1 s2.0 S109095162100033X Main
1 s2.0 S109095162100033X Main
1 s2.0 S109095162100033X Main
Perspective Article
A R T I C L E I N F O A B S T R A C T
Keywords: Global value chains (GVCs) have revolutionized production processes and many companies no longer produce
Global value chains goods and services entirely in one single country or within their own organizational boundaries. Through off
Innovation shoring and outsourcing, value chains are sliced up and activities are dispersed to locations and actors where
Interactive
they can be produced or executed most efficiently. The fine slicing of GVCs also implies that innovation activities
Linkages
Networks
can be geographically dispersed and separated from other GVC activities. However, there have been inconsistent
arguments on the impact of this dispersion on innovations and on the effect of innovations on GVC activities, as
research on the topic has been sporadic, inconclusive, and fragmented. Thus, this paper conceptually discusses
the nature of innovation in GVCs by reviewing literature and raises important questions that should be addressed.
It also outlines a variety of possible research directions and future research foci that can and should be taken to
develop the field.
1. Introduction 2011; Ma & Van Assche, 2016), and how GVCs are governed (Gereffi,
Humphrey, & Sturgeon, 2005).2 Other firm-level studies have investi
The rise of global value chains (GVCs) has revolutionized the way gated the drivers of international production fragmentation (Kedia &
that production processes are carried out. Thanks to reduced commu Mukherjee, 2009; Schmeisser, 2013), the firm types more likely to
nication and transportation costs, many companies have abandoned the follow this trend (Farinas & Martín-Marcos, 2010), and the effects GVC
practice of producing goods or services entirely in a single country and dispersion has on a firm’s productivity or employment (Brandl, Mol, &
within their own organizational boundaries. Through offshoring and Petersen, 2017; Hummels, Jørgensen, Munch, & Xiang, 2014; Kasahara
outsourcing, firms have sliced up their value chains and dispersed ac & Rodrigue, 2008).
tivities to locations and actors where production processes can be most Remarkably absent in this literature, however, is a systematic dis
efficient, by leveraging resources that are either skilled and specific or cussion of innovation in GVCs (Pietrobelli & Rabellotti, 2011; Van
economically convenient. As a consequence, supply chains have become Assche, 2017). This lack of insights represents an important research
more global although this trend has receded somewhat in recent years gap, especially when considering the prominence of innovation in to
(Miroudot & Nordström, 2019). day’s global knowledge economy. Chen, Los, and Timmer (2018) esti
Scholars have been quick to jump on this trend. Over the last two mate that intangible capital – notably in the form of technology, design,
decades, an influential literature has analyzed the geographical spread and branding – currently accounts for around one-third of the produc
of GVCs (Suder, Liesch, Inomata, Mihailova, & Meng, 2015; Turkina, tion value that is created in GVCs and this share has been rising over
Van Assche, & Kali, 2016), the factors that affect the decision where to time. The aim of this special issue is to start addressing this research gap
locate activities (Doh, Bunyaratavej, & Hahn, 2009; Jensen & Pedersen, by compiling various articles that study the nature of innovation in GVCs
* Corresponding author.
E-mail addresses: bjoern.ambos@unisg.ch (B. Ambos), kbrandl@uvic.ca (K. Brandl), alessandra.perri@unive.it (A. Perri), V.G.Scalera@uva.nl (V.G. Scalera), ari.
van-assche@hec.ca (A. Van Assche).
1
All authors contributed equally to this study.
2
See De Marchi et al. (2020) and Kano et al. (2020) for recent reviews of the GVC literature.
https://doi.org/10.1016/j.jwb.2021.101221
Received 25 September 2020; Received in revised form 10 March 2021; Accepted 10 March 2021
Available online 30 March 2021
1090-9516/© 2021 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
B. Ambos et al. Journal of World Business 56 (2021) 101221
from different angles. highlighted the interactive nature of the innovation process, while Kline
The fine-slicing of GVCs implies that innovation activities can be and Rosenberg (1986) noted that new ideas do not necessarily progress
geographically dispersed and separated from other tangible GVC activ sequentially through definite stages and could emerge at any phase of
ities. However, there have been inconsistent arguments on the impact of the innovation process (see also Dosi, 1982; Malerba, 2002; Arora &
production offshoring on innovation and vice versa. For instance, while Gambardella, 1994). Thus, a new model of innovation emerged in the
Farrell (2005) and Vivek, Richey, and Dalela (2009) suggest that pro 1980s: the interactive & closed model of innovation (Cohendet & Simon,
duction offshoring can benefit innovation by allowing lead firms to free 2017). In this configuration, R&D centers were no longer considered the
up resources that can then be invested in research and development sole organizational locus of technological development. Rather, inno
(R&D) activities, Pisano and Shih (2009, 2012) warn that spatial sepa vation was started to be conceived as the result of interactions between
ration of manufacturing and R&D activities may in some cases under various actors at different stages of the innovation process (see e.g. Van
mine a company’s innovation capabilities. de Ven & Rogers, 1988). Within the IB literature, the seeds of this
Adding to this, innovation processes have themselves become “fine- conceptualization can be identified in the research on transnational
sliced” and dispersed to different firms around the globe, leading to the MNEs (Bartlett & Ghoshal, 1989), described as complex and interde
emergence of global innovation networks (Andersson, Dasí, Mudambi, & pendent organizational structures whose subsidiaries systematically
Pedersen, 2016; Mudambi, 2008). Some scholars have considered R&D leverage the internal network to share resources – including knowledge
dispersion positive for innovation since it increases a firm’s access to a and information arising from their different local contexts – which may
portfolio of knowledge pockets around the globe (Levin & Barnard, lead to highly interactive innovation processes.
