Whether China can avoid the middle-income trap has been the subject of extensive research. Currently classified as an upper middle-income country, China increasingly exhibits similar characteristics as countries currently experiencing the middle-income trap. However, using evidence from China’s coastal manufacturing city of Dongguan, this article shows how China’s approach to global value chain (GVC) participation created conditions for avoiding the middle-income trap: 1) agglomeration and manufacturing scale at multiple stages of production, 2) a mix of foreign and domestic enterprises, 3) participation in GVCs for multiple industries, 4) development of domestic demand, and 5) continuously reconfiguring government industrial policies. With these characteristics, China’s economy is likely to continue to grow, suggesting that GVC participation can facilitate a path around the middle-income trap.

The focus of this article is the examination of the factors that trigger the addition of horizontal subcontracting to the structure of global factories. Horizontal subcontracting takes place when one firm is contracted to produce a given item, fills as much of the order as they are able to based on their available capacity, and subsequently subcontracts the remainder to a qualitatively identical firm. We find that similar entrepreneurial backgrounds of contract manufacturers lead to strong business ties in the same industry and stage of production; low-cost, used production machinery and inexpensive factory rent lead to low barriers to entry; tightening labor markets, limited capital access and lumpy or uncertain demand lead to the need to avoid underused internal capacity, and the widespread use of digital sourcing platforms by buyers enables contract manufacturers to receive orders both small and much larger than their internal production capacity. These factors combine to produce many networked small manufacturers who use horizontal subcontracting to ensure sustained demand. Currently a largely China-based phenomenon, horizontal subcontracting is likely to spread beyond China, offering a new source of vitality to low-cost manufacturing in global factories, keeping global factories viable into the future.

The rise of globally fragmented production since the 1980s encouraged economic regions to specialise in narrow slices of the value chain, making the benefits from local agglomeration no longer certain. Nonetheless, locally integrated production districts continue to thrive. Locally integrated industrial districts have proven sustainable in times of both increasing and decreasing fragmentation of production. Drawing upon insights from three schools - the Markusian logic of multiple district models, strategic coupling and the production of semi-public goods - this article uses a two-staged case-study design to explore the conditions under which locally integrated production districts continue to thrive in the global economy.

Cross-border entrepreneurship and subsequent host-country innovation may result in global cities increasing their stock of human capital and capabilities at the expense of the sending region. Unlike the immigrant and returnee entrepreneurship studied in the past, cross-border entrepreneurship may be increasingly one-way, involving migration for entrepreneurship rather than migration followed by entrepreneurship. With an increasing focus on service rather than manufacturing industries, the old international and backward ties that once typified cross-border entrepreneurship may no longer apply, leading to increased rates of innovation in host-country global cities and reduced rates in the home region. Using a study of Taiwanese entrepreneurship in Mainland China, this chapter shows how the magnetism of global cities attracts investment, but the patterns of globalization today, including protectionism and technology fragmentation, yield highly unequal innovation benefits from this type of entrepreneurship.

It is commonly assumed contract manufacturers must grow to achieve minimum viable scale. This study of Chinese contract manufacturers in global factories for plastics reveals how “reciprocal subcontracting” enables small firms to sustain competitiveness. Taking the Penrosean growth perspective, we test two theoretical tenets of growth: managerial opportunity recognition and development of internal production capacity. While lead firms largely conform to established theory, small contract manufacturers achieve “borrowed growth” which is external to the firm and ever-shifting within a fluid network of firms. This externalization of production capacity growth supports our call for theoretical extension to the Penrosean growth perspective.

A long research tradition considers the role of “power” in the relationship between multinational corporations (MNC) and host country governments. However, major theories emphasize different sources of power, leaving open room for misinterpretation or discounting the role of power in the relationship. We outline the sources of power applied when studying the MNC-host government relationship and use examples, Intel’s investment in Costa Rica and Huawei’s relationship with governments in the US and Europe, to illustrate how the sources of power differ, sometimes radically, and how this translates into actions and reactions by MNCs and host governments. Drawing upon these insights, we propose a dyad-level framework for understanding power, which enables cross-theoretical comparisons, higher breadth and depth of consideration, and offers scholars and managers a deeper understanding of the power relationship between MNCs and host governments.

