Agenda

Prof. John Humphrey

University of Sussex 

Abstract: 

Global value chain analysis emerged as one of the approaches to understanding the dynamics of outsourcing and relocation of manufacturing production from industrialised countries to low-cost locations in the late 20^th century. While lead firms outsourced production, they tended to maintain control over product design, innovation and overall strategy. They mostly outsourced tasks that they were capable of performing, adopting outsourcing (and offshoring) for efficiency-seeking reasons. GVC theory framed governance challenges in terms of the costs of coordination and the avoidance of risks arising from failures in supplier performance, and these were often managed through direct control and supervision over suppliers. Lead firms in GVCs exercised control without ownership, and a result of regulatory pressures around labour, environmental impact and product safety issues these firms also faced pressure to accept supply chain responsibilities even in the absence of ownership.

While GVC analysis introduced the idea of modular chain governance, drawing on the literature on the consequences of modular product architectures for value chain governance, the full implications of this shift became evident in the 21^st-century, which saw a substantial change in the literature on inter-firm relationships and divisions of labour in the global economy. First, access to the capabilities required for both production and innovation rather than efficiency seeking was both identified as a key motivation for outsourcing and a source of strength rather than a weakness for companies operating in highly competitive and rapid-innovation markets. Second, modularity changes the nature of governance challenges and the solutions for them. Governance strategies need to manage the consequences of simultaneously promoting complementor entry and controlling the risks associated with it. 

However, limits remain on the capacity to implement modular product architectures. While these may include technical limits — the inability to fully achieve modular, nearly-decomposable product architectures — in the competitive and rapidly-changing industries mentioned above, decomposability is also undermined by the relentless drive to increase product performance and functionality. As design boundaries are reached and extended, customisation and the creation of nongeneric complementarities create new needs for coordination, as discussed by Jacobides and others. The presentation will discuss how the governance challenges identified in the context of late 20^th-century globalisation reoccur in new forms in the 21^st century.