2013; Perri, Scalera, & Mudambi, 2017; Tzabbar & Vestal, 2015). Others Since the early 2000s, a third model has emerged that focuses on
have suggested that it amplifies the complexity of a firm’s operations open & interactive innovation. Based on the premises of open innovation,
due to interdependencies of innovation activities, leading to limitations technological knowledge is no longer considered to be solely sourced
on managerial bandwidth (Ambos & Ambos, 2009; Narula, 2014; Sca within the intra-organizational network, as external organizations along
lera, Perri, & Hannigan, 2018) and increased challenges with firms’ with different types of knowledge acquisition practices gain a prominent
internal or external boundaries (Schotter, Mudambi, Doz, & Gaur, role in the firm innovation process (Chesborough, 2003; Laursen &
2017). Salter, 2006). To strengthen innovation capabilities, companies should,
These diverse arguments call for a systematic analysis of innovation thus, leverage the distributed pools of knowledge both within and
in GVCs. In this article, we offer a conceptualization that allows to outside of the firm boundaries, since what matters is not owning the
analyze and advance the literature on innovation in GVCs. To this aim, ideas per se, but having access to them to feed the re-combinatory
we adopt the distinction developed by Cohendet and Simon (2017) who process leading to new products or services (see e.g. Tolbert & Zucker,
describe how the dominant models of innovation have shifted over time 1983; Teece, 1980).
from linear & closed, to interactive & closed, and finally to interactive & In Table 1, we summarize the three dominant models adopted to
open. We then discuss the three separate literatures that have built on the interpret innovation, including their theoretical foundations, organiza
interactive & open innovation model to study innovation in GVCs – tional structure, the type of networks, the typology of innovation ac
global knowledge sourcing, GVC governance and production-innovation tivities and locations.
co-location – highlighting their similarities and differences. Finally, we Building on this interactive & open approach, we consider innova
develop suggestions for future research. tion as all outputs and process activities that contain an aspect of nov
elty. Thus, we adopt a rather broad definition of innovation in GVCs,
2. Towards an interactive and open view of innovation in GVCs following the idea that it deals with the creation and application of “any
sort of novelty" (Nelson & Winter, 1982: 130) across any stage of the value
Since the beginning of the twentieth century, three sequential chain in fields spanning from science to practical life. This includes, for
models of innovation have emerged, which each offers a common un example, activities of entrepreneurial firms seeking to benefit from
derstanding of how ideas can be turned into final products or services, changing product/service offerings (e.g. Drucker, 2014), activities
where resources should be allocated and how they should be managed to
fuel the innovation process (Cohendet & Simon, 2017).3 Historically, the Table 1
first is the linear & closed model of innovation, i.e. the process of inno Innovation models.
vation resulting from linear sequences of phases - basic research, applied Analysis level Linear & closed Interactive & closed Interactive &
R&D, and production and diffusion (Arrow, 1962; Schumpeter, 1942) - innovation innovation open innovation
where innovation was considered to be mainly sparked in R&D centers
Organizational Centralized Decentralized Decentralized
within the boundaries of lead firms in a single location. A vibrant structure
literature in the field of international business (IB) used these arguments Network Firm internal Firm internal Firm internal and
to study the early internationalization of R&D within multinational external
Innovation Mainly in central In various centers Various sources
enterprises (MNEs). According to these studies, innovation takes place in
activities and R&D centers and subsidiaries and activities at
the MNE’s home country, while foreign subsidiaries mostly adapt the locations various locations
product and process technology to the local context (Håkanson & Nobel, Key Arrow (1962), Bartlett and Chesbrough
1993; Howells, 1990). In this configuration, foreign subsidiaries are contributions Håkanson and Ghoshal (1989), ( (2003), Laursen
categorized as ‘Home-Base-Exploiting’ (Kuemmerle, 1999) or ‘Com Nobel (1993), Cantwell & and Salter (2006)
Howells (1990), Mudambi, 2005),
petence-Exploiting’ (Cantwell & Mudambi, 2005) since they mainly
Schumpeter Kline and
receive knowledge developed in the MNE’s domestic R&D center and (1942) Rosenberg (1986),
only carry out the final adaptation steps of the innovation process prior Nelson and Winter
to commercialization. (1982)
Key IB concepts Central home- Transnational GVCs; R&D
Countering this view, and building on Nelson & Winter’s (1982)
based R&D lab MNEs; Home-Base offshore
evolutionary approach to economic change, Lundvall (1985, 1988) (R&D home bias); Augmenting or outsourcing;
Home-Base- Competence- global
Exploiting or Creating knowledge
3
In a similar fashion, Papanastassiou, Pearce, and Zanfei (2020) provide an Competence- subsidiaries; Multi- networks
Exploiting foreign country knowledge
overview of the changing perspectives on the internationalization of R&D and
subsidiaries generation
innovation by multinational enterprises.