Research emphasizes the role that industry characteristics and knowledge bases play in MNE subsidiaries' knowledge sourcing decisions. This article extends the knowledge sourcing literature by examining how technology challenges themselves help determine both the geographic location-local or distant-and the actor from which the knowledge will be sourced. Using a study of MNE subsidiaries' knowledge sourcing in a peripheral region without a preexisting industry-specific knowledge cluster, we find that MNE subsidiaries' decisions on where and from whom to source knowledge vary in accordance with the geographic scope and complexity scale of the technology challenges being faced. In peripheral regions, MNE subsidiaries tend to source knowledge from established parties (i.e., the subsidiaries of other MNEs or their headquarters) for localized small-scale technology challenges and for global and large-scale ones. In contrast, localized large-scale technology challenges and global small-scale technology challenges result in more knowledge sourcing from host region actors or from within the subsidiary. This understanding helps clarify the forces behind MNE knowledge sourcing decisions and how multiple sourcing approaches may be simultaneously deployed.

Current research has emphasized the role that industry characteristics play in MNEs knowledge sourcing decisions. However, much remains to be understood regarding the specific circumstances uncerta...

Learning is a key component of firm upgrading in emerging economies, and China is no exception to this. Studies have identified, among others, two critical mechanisms that facilitate learning: (1) connections with supportive local governments that enhance access to resources or publicly funded knowledge and (2) connections to co-located foreign multinational enterprises (MNEs) that enhance access to advanced knowledge and capabilities. However, previous studies on the effects of these connections on learning and innovation have had contradictory results. In this study, we develop a model of firm innovation capabilities based on regional differences in firms' dependence on government and MNEs. Using a sample of 715 indigenous firms from the three historically dominant economic regions in China, we find that the effects of government and MNE ties on local firms' learning and innovation performance vary depending on the historically dominant dependency patterns in the region.

With the understanding that innovation and high technology industries are essential for sustained economic development, government R&D subsidies have become ubiquitous. However, existing studies on the impact of R&D subsidies have found mixed or conflicting results. Insights from resource dependence theory (RDT) and the Attention-Based View (ABV) help account for these discrepancies. This study of Chinese high technology firms using the Innovation-Oriented Firms Database from the Ministry of Science and Technology, finds an inverted U-shaped relationship between R&D subsidies and innovation performance. The article shows that high government resource dependency, expressed through high percentage of R&D spending coming from government subsidies, diverts attention resources in recipient firms and results in declining innovation performance. The article then tests the impacts of different managerial responses on the dependency-innovation relationship and find that technology alliances and employee feedback systems mitigate these negative effects. These findings have implications for government innovation policies and firm-level responses to those policies: government subsidy policies have limits to their effectiveness and firms have strategic options for capitalizing on government resources without sacrificing innovativeness.

The roots of subsidiary initiative – entrepreneurial actions taken by subsidiaries that can change their role within the broader corporation or even overall corporate strategy – has been broadly studied at the organizational and external environmental level. Following calls to consider the role of individual managers in the undertaking of subsidiary initiative, this paper adopts the Attention Based View to consider the mediating role of managerial attention in the subsidiary initiative process. Using interview data from MNE subsidiaries in the offshore oil industry in Newfoundland, Canada, we find that individual characteristics – most notably entrepreneurial background, local identity and degree of local embeddedness help direct the attention of local managers to the external environment. This increases the propensity for subsidiary initiative. When promoting initiatives, it is necessary to gain the attention and help reorient an ally with the headquarters top management team to facilitate approval. This paper helps expand understanding of subsidiary initiative in international business and the as yet understudied role of middle managers’ attention in determining the incidence and approval of initiatives.

Foreign Direct Investment (FDI) frequently fails to provide transfers of important ideas and technologies to host countries. Incorporating insights from network theory, we argue that this is a predictable outcome of foreign investment because there is a natural tendency among multinational enterprises (MNEs) toward enclave formation. MNE subsidiaries face risks associated with poor information in host countries, which they mitigate by partnering with known firms in their existing business networks. In-group dynamics and network inertia perpetuate the closed nature of foreign enclaves and prevent technology transfer to the local enterprises. Thus, rather than specific host country conditions – absorptive capacity, institutions, or culture – a general tendency toward enclaves among MNEs works against local technology transfer. We illustrate this tendency with three cases that a-priori should not be characterized by poor levels of technology transfer: the electronics clusters in Guadalajara, Mexico and Costa Rica and the automotive sector in Ontario, Canada. Recognizing the role of business networks in shaping MNE behavior has important analytical implications for scholars and underlines the importance of policymakers moving beyond FDI attraction to local network-building policy instruments.

