Subsidiary upgrading and global value chain governance in the multinational enterprise

Research Summary Upgrading and governance in global value chains (GVCs) have been understood mainly through studying the buyer-supplier transaction, where the supplier is typically an independent contractor from a developing economy. Little is known about how subsidiaries of multinational enterprises (MNEs) can upgrade in a GVC, whose core activities are coordinated through the "hierarchy" governance model. Using an in-depth longitudinal single case study in the medical devices industry, we explain how a subsidiary can accomplish upgrading in an intra-MNE GVC and, over time, increase its control of this GVC reaching a joint coordinator role for its governance. Our findings show that partaking in innovation may not be the final stage of a subsidiary's upgrading but can represent the start of a new phase that culminates with joint coordination of the GVC. Managerial Summary The competitiveness of a global subsidiary is determined by its capacity to upgrade in a GVC and engage in higher value-adding activities. Moving from production to innovation is generally viewed as the pinnacle for subsidiaries in the accomplishment of upgrading within a GVC, thereby ensuring long-term survival. We show however that specializing in innovation is not the highest peak a subsidiary can reach. Innovation is in fact a necessary condition for a strategic role for the coordination of a GVC. A subsidiary's management team can deliberately strategize to ascend to such a position in the multi-business MNE as a GVC joint coordinator for a product category. It can achieve this prominent position by leveraging its innovation capabilities to assume a greater proportion of control over the business's GVC governance. This position of greater prominence for the subsidiary within the MNE advances its internal advantage and strengthens its survival prospects.