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B. Ambos et al. Journal of World Business 56 (2021) 101221
associated to new marketing and distribution functions that are strongly generators of leading-edge technologies (Gerybadze & Reger, 1999),
influenced by local markets and institutions, and activities leading to the MNEs have recognized that the broad spectrum of scientific and tech
design of new products or production methods (e.g. Nelson, 1993). nical inputs to which they need to gain access in order to stay abreast of
The interactive & open model of innovation is a good starting point for the latest advances is unlikely to be available in a single location. In fact,
studying innovation in GVCs. First, its definition centers on the idea of a regardless whether the MNE wants to expand into previously unex
typical innovation process dispersed across different actors (including plored technical fields or reinforce its existing competence base, the
suppliers, consumers, and users) and locations both within and outside growing complexity and interdependence of technologies requires it to
of the focal firm, interconnected in a continuous exchange of informa widen the scope of knowledge search by building linkages to other lo
tion and co-creation. Second, its acknowledgement that the innovation cations (Cantwell & Piscitello, 2000; Cantwell, 1989).
process is decentralized and can be sparked at any value chain stage As innovation studies moved to the open & interactive model of
pushes researchers to not only focus on innovation conducted by lead innovation, the global knowledge sourcing also increasingly acknowl
firms, but also by other value chain actors. Third, the model’s focus on edged the role of both, intra-firm and inter-firm linkages for lead firms’
the role of linkages lays bare that the innovation performance of specific abilities to tap into foreign knowledge pockets. That is, developing
nodes across the value chain depends on what happens in the value knowledge connectivity and connectedness that provide access to different
chain network as a whole. Fourth, the model acknowledges the impor regions’ expertise, is considered highly beneficial to a firm’s innovation
tance of both internal linkages, i.e. connections between individuals and capabilities. It contributes to overcome the constraint of local search and
organizational subunits within firm boundaries, and external linkages, i. provides opportunities for knowledge recombination and, in turn, nov
e. connections involving external organizations and individuals, which elty (Cano-Kollmann, Cantwell, Hannigan, Mudambi, & Song, 2016;
have become a central feature of GVCs (Buckley, 2009; Gereffi et al., Scalera et al., 2018).
2005; Mudambi, 2008). The literature on knowledge connectivity has emphasized the
different types of linkages that lead firms can use to tap into foreign
3. Innovation in GVCs: the existing building blocks knowledge pockets (Lorenzen & Mudambi, 2013). They can build
organization-based pipelines by setting up foreign subsidiaries or formal
In this section, we provide an overview of three research streams in inter-firm linkages (Li & Bathelt, 2018; Turkina & Van Assche, 2018).
IB that have relied on features of the interactive & open model of inno They can also build individual-based linkages through global mobility of
vation to study aspects of innovation in a GVC setting: (1) global inventors and experts. Firms systematically bring foreign-educated sci
knowledge sourcing, (2) GVC governance, and (3) co-location of inno entists and engineers back home to gain access to the knowledge base of
vation and production. While these literatures all emphasize the the countries in which these skilled resources have been trained
importance of GVC linkages for the development of a firm’s innovation (Choudhury, 2016). Firms also increasingly rely on geographically
capabilities, they have embarked on distinct trajectories; each has pro dispersed teams to make new discoveries (Kerr & Kerr, 2018; Marino,
vided key insights on innovation in GVCs, while at the same time Mudambi, Perri, & Scalera, 2020; Perri et al., 2017), and the team’s
providing unexploited opportunities for cross-fertilization. geographical dispersion has been found to exhibit a curvilinear rela
tionship to the novelty of the team’s innovative outcomes (Tzabbar &
3.1. Global knowledge sourcing Vestal, 2015).
Connectedness refers to the strength of a lead firm’s connections with
The global knowledge sourcing literature constitutes a first research organizations in foreign knowledge pockets. A key contribution of the
stream that has studied linkage-induced innovation in a GVC setting. In global knowledge sourcing literature has been its embrace of a network
this research field, the unit of analysis is generally the large MNE that approach to its study of the role of international connectedness on local
operates as lead firm. This stream has mainly investigated the role of innovation. There is a growing acknowledgement that both the orga
horizontal linkages between lead firms and foreign organizations that nizational and the spatial distribution of a lead firm’s inter-
specialize in similar innovation-intensive value chain activities such as organizational and inter-personal network are critical for the under
R&D centers. standing of the dynamics of knowledge sourcing (Asakawa, Song, &
The origins of this literature lie in studies on R&D internationaliza Kim, 2014). Cantwell and Zaman (2018) and Turkina and Van Assche
tion. In line with the closed & interactive innovation model, MNEs were in (2018) show that improvements in a region’s embeddedness in global
the 1990s increasingly viewed as decentralized networks of subsidiaries, knowledge networks enhances its local innovation performance. Scalera
whose foreign R&D units both contribute and receive knowledge from et al. (2018) distinguish between domestic and foreign knowledge-based
the headquarter and other R&D subsidiaries (Håkanson, 1990). connections, and analyze their interaction to unpack the effects on firm
Consistent with this idea, the seminal work by (Bartlett & Ghoshal, technological scope.
