GLOBALISATION, FIRM UPGRADING AND

IMPACTS ON LABOUR
PETER KNORRINGA & LEE PEGLER
Institute of Social Studies, P.O. Box 29776, 2502 LT The Hague, the Netherlands. E-mails: knorringa@iss.nl;
pegler@iss.nl

Received: June 2005; revised February 2006

ABSTRACT
The question that drives this paper is: When can we expect firm upgrading by developing-
country suppliers in global value chains will lead to improvements in labour conditions? To deal
with this question we, (a) position firm upgrading in the global value chain approach, (b) investigate
existing evidence and conceptualisations on how economic globalisation impacts on labour, and
(c) develop some hypotheses on when we can expect firm upgrading and improvements in labour
conditions to go together. We conclude that firm upgrading in developing-country suppliers in
global value chains as a rule does not lead to improvements in labour conditions. Instead, the
much broader and more forceful process of immiserising growth makes it very unlikely that
workers in such relatively low-skilled production activities will enjoy improvements in labour
conditions. Ethical sourcing may lead to improvements in labour conditions of core workers in
final product manufacturers and key supplier firms, but it is as yet unclear to what extent such a
business model can and will be disseminated. More generally, even though economic globalisation
does selectively create new jobs, even labour conditions of core workers may be under pressure
while the overall proportion of core workers appears to be declining.

Key words: Labour, employment conditions, global value chains, firm upgrading, globalisation,
decent work, ethical trade, corporate social responsibility

INTRODUCTION conditions, while others expect that continu-

This paper aims to contribute to the debate on
how economic globalisation impacts upon
labour, using the Global Value Chain (GVC)
approach as an analytical device. A dominant
feature in the GVC literature is the broad con-
sensus on the idea that, in order to cope with
the pressures of globalisation and to remain
competitive, firms need to continuously
upgrade (Best 1990; Womack & Jones 1994;
Schmitz 2004). Much less is known about how
this drive towards upgrading impacts upon
labour. Conceptually, broad brush views diverge
from those who assume that economic globali-
sation implies a cost-driven ‘race to the bottom’
which inevitably leads to deteriorating labour
ously upgraded processes and products also
require higher skilled and motivated workers
who can and will earn a premium in the labour
market (ILO 1999). Moreover, in recent discus-
sions about ethical trade and corporate social
responsibility it is often pointed out that dis-
tributors of branded products are increasingly
aware of the need to show relatively high
standards of labour conditions in ‘their’ supply
chains (Barrientos et al. 2003). Finally, while the
first wave of empirical GVC studies did not pay
much attention to labour issues at all, more
recent GVC studies have started to address
specific labour issues in the value chain and
country context of particular case studies
(Nadvi 2004).

