The governance of global value chains

TLDR

The article develops a theoretical framework to explain governance patterns in global value chains. The framework draws on transaction‑cost economics, production networks, and technological capability literature to identify three key variables—transaction complexity, codifiability, and supply‑base capabilities—that shape governance, and illustrates their dynamic, overlapping application across industries such as bicycles, apparel, horticulture, and electronics. The theory identifies five governance types—hierarchy, captive, relational, modular, and market—spanning a spectrum from high explicit coordination and power asymmetry to low.

Abstract

Abstract This article builds a theoretical framework to help explain governance patterns in global value chains. It draws on three streams of literature – transaction costs economics, production networks, and technological capability and firm-level learning – to identify three variables that play a large role in determining how global value chains are governed and change. These are: (1) the complexity of transactions, (2) the ability to codify transactions, and (3) the capabilities in the supply-base. The theory generates five types of global value chain governance – hierarchy, captive, relational, modular, and market – which range from high to low levels of explicit coordination and power asymmetry. The article highlights the dynamic and overlapping nature of global value chain governance through four brief industry case studies: bicycles, apparel, horticulture and electronics.