1990) suggested that MNEs’ foreign subsidiaries are not mere “repli The literature has also noted that, due to high levels of interchange
cators” of their parent companies’ activities abroad, whose R&D efforts between the different moving parts of the innovation activity, the spatial
are limited to the adaptation of central units’ products and services to transaction costs related to the involvement of several locations tend to
local needs. Rather, foreign units can engage in creative tasks to exploit increase even if communication and transportation costs are decreasing
opportunities emerging from their local contexts, and the innovative over time (Ambos & Ambos, 2009; Beugelsdijk & Mudambi, 2014; Gray,
activities they perform locally may follow diverse routes and pursue Siemsen, & Vasudeva, 2015; Hannigan, Cano-Kollmann, & Mudambi,
different projects than those of the home country. Thus, while 2015). On the other hand, it has been suggested that the potential gains
demand-driven factors were still considered fundamental drivers of the of a geographically distributed innovation structure do not materialize
internationalization of firm innovative activities, as they prompt automatically. Rather, these benefits can be only reaped by firms that
home-base exploiting FDI in R&D (Kuemmerle, 1999), supply-side factors are able to engage in fruitful processes of cross-fertilization that allow
emerged as critical triggers of this phenomenon (Cantwell, 1995); they them to effectively integrate the specialized knowledge that is dispersed
contribute to explain the evolution of firms’ innovative activities over across different locations, while keeping coordination costs under con
time and space toward more home-base augmenting types of foreign R&D trol (Singh, 2008; Tzabbar & Vestal, 2015). MNEs’ global innovation
(Ambos, 2005). networks may also generate inefficiencies, stemming from how their
This perspective has further been stimulated by the rise of global international expansion has been designed. Specifically, the massive use
centers of excellence in geographically distributed areas of the world, of cross-border M&As as the preferred entry mode has led to the
which have worked as a powerful centrifugal force that pull MNE R&D acquisition of global R&D centers, which often become part of the
activities outside of their home countries. As new locations emerged as MNE’s network as a by-product of the broader MNE’s international
3
B. Ambos et al. Journal of World Business 56 (2021) 101221
acquisitions strategy. Given their high political visibility, these “legacy” change the mix of value adding activities (functional upgrading), and that
centers are often maintained but never really integrated into the MNE’s lets suppliers move into more skill-intensive industries (industry
global innovation network. As a result, this process can produce sub upgrading). A range of empirical studies have used this upgrading ty
optimal network configurations (Doz & Wilson, 2012; Håkanson & pology to analyze how GVC participation may trigger economic devel
Kappen, 2016; Monteiro, Arvidsson, & Birkinshaw, 2008). opment, including Bair & Gereffi’s (2001) study of the apparel cluster in
On the whole, the global knowledge sourcing research has provided Torreon, Mexico, Guerrieri & Pietrobelli’s (2004) analysis of the elec
new insights into the link between global connectedness and lead firms’ tronics industry in Taiwan, and Van Assche &Van Biesebroeck’s (2018)
abilities to enhance innovation. It has highlighted the importance of study of the export processing regime in China.
matching firm-specific innovative capabilities developed and embedded Although economic upgrading and innovation are related, they are
in the internal network with knowledge inputs externally sourced and not perfect synonyms (De Marchi et al., 2018). Linkage-induced inno
strongly contextualized, which can only be captured through co-location vation is neither a necessary nor a sufficient condition for economic
(Demirbag & Glaister, 2010; Sturgeon, Van Biesebroeck, & Gereffi, upgrading (De Marchi et al., 2018; Sako & Zylberberg, 2019). It is not
2008). Offshoring innovation activities or building knowledge pipelines, sufficient since suppliers may profit little from linkage-induced inno
in fact, allows firms to tap into knowledge clusters or centers of excel vation if barriers to entry in the industry segment are low (Kaplinsky &
lence around the world, so to diversify the firm knowledge base and Morris, 2001), or if suppliers operate in a regime with weak appropri
speed up the acquisition of knowledge inputs that would otherwise be ability (Sako & Zylberberg, 2019). And it is not necessary since eco
difficult to generate internally (Cano-Kollmann et al., 2016; Dossani & nomic upgrading can occur without an improvement in technological
Kenney, 2007; Mukherjee, Lahiri, Ash, & Gaur, 2019). However, it has capabilities. Exploiting economies of scale, for example, can lead to
also uncovered the most critical aspects of this knowledge sourcing process upgrading even if no linkage-induced innovation takes place
approach, emphasizing the key role of integrative mechanisms and (Ponte & Ewert, 2009). There is a general agreement in the GVC
embeddedness in global knowledge networks. governance literature that more work needs to be done to identify under
More research is nonetheless needed to evaluate the conditions which conditions linkage-induced innovation can create economic
under which international connectedness spurs innovation. The paper upgrading.
by Sinkovics, Liu, Sinkovics, and Mudambi (2021) in this special issue is A key insight from the GVC governance literature –which has been
in this respect a welcome contribution. Focusing on the Taiwanese underappreciated in other research streams – is that the type and in
electronics industry, the article studies the role of knowledge connec tensity of knowledge transfer to suppliers depends on the governance
tivity in suppliers’ new product innovation capabilities under various patterns ruling the connection between suppliers and lead firms
inter-firm pipeline combinations. Counter to traditional narratives, the (Schmitz & Knorringa, 2000). For example, lead firms are generally
study finds that knowledge connectivity is less likely to lead to new willing to tolerate or even support innovation by their suppliers along
product innovation capabilities when there is high trust between the the dimensions of quality, flexibility and productivity if it helps
Taiwanese supplier and the foreign lead firm. They conjecture that this strengthen the complementarities between the two value chain partners.