Tijdschrift voor Economische en Sociale Geografie – 2006, Vol. 97, No. 5, pp. 470– 479.
© 2006 by the Royal Dutch Geographical Society KNAG
Published by Blackwell Publishing Ltd., 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
GLOBALISATION, FIRM UPGRADING AND IMPACTS ON LABOUR
Notwithstanding such initial conceptual and
empirical efforts to address labour issues in the
GVC approach, we feel that a useful next step in
the debate would be to develop a more systematic
understanding of how economic globalisation
impacts upon labour. As a first step in this process,
this paper develops a set of working hypotheses
on where and when firm upgrading and im-
proved labour conditions are more likely to occur
and may possibly even reinforce each other.
At the same time, our selective overview of
empirical and conceptual efforts to assess the
impacts on labour shows that situations where
firm upgrading and improvements in labour
conditions are likely to go together will be the
exception rather than the rule.
The paper is structured as follows. The follow-
ing section positions the GVC approach in the
debate on the need for upgrading in the era of
economic globalisation, and argues the case for
paying systematic attention to labour issues.
The third section discusses both empirical and
conceptual attempts to show how economic
globalisation in general, and inclusion in GVCs
in particular, impacts on labour. The fourth
section formulates some hypotheses on where
and when firm upgrading and improvements in
labour conditions are more likely to occur, draws
some preliminary conclusions, and provides two
suggestions for further research.
GLOBAL VALUE CHAIN ANALYSIS AND
FIRM UPGRADING
The value chain perspective draws attention to
the sequence of activities stemming from product
conception to the final consumer, stressing the
importance of activities other than production
itself, notably design, logistics and marketing
(Gereffi & Kaplinsky 2001; Kaplinsky et al. 2002).
Moreover, control of a value chain does not
require owning the manufacturing operation nor
direct management of all activities (Cowling &
Sugden 1993). According to Jarillo (1993), in
most recent successful examples of industrial
organisation, the leading actors in value chains
focused only on a few strategic activities. In value
chains that produce and sell labour-intensive
consumer goods, such as footwear or garments,
the leading actors are large retailers, (ex-) manu-
facturers of established brand names and
import-wholesalers. In such buyer-driven chains
471
these lead firms ‘act as strategic brokers in linking
overseas factories with evolving product niches
in the main consumer markets’ (Gereffi 1999).
Relationships between producers and lead
firms are usually characterised by a complex
mix of market, hierarchy and networks.
Although theoretically one could set a breaking
point where leading actors switch from arms-
length contracts with independent suppliers to
wholly-owned subsidiaries, the business world is
full of many intermediate forms that fill the
continuum between perfect market and pure
hierarchy. Relationships often display charac-
teristics of uneven networks within which lead-
ing actors manage relationships that are both
obligatory and asymmetrical (Pfeffer & Salancik
1978; Johanson & Mattson 1987; Sako 1992). In
such vertical inter-firm relationships, eliciting
selective co-operation has proven to be an
efficient strategy, both in theory (Axelrod 1984;
Ring & van der Ven 1994), and in the Italian
and Japanese success stories of new competition
(Best 1990; Sako 1992). A general, but often
implicit proposition from this literature is that
more quality-driven or high-road production also
entails higher levels of trust in inter-firm rela-
tionships in value chains (for a critical overview,
see for example Humphrey & Schmitz 1998).
Lane (1998) argues that in the case of intensified
quality-driven competition, trust has become
more necessary but also more problematic.
Her proposition is that trust is at present an
even more important precondition for success
than before, while at the same time intensified
competition makes trust more difficult to
develop and more risky to invest in.
Notwithstanding these difficulties, a quality-
driven or high-road environment may well offer
more opportunities for organisational learning
which, in turn, increases the likelihood of up-
grading. Upgrading in the value chain literature
is usually broken down into:
• process upgrading (doing things better);
• product upgrading (producing better goods);
• functional upgrading (engaging in additional
and higher value-added activities) (Humphrey
& Schmitz 2002, 2004).
A key issue in the present GVC literature is the
extent to which asymmetrical relationships
with buyers provide suppliers with opportunities
for learning and upgrading. Recent studies
© 2006 by the Royal Dutch Geographical Society KNAG
472
(among others Gereffi 1999; Schmitz & Knor-
ringa 2000) argue that global buyers often play
a significant role in process and product
upgrading, especially for their more favoured
suppliers, and especially in the initial stages with
incipient producers (Schmitz & Knorringa 2000).
The controversial issue is whether suppliers are
also able to achieve functional upgrading, and
to determine the role buyers play in furthering,
neglecting or obstructing functional upgrading
by their suppliers. While Gereffi’s study on gar-
ments recognises that there are many obstacles
to functional upgrading, he emphasises the
dynamic learning curves that producers in value
chains are exposed to: moving from mere
assembly to monitoring the entire production
process, to design and sale of their own branded
merchandise. In contrast, Schmitz & Knorringa
(2000) found that in the footwear industry global
buyers tended to see attempts at functional
upgrading as encroaching on their core compe-
tencies and actively discouraged such attempts.
The GVC debate has from the start looked at
questions like how suppliers can be: ‘locked
into dependent relationships across territories
through considering issues of cooperation,
competition, power’ (Kaplinsky et al. 2002,
p. 1160). The original formulation of the global
commodity chain approach by Gereffi (1994),
draws its inspiration from Wallerstein’s world
system approach, with strong roots in depend-
ency thinking. However, in the first wave of GVC
studies the attention was almost exclusively
focused on inter-firm relationships, basically
neglecting impacts on labour. In more recent
GVC studies labour is increasingly brought
into the analysis, but we feel there is a need to
further systematise attention for labour in GVC
studies that aim to shed light on opportunities
and threats from economic globalisation on
