a subsidiary's upgrading but can represent the start of a new phase that culminates with joint coordination of the GVC. Managerial Summary The competitiveness of a global subsidiary is determined by its capacity to upgrade in a GVC and engage in higher value‐adding activities. Moving from production to innovation is generally viewed as the pinnacle for subsidiaries in the accomplishment of upgrading within a GVC, thereby ensuring long‐term survival. We show however that specializing in innovation is not the highest peak a subsidiary can reach. Innovation is in fact a necessary condition for a strategic role for the coordination of a GVC. A subsidiary's management team can deliberately strategize to ascend to such a position in the multi‐business MNE as a GVC joint coordinator for a product category. It can achieve this prominent position by leveraging its innovation capabilities to assume a greater proportion of control over the business's GVC governance. This position of greater prominence for the subsidiary within the MNE advances its internal advantage and strengthens its survival prospects.