“dark side of inter-firm trust” may be because suppliers disproportion In contrast, lead firms may discourage and even hinder the acquisition of
ately rely on their lead firm partner to conduct problem solving when technological capabilities by its suppliers if in the future this type of
inter-firm trust is high. innovation risks to encroach on the lead firm’s core competence. In this
respect, the GVC governance literature has focused on how different
3.2. GVC governance patterns of governance may enhance or hinder different types of eco
nomic upgrading, which are themselves often the result of learning and
The GVC governance literature constitutes a second research stream innovation activities.
that studies innovation-related concepts within an interactive & open A challenge for the GVC governance literature is that it has remained
model of innovation. Unlike the global knowledge sourcing literature, this predominantly qualitative, with quantitative measurement remaining
research field does not focus on innovation by lead firms but rather by largely elusive (McWilliam, Kim, Mudambi, & Nielsen, 2020) This is
their suppliers. Adding to this, the emphasis lies on the role of vertical exemplified by the lack of agreement how to empirically measure eco
supply chain linkages between firms specialized in different value chain nomic upgrading (Van Assche & Van Biesebroeck, 2018) and the limited
stages instead of horizontal linkages between firms specialized in similar number of quantitative studies that have evaluated the relation between
value chain activities. governance and performance outcomes (Kano, Tsang, & Yeung, 2020).
A central argument in this literature is that vertical supply chain The paper by Pasquali (2021) in this special issue is in this respect a
linkages with global lead firms provide suppliers access to foreign welcome addition. Focusing on the recent phenomenon that
knowledge, which may help them build up their technological capabil developing-country suppliers in the South increasingly sell their output
ities to conduct production-centered innovation (Gereffi et al., 2005; to Southern GVC actors (Horner & Nadvi, 2018), the author evaluates
Morrison, Pietrobelli, & Rabellotti, 2008). For example, supplier firms both theoretically and empirically whether Kenyan leather suppliers’
can receive aid from network firms to upgrade technological capabilities upgrading prospects vary if they sell to Northern versus Southern mar
through assistance in quality management/control and specialized kets. Using highly disaggregated firm-level export data and interviews,
workforce training (De Marchi, Giuliani, & Rabellotti, 2018). Thus, a he finds that product quality and product upgrading are higher for
supplier’s technological capabilities in a GVC setting not only depend on Kenyan leather exports to the North than to the South, which he attri
its own actions to develop its technological capabilities, but also on butes to lower Southern standard requirements. Moreover, he finds no
those to which they are linked. systematic difference in product and functional upgrading between
The question that this literature raises is through which channels North and South. Digging deeper into variations between Southern
vertical linkages can improve a supplier’s technological capabilities so markets, however, he shows that product upgrading is lowest when
that it can economically upgrade its position within GVCs. Economic exporting to close by African nations and functional upgrading is highest
upgrading occurs when suppliers increase the value added that they when exporting to dissimilar Southern nations like China.
create and appropriate within a value chain (Sako & Zylberberg, 2019).
Humphrey and Schmitz (2002) identify four types of economic 3.3. Co-location of production and R&D
upgrading that can be stimulated through linkage-induced innovation:
innovation that allows suppliers to more efficiently turn inputs into A third literature studies how the geographical dispersion of
output (process upgrading), that permits the development of higher vertically-linked value chain stages influences a lead firm’s ability to
quality goods and services (product upgrading), that allows suppliers to innovate. International production offshoring provides lead firms with
4
B. Ambos et al. Journal of World Business 56 (2021) 101221
both an opportunity and a problem concerning their own innovation types of GVC networks (horizontal versus vertical); (3) different types of
activities. On the opportunity side, the geographic relocation of pro opportunities and challenges generated by GVC linkages, and (4)
duction allows to capitalize on country-specific advantages and the different innovation activities (process, product or functional
opportunity it brings in freeing up of resources. These resources can and innovation).
often are invested in higher-value activities such as R&D, potentially
improving firms’ innovation capabilities (Bardhan & Jaffee, 2005; Far 4. Knowledge gaps and directions for future research
rell, 2005; Mukherjee, Gaur, & Datta, 2013).
On the problem side, however, production offshoring may also affect The previous section has highlighted the fragmented nature of
domestic innovation negatively by hampering feedback loops between existing research on the nature of innovation in GVCs. These diverse
the non-innovation and innovation stages of the value chain (Pisano & perspectives allow us to identify various research opportunities and
Shih, 2009, 2012). One challenge is the efficient transfer of knowledge missing links between the research streams. All three research streams
across borders, as knowledge can be sticky and location-dependent, have several elements in common that relate to the interactive & open
making it difficult to disperse internationally (Jensen & Szulanski, model of innovation. Each stream recognizes the decentralized nature of
2004). innovation processes and acknowledges the importance of both internal
The novelty of this research stream lies in its focus on the intrinsic and external linkages with other value chain actors to fuel innovation. At
interactions between innovation and non-innovation activities. Pisano the same time, each research area zooms in on different actors and the
and Shih (2009) argue that constant communication is needed between role of different linkage types. For example, the focal firms in the global
the production and development stages of the value chain for innovation knowledge sourcing and co-location literatures are the lead firms, while
to occur. Since production offshoring hinders communication between the GVC governance stream pays attention to innovation by suppliers.
