The Global Dimension of Innovation Systems and Enterprise Upgrading (Carlo Pietrobelli and Roberta Rabellotti)


The paper argues that innovation systems (IS) interact with global value chains (GVCs) in multiple ways, and that they influence whether and how developing countries’ firms may benefit from entering and interacting within GVCs. The relational proximity created within GVCs cannot replace – but rather interacts – with innovation system. The GVC represents one of the most common options for small suppliers in LDCs to get access to international markets, to updated knowledge, innovations and new technologies. However, this is crucially related to the pattern of governance prevailing. The first main message here is that the different characteristics of the value chains have an impact on the mechanisms of learning prevailing in the chain.

In general, LDCs firms learn and innovate thanks to their participation in the GVCs because they have to satisfy the requirements in terms of product quality, delivery time, efficiency of processes, environmental, labour and social standards imposed within the chains. Nevertheless, the learning mechanisms can be very different in the various types of chain: it can be the result of the pressure to accomplish international standards or it can be facilitated by a direct involvement of the chain leaders when the competence of suppliers is low and the risk of unsatisfactory compliance is very high. When the competences among actors in the chain are complementary, the learning mechanism can be mutual and based on intense face-to-face interactions. In addition, in modular chains learning in developing countries’ firms tends to be confined to production capabilities, and the acquisition of capabilities in planning and design are often restrained.

Similarly, in captive chains, lead firms actively favour the transfer of capabilities to undertake simple assembly tasks but hamper any attempt to develop other capabilities that are their core competences. The second main message of this paper is on the multiple forms of interaction between the IS, the GVC governance and suppliers’ learning and innovation. Thus, we expect that a well-structured and efficient innovation system may help to reduce the complexity of transactions, and therefore make transactions based on arms’ length or on weak hierarchical forms of GVC governance possible. In other words, the risk of falling into a captive relationship, or even of being acquired by a leader, diminishes. The lower the complexity of transactions the less an effective IS is needed - but an effective system also raises capabilities to cope with complex transactions. The system of organizations in charge of Metrology, Standards, Testing and Quality (MSTQ) also plays a central role, and may affect the convenience of different forms of governance. The avenues for further research are discussed.

Working Paper