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Climbing the Ladder: Inward Sourcing as an Upgrading Capability in Global Value Chains

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  • Zhou, William Chongyang
  • Yan, Daying
  • Sun, Sunny Li

Abstract

How can emerging-economy firms technically upgrade in global value chains (GVCs) and avoid being locked into low value-added activities? Inspired by catch-up cycles theory and “in-out-in” policy of GVC participation (Lee et al., 2017), we propose a novel concept of inward-sourcing capability – the ability to implement a dynamic transition from foreign sourcing to local sourcing in GVCs. We argue that inward-sourcing capability is critical for technical upgrade of emerging-economy firms. Using a full sample of Chinese manufacturing firms (714,117 firm-year observations) from 2000 to 2015, we investigate four antecedents of inward-sourcing capability and find that market-based institutions, openness to foreign multinational enterprises, and R&D intensity strengthen such capability-building, while state ownership impedes it. We also find inward-sourcing capability widens Chinese firms’ search breadth and strengthens innovation capability and technical impact. Our new concept and findings carry important policy implications for the second stage of “in-out-in” GVC participation.

Suggested Citation

  • Zhou, William Chongyang & Yan, Daying & Sun, Sunny Li, 2022. "Climbing the Ladder: Inward Sourcing as an Upgrading Capability in Global Value Chains," Research Policy, Elsevier, vol. 51(3).
    • Handle: RePEc:eee:respol:v:51:y:2022:i:3:s0048733321002328
    DOI: 10.1016/j.respol.2021.104439
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