production and development, the geographical dispersion of production Similarly, the GVC governance and co-location literatures focus on the
can reduce a firm’s ability to innovate. Specifically, when a significant role of vertical supply chain linkages between firms that specialize in
portion of production is performed abroad, the knowledge transfer can distinct value chain stages, while the global knowledge sourcing field
be hampered by geographical, cultural, and institutional differences emphasizes the role of horizontal linkages between globally dispersed
with the home country (Lane & Lubatkin, 1998). Mihalache, Jansen, research centers. While these different perspectives are important for the
Van Den Bosch, and Volberda (2012) shows empirically that there is an respective fields, their diversity can lead to interesting academic spill
inverse U-shaped relation between production offshoring and innova over opportunities.
tion. That is, when a substantial portion of production is offshored, this The global knowledge sourcing literature’s recognition of the
reduces a company’s ability to transfer and assimilate new importance of network connectedness and connectivity is one of them.
production-related knowledge due to a lack of overlap with their Integrating these concepts will require GVC governance and co-location
knowledge base at home. studies to move beyond the simple dyadic analysis between a lead firm
These findings have led scholars to analyze the moderating role of a and supplier, and consider the broader network structure of the GVCs in
product’s technological architecture on the link between manufacturing which suppliers are involved. For instance, while the literature on GVC
offshoring and innovation. Pisano and Shih (2012) identified two governance has focused on the role of power dynamics as drivers of
technical features: (1) the codifiability or “modularity” of the trans suppliers’ innovation, it has ignored that suppliers can themselves
actions between R&D and manufacturing; and (2) the “process maturity” connect to global knowledge networks. Unexplored questions related to
of the technology. If the transactions between R&D and manufacturing connectedness are, among others, whether suppliers that are more
are modular and the process technology is mature (pure product inno centrally embedded in local and global networks are more likely to have
vation), spatial transaction costs between the two activities are small the capacity to absorb external knowledge. Also, can suppliers learn
both now and in the future and production offshoring entails limited more from lead firms that are central in global knowledge networks, and
dangers for a firm’s innovation capabilities. When R&D and production vice versa? Adopting the connectivity concept could also push re
are highly interdependent or manufacturing technologies are immature, searchers to dig deeper into the role of individual-based linkages for
production offshoring can be dangerous since it involves high and un both suppliers’ and lead firms’ abilities to innovate. Questions such as
predictable spatial transaction costs. In that case, the value of what role expatriates and other types of boundary spanners play in
co-locating R&D and manufacturing activities is high, and offshoring moving ideas from lead firms to suppliers deserves more attention.
can have important negative implications on innovation. In line with Similarly, the co-location literature could explore the conditions under
these theoretical predictions, Castellani and Lavoratori (2019) found which such individuals are able to transfer tacit knowledge required to
that the prevalence of production-innovation co-location is higher when smoothen communication between physically separated MNE units.
tacit knowledge exchanges are more important between the two This focus would allow effectively substituting for geographical prox
functions. imity between manufacturing and innovative activities.
Table 2 summarizes the key insights from the three research fields A second source of cross-fertilization among these streams lies in the
and illustrates the key differences with regards to their focus on (1) role of governance structures within complex GVC networks, which has
different organization types (lead firm versus suppliers), (2) different been widely explored by the GVC governance literature, but ignored in
Table 2
GVCs and innovation.
Research stream Global knowledge sourcing GVC governance Co-location of innovation and production
5
B. Ambos et al. Journal of World Business 56 (2021) 101221
the other research streams. The co-location literature, for example, chain setting that includes a limited number of actor and linkage types,
could benefit from considering whether and how lead firms can mitigate ignoring the reality that GVCs consist of multiple hierarchical layers of
spatial transaction costs related to the separation of production and actors (lead firms, first-tier suppliers, second-tier suppliers etc.) and that
innovation through the adoption of certain governance types. Similarly, the same organization can take on different positions in different GVCs.
the global knowledge sourcing literature, that often considers knowl The analysis is also generally conducted in a setting that treats the
edge governance as a protective measure rather than an opportunity for technological architecture and governance structure as fixed. Such
innovation activities, could investigate which model of governance simplifying assumptions help in making the analysis tractable, but they
would allow better overall performance. come at the cost of ignoring important feedback loops that may shape
The paper of Buciuni and Pisano (2021) in this special issue exem innovation processes in integrated systems. In the remainder of this
plifies how cross-fertilization can lead to new insights about innovation section, we provide three examples how a more holistic view of GVCs
in GVCs. By integrating the concept of governance structure into Pisano can help provide a deeper understanding of the role of network struc
& Shih’s (2012) Modularity-Maturity matrix, the authors argue that lead ture, governance form and technological architecture for innovation in
firms in a GVC can adopt four distinct innovation models depending on GVCs. We also evaluate how the insights we have provided in this article
(1) the geographic dispersion of innovation and production and (2) the allow us to identify the impact of the current Covid-19 pandemic on
degree of a lead firm’s control over production. The authors use case innovation within GVCs.
studies from four global manufacturing industries – pharmaceuticals,
bicycle, design furniture and wine – to illustrate the existence of these
4.1. Multiplex nature of the GVC network
four innovation models.