China’s manufacturing and innovation capabilities are directly related. Availability of complementary resources in rapid prototyping, test production, and components and the ability to deploy innovations at scale increasingly lead high-technology firms, including startups, to consider China as a developmental base across sectors from big data to cloud computing, smart grid, renewable energy, and alternative energy vehicles. Entry into global value chains (GVCs) has led to vast transfers of knowledge, creating human resource capabilities that continuously facilitate the upgrading of Chinese firms. China’s most advanced industries were all those characterized by active participation in GVCs. China’s entry into GVCs has differed significantly from the experiences of other emerging economies, arguably affording China greater innovation benefits. This is directly related to China’s institutional environment of “structured uncertainty.” Structured uncertainty shaped the pattern and impact of entry into GVCs, dictating which regions entered GVCs, when, and how, with long-term knowledge transfer effects.

Global Value Chains (GVC) are a channel for upgrading firm capabilities. Over the last four decades, China has rapidly grown as a result of participation in GVCs. It has become central to global production networks in many industries, accelerating the process of global diffusion of manufacturing. However, the process by which China entered into GVCs and was changed by them can be further studied. In a study of Taiwanese MNE subsidiaries in the city of Dongguan, we find that foreign direct investment, when combined with trust building collective action facilitates a region’s move to the center of global value chains. We introduce the utility of a collaborative public space (CPS) as a mechanism for this trust building and provide implications for upgrading in emerging economies.

This chapter shows how China's welfare state is partially responsible for its imbalanced economic growth model, characterised by an overreliance on export-led manufacturing industries and the laggard development of the service economy. It argues that the expansive Chinese pension system facilitates the expansion of the manufacturing sector by subsidising the training of workers with industrial specific skills, as this system is designed to do, but it has an unintended consequence. The political-economic logic has shown that China's pension system is dictated by the need of the Chinese economy. Rebalancing the Chinese economy, the overriding priority in Chinese government's post-crisis macroeconomic policy, therefore requires adjustments to the Chinese pension system. The chapter examines the structure of the Chinese economy through the lens of this study's political-economic framework. China's …

Resource Dependency Theory (RDT) and Global Value Chain (GVC) analysis have been deployed in the strategic and international management literatures to address questions of power in dyadic relationships and global production networks, respectively. This paper integrates the two theoretical approaches in order to expand RDT, using insights from Hirschman's exit/voice model to show the options available to some firms but not others. Using the relationship between buyers and contract manufacturers from GVC analysis, we find a correlation between firm size and choice of strategic action in response to contract manufacturers' dependence on buyers. Large firms follow an acquiescence strategy while small manufacturers follow an avoidance strategy, able to use both exit and voice strategies. Enabled by scale or control over information, both of these approaches successfully reduce uncertainty and provide a source of sustained competitive advantage. Using a study of the production chain in consumer plastics manufacturing in China, we show how dependent firms respond to GVC induced pressure. We find that based on the size of the contract manufacturer, the range of strategic responses to power is constrained by the nature of the dependency in global value chains. This opens important insights into the role that structural characteristics of organizations (like size) play in determining strategic freedom.

Research since the 1980s has considered the economic and innovation impacts of technology standards policies. This paper extends the research on the impact of standardization policies to consider how the policies themselves, as they govern how the standards are created, determine standards’ impact on emerging economies’ economic performance and innovation capabilities. Using four cases of digital technology standardization in China, this paper finds that combinations of government financial and market support and openness to domestic and foreign contributors determines how and when digital standardization begets positive technological and economic impacts for firms. This paper contributes to our understanding of international technology upgrading in emerging economies, as well as suggesting policies for successful economic upgrading in large emerging economies.

Resource Dependency Theory (RDT) and Global Value Chains theory have been deployed in the strategic management literature to address questions of power in dyadic relationships and global production networks, respectively. This paper integrates the two theoretical approaches. RDT provides a mechanism by which Lead Firms in Global Production Networks develop and exert power. Applying these two theories together in an international business context, we find that power does exist as predicted by both theories. However, the factor of distance and costly information reduce the power lead firms wield, despite their control of critical resources. In cross-border dyadic relationships, RDT must be expanded to consider the influence of information asymmetries and GVC theory must consider the ability of dependent firms to strategically limit their power. Using a study of the global production chain in plastics manufacturing in China, we show how dependent firms can preserve their freedom of action, thus opening important insights into the challenges and risks in international sourcing.