Collaborative public spaces and upgrading through global value chains: The case of Dongguan, China

Abstract

Abstract Research Summary How do multinational enterprises (MNEs) address host‐country challenges after the initial investment? And when does foreign direct investment (FDI) result in local upgrading? Using a study of FDI and global value chain participation in Dongguan, China, we find a mechanism in which FDI results in sustained local economic upgrading and improved MNE subsidiary performance: a collaborative public space (CPS). A CPS is a social space based on trust that enables different and divided actors to engage, sharing concerns and information in ways that they otherwise would be disinclined to consider. Using the CPS concept, we expand understanding of the effectiveness of MNE strategies in host‐country environments and the conditions in which FDI leads to change in global value chains. Managerial Summary The international strategy literature has found that FDI has ambiguous impacts on host‐country regions and firms, leading in some cases to upgrading or in others to local firm deskilling or decline. It has also shown that the postinvestment strategies of MNEs, particularly political connections or business associations, have mixed results. Using the concept of a CPS, we show how the construction of a trust‐based social space can improve MNE subsidiary and local firm performance and lead to changes in the structure and composition of global value chains (GVC). The GVC changes by incorporating new host‐country suppliers and buyers as well as increasing the value‐added, thus creating a new node and exchange patterns in the GVC.