Finally, the co-location literature is the only research stream that has
In the extant literature, scholars have generally concentrated on the
emphasized the role of technological architecture on linkage-induced
role of a single linkage type on a GVC player’s innovation performance.
innovation. More research is needed that analyzes, how technology
In reality, however, GVC actors often build a portfolio of horizontal and
moderates GVC actors’ ability to benefit from external knowledge
vertical linkages with their GVC partners, thus embedding themselves in
especially during this age of digitization. GVC studies need to
a multiplex network composed of several overlapping and inter
acknowledge the different technology-supported interaction activities
connected sub-networks by linkage type (Turkina & Van Assche, 2018).
that influence governance considerations. The challenge will be to
Acknowledging the multiplex nature of the network is valuable since it
consider complex technological architectures that contest the configu
acknowledges that any shock or managerial decision that alters the
ration of linkages among GVC actors and their interaction in the creation
structure in one sub-network, can also influence the structure of the
of innovation. Similarly, while extant global knowledge sourcing liter
other sub-network, thus, leading to extra feedback loops that influence
ature has largely disregarded the role of technological architectures,
innovation.
these are likely to substantially affect the amount and type of knowledge
Consider, for example, the impact of production offshoring on
sourced abroad, as well as its actual usage in lead firms’ innovation
innovation; the traditional argument is that a lead firm may use the freed
processes and/or manufacturing activities. Unexplored questions
up cash of production offshoring to enhance its innovation efforts at
related to the role of technological architecture within GVCs are, among
home (Farrell, 2005), but that this can be undermined by heightened
others, how does the technological architecture affect the governance of
spatial transaction costs between the dispersed production and innova
innovation activities, and their interaction with non-innovation within
tion activities (Pisano & Shih, 2012). This perspective, however, ignores
GVCs, and how does it influence firms’ reliance on global - vis a vis local -
that the lead firm may use the freed up cash to internationalize its R&D,
knowledge sourcing?
which may allow them to limit the increase in spatial transaction costs
In our view, future research on innovation in GVCs can get most bang
while tapping into foreign knowledge pockets. In this case, production
for the buck by adopting a more holistic view of GVCs that considers all
offshoring may enhance a lead firm’s innovation performance through
actors and linkage types as parts of an integrated system (see Fig. 1).
the reconfiguration of both its vertical and horizontal linkages.
Extant studies have mostly limited their attention to a simplified value
Building horizontal connectedness, then again, may help a supplier
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B. Ambos et al. Journal of World Business 56 (2021) 101221
economically upgrade within vertical chains. Indeed, stronger horizon in the specific portion of the value chain in which they operate, evolving
tal linkages can help strengthen a supplier’s technological capabilities technological architectures could generate substantial disruptions of
that allows them to functionally upgrade into new value chain activities. existing GVC configurations along with the re-organization of the actor
This, in turn, can push the suppliers to offshore their lower value-added network. With changing GVC structures and a change of value creation
activities to suppliers elsewhere while developing new relations with within the GVC, the entire system might be impacted. Firm and
lead firms. Here again, stronger knowledge sourcing can generate a geographic boundaries might shift as a result of these changes, leading
change in a supplier’s position in the vertical sub-network which gen to different innovation dynamics. Investigating which types of gover
erates an extra feedback loop that influences innovation performance. nance structures and knowledge sourcing strategies might help GVC
actors and networks to manage such architectural shocks should be a
4.2. From governance to orchestration primary question for scholars interested in innovation in GVCs.
Exploring this area of research allows to contemplate the possibility
A more holistic view of GVCs also challenges researchers to reflect that a firm’s technological architecture is not simply an attribute of
more deeply on innovation that occurs at the GVC level instead of at the knowledge but is sometimes a managerial decision (Henderson & Clark,
actor level. A key contribution of extant studies has been the analysis of 1990). In certain industries, firms can choose from a variety of techno
linkages that allow firms to innovate the specific value chain activities in logical architectures, which each have their own costs and benefits
which they specialize (product or process innovation) or that allows (Schilling, 2000; Ulrich, 1995). A modular architecture, for example,
firms to move into more sophisticated activities. Less attention has been has the benefit that it reduces the interdependencies between modules,
paid to the types of innovation capabilities that lead firms need to thus allowing firms to independently concentrate their capabilities on
develop to resolve system bottlenecks and ensure that the entire value innovating a single module (Baldwin & Clark, 2000). But it comes at the
chain acts as an integrated structure. cost that it narrows the degrees of freedom that researchers have in the
A deeper analysis of a lead firm’s orchestration capabilities will in design process as they need to adhere to the fixed interfaces (Chris
this respect be critical (Pitelis & Teece, 2018). It has been well docu tensen, 1992), which in the long term can lead to fewer innovative
mented that lead firms need to ensure that the entire value chain breakthroughs than integral systems (Fleming & Sorenson, 2001). This
operates as a harmonious whole, which requires them to build the is relevant in a GVC setting since a change in the organization of a value
necessary “architectural knowledge” (Larsen & Pedersen, 2014) and chain can alter the cost–benefit balance of competing technological ar
“controlling intelligence” (Buckley, 2009) that allows the identification chitectures and influence a firm’s technological development path. In a
and resolution of system-wide bottlenecks in the GVC. Developing these case study of the optoelectronics industry, for example, Fuchs and
orchestration capabilities goes beyond building competences that lead Kirchain (2010) show that offshoring to East Asia has made an older
firms need to conduct their in-house design and manufacturing activ design more cost effective, thus delaying the adoption of the emerging
ities. As Brusoni, Prencipe, and Pavitt (2001) succinctly suggested, lead more innovative architecture.
firms need to “know more than they make.” First, they need to create
technological capabilities in a much broader range of technical fields 4.4. COVID-19 and innovation in GVCs
than the core product fields in which they compete so they can identify
and coordinate the integration of new technological developments along The COVID-19 pandemic, which started in January 2020, raises a
the GVC. Second, they need to develop organizational knowledge that number of questions regarding the future of innovation in GVCs. Given
allows them to deal with both internal and external partners that are the importance of connectivity, co-location and orchestration, as well as
dispersed across the globe (Kotha & Srikanth, 2013; Larsen & Pedersen, the impact of GVC configuration on the technology architecture choice,
2014). any such shift will naturally have an effect on innovation in GVCs.
