Upgrading Challenges in Global Value Chains: Lessons Learned from Indonesia
Dzulfian Syafrian
Durham University Business School
Durham - United Kingdom
Abstract
Upgrading local companies is one of the key concerns of host government, especially in developing countries, in the age of Global Value Chains (GVCs). GVCs provide both opportunities and threats for host countries. One side, GVCs are the window of opportunities for local companies to catch up with the global leaders. On the other hand, GVCs could provide only limited impact on host country economic development by only seeking and exploiting the location advantages of host country. This paper aims to elaborate some common upgrading challenges faced by local companies when they engage in GVCs. Four main upgrading challenges are identified, namely: hyper-dependency on a single buyer, financial pressures, inconsistent industrial policy, and global competition. A single case study research is employed to illustrate these situations and how these challenges inhibit a leading and potential local company to grow and upgrade its position in GVCs. Astra International and its automotive subsidiaries (Astra) are chosen as the case study for number of reasons. First, Astra is originally from Indonesia. The company was established by Indonesians and locates most of all their businesses and value chain activities in Indonesia. Secondly, Astra is one of the largest Indonesian companies which has about 200 subsidiaries and employs over 200,000 workers. Thirdly, this study case gives very rich insights for other Indonesian local companies and government how to grow, manage and support businesses in the age of GVCs. Several implications for managerial strategy and policy recommendation are also discussed.
Keywords: Global value chains, Global production networks, upgrading strategy
Topic: Business Strategies on GVC Participation