Creating these orchestration capabilities require lead firms to The COVID-19 pandemic has hurt the production of intangibles by
develop sophisticated inter-organizational coordination and collabora stifling lead firms’ abilities to benefit from both local agglomeration
tion routines that allow them to obtain knowledge from its GVC partners economies and from international collaborations (Van Assche, 2020).
through horizontal and vertical linkages, transmit their expectations to The goals of stay-at-home orders and physical distancing rules put a halt
their GVC partners, and monitor supplier actions appropriately. In our to the planned and unplanned face-to-face meetings that undergird the
view, identifying areas of intervention in lead firms’ innovation strate vibrancy of local knowledge ecosystems. The closing of international
gies that allow to strengthen their orchestration capabilities is a key area borders to non-essential travel has limited the global mobility of
for future research. knowledge workers, with direct consequences on the firms’ abilities to
collaborate and exchange knowledge with their foreign partners (Kano
4.3. Technological architecture choice & Oh, 2020). We argue that this affects innovation in GVCs in a number
of ways.
The studies described in this paper generally adopt the deterministic First, the “stay at home” policies do alter individual and team level
view that technological development is a trajectory, which is intrinsic to dynamics in the production of intangibles. Employees that used to have
the technology itself and can be neither stopped nor controlled (Leo daily office meetings and precise organizational routines were suddenly
nardi, 2008). Therefore, it is believed that a change in the properties of a transformed in remote workers. It is often argued that this is less costly
technology can affect the organization of the value chain, but not the for knowledge workers since they do not have to be physically present to
reverse. For example, innovation scholars have investigated how the perform their job (Dingel & Neiman, 2020). But such claims severely
shift towards open innovation leads to more organizationally decen underestimate the social nature and benefits of informal relations that
tralized MNE networks for knowledge development and exchange happen during work and that are crucial for creativity and productivity
(Cantwell, 2017; Roper, Du, & Love, 2006), but little attention is paid to (Johns & Gratton, 2013). The combined effect of these two contrary
how R&D offshoring affects a firm’s decision to adopt an open innova trends on innovation and creativity is not clear, because, if on the one
tion system. Similarly, GVC studies have evaluated how the codification hand, companies have heavily adopted mediating technologies to sus
of transactions affects governance structure (Gereffi et al., 2005), but the tain and foster virtual collaborations, on the other hand, the dynamics
question how a change in governance mode affects a firm’s decision to underlying face-to-face interactions cannot be fully translated in a
codify its transactions has been largely ignored. Thus, future work could decontextualized virtual setting and dispersed R&D teams might lose
consider studying how a change in a firm’s GVC structure affects its their propellant, if not properly stimulated.
technological development path. Second, the pandemic elevated challenges in inter-firm settings, and
Moreover, while different GVC actors have the incentive to innovate especially in buyer-seller relationships. With every contact requiring an
7
B. Ambos et al. Journal of World Business 56 (2021) 101221
explicit meeting, sellers find it hard to rely on informal chat and Nature of Innovation in Global Value Chains includes three original papers:
empathy, particularly if they intend to establish new relations. As a Buciuni and Pisano (2021), Sinkovics et al. (2021) and Pasquali (2021),
result, this creates a huge shift towards more rational decision making which take a step in the above mentioned direction by contributing to as
and persisting travel-restrictions add to these problems. In contrast to many streams of literature reviewed in this editorial.
the tangible component in value chains, intangibles can seldomly be We hope that these papers stimulate members of the IB community
stored or kept in “inventory”. Bi-sourcing of creativity has long been and beyond to engage in conversations on the necessary blending of
practiced as a second opinion, but it is less effective once a decision is perspectives on the dispersal of manufacturing and innovation. Just like
made. As a result, resilience in the production of intangibles primarily production processes today take place across firms’ and countries’
relies on flexibility. borders, innovation is interactive, open and geographically distributed.
Third, the pandemic has raised questions whether it is feasible for As a consequence, manufacturing and innovation processes, along with
firms to follow political calls to reinstall more central or at least multi- their respective players and underlying heterogeneous linkages, cannot
domestic value chains. The answer to this question, to some extent, be analyzed separately if we aim at gaining a comprehensive under
will depend on how path dependent and embedded innovation in GVCs standing of how such key activities create value in global organizations.
really has become, and how this trend will be affected by the pandemic
in the medium term and the systemic changes related to it. While the Acknowledgements
pandemic has disrupted existing networks, ecosystems and platforms
linking lead MNEs, customers and other GVC partners (Zahra, 2020), Vittoria G. Scalera acknowledges the support by The Netherlands
recent anecdotal evidence in The Economist and the New York Times Organisation for Scientific Research (NWO) [016.Veni.195.412/6817].
points to some of the difficulties that firms may face in altering the
geographic set up of their innovative systems. As immediate response to References
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