developing countries.
After all, positive impacts on the quantity and
quality of employment as a result of inclusion
and upgrading in GVC are often assumed by
policy-makers, but such claims too often lack
solid evidence (ILO 1999). The findings from
GVC studies are mixed (Kaplinsky et al. 2002;
Nadvi 2004). Moreover, the broad field of
labour studies brings in some pertinent con-
siderations that should alert us to be extremely
cautious about sweeping generalisations when
it comes to where and when firm upgrading
© 2006 by the Royal Dutch Geographical Society KNAG
PETER KNORRINGA & LEE PEGLER
may also lead to an improvement in labour
conditions.
Labour studies emphasise the asymmetrical
power relations between employers and workers,
conceptually similar but empirically often even
more pronounced as compared to the asymme-
trical power relations between global lead firms
and local suppliers. Asymmetrical power relations,
as well as the scope for mutual benefits within
these hierarchically structured relationships
have been a central theme in GVC analysis.
Therefore, one would expect GVC researchers
also to be sensitive to the consequences of power
differentials on labour conditions. In the next
section we discuss the significance of these
asymmetries for labour analysis and attempt to
provide bridges between labour studies and
GVC literature. This enables us to develop a
matrix scheme linking inter- and intra-firm
characteristics of upgrading in the fourth section.
IMPACTS ON LABOUR
In this section we present a selective overview
of recent conceptual and empirical work on
how economic globalisation impacts upon
labour. To set the scene, we briefly discuss some
key concepts and main stylised findings from
labour studies on impacts of globalisation.
Second, we summarise the empirical findings
on labour impacts as part of the GVC literature,
to establish how these findings compare to the
stylised findings from labour studies. Finally, we
present some main conceptual approaches
used within the GVC literature which contain
hypotheses about labour impacts.
Increasing labour market flexibility – The broader
labour studies literature on the impacts of
globalisation predominantly evolves around the
implications of increasing labour market and
employment flexibility (Standing 1999). An
important link to the inter-firm value chain
literature discussed above is the question of
to what extent trust is likely to play a role in
asymmetrical relationships. In labour studies
it is argued that fundamental asymmetries in
employment and industrial relations imply
that labour rights improvements, especially
those based on trust, may not be consistent with
flexibility requirements in global production
networks.
GLOBALISATION, FIRM UPGRADING AND IMPACTS ON LABOUR
Basically the need for more flexibility at the
firm level is ‘passed on’ to workers in terms of
more insecure and precarious labour conditions
and it is here that labour studies would seriously
question the suggestion that trust is likely to
emerge in these more flexible employment
relations (Norris & Munday 1995). Instead of
expecting mutual trust to really provide a main
impetus to quality and productivity improve-
ments, it seems more likely to assume that most
workers simply work harder because they are
afraid to lose their jobs (Delbridge 1995). Rather
than being based on trust, employment rela-
tions continue to be primarily based on control,
conflict and consent (Marsden 1999; Pegler
2002). Finally, while core workers in final product
producers and key supplier firms may enjoy
improved employment conditions, due to further
outsourcing the proportion of such core workers
has significantly decreased. The overall picture
is one of fewer core workers at the global level,
and more differentiation through various layers
within firms, through local subcontracting
arrangements and through international
relocation of economic activities. Higher skilled,
higher paid and/or protected workers do not
automatically emanate from the insertion of a
developing region in a global value chain.
Also the decent work agenda from the ILO
underscores the argument that flexibility may
not be helpful to building trust within employ-
ment relationships (ILO 2002). Behind the
four basic principles of good jobs, no discrimi-
nation, social coverage and representation is
the issue of security – something that, as argued
above, flexibility of employment relations does
not promote. Moreover, while low wages may
act as an initial inducement to value chain
inclusion and growth through FDI, both FDI
attraction and future export performance are
strongly and positively correlated with the basic
tenets of decent work – especially better labour
rights and a more stable, equal representational
environment (Kucera 2001, 2004; see also
Neumayer & de Soysa 2006).
In the broader debate on the impacts of
economic globalisation on labour, GVC analysis
does not immediately present itself as a par-
ticularly appropriate device. For example, issues
such as skill levels are critical factors that influ-
ence labour market dynamics, but these are not
generally integrated within current GVC analysis.
473
However, GVC analysis can provide a fresh lens
through which to look at labour issues. For
example, in terms of wages, by improving our
understanding of who decides and earns what
at which nodes in the value chain, GVC analysis
can be an important source of information for
unions and other activists to identify bottlenecks
and leverage points for interventions (Kaplinsky
& Morris 2002; McCormick & Schmitz 2002;
Pegler & Knorringa 2006). Therefore, we feel
it is useful to continue to explore to what extent
GVC studies provide empirical and conceptual
handles on impacts on labour, and whether
these ideas are in line with more general
observations from labour studies as noted above.
Empirical findings on impacts on labour in GVC
studies – Attention to labour issues is a recent
phenomenon in GVC studies. A recent and
careful assessment of labour impacts in a set
of GVC studies by Nadvi (2004) brings out two
main points that also reverberate from other
GVC studies that look at labour and employment
issues (Bair & Gereffi 2001; Kaplinsky et al. 2002).
First, lots of new jobs have been created in
‘greenfield’ locations, poor areas that became
attractive because of the supply chain logic of
continuously searching for cheaper locations
with sufficient skills for entry into GVCs.
Jobs offered by final producers and some core
supplier firms in such new locations often provide
clearly better labour conditions as compared to
local alternative employment opportunities. From
a development perspective this at least initially
leads to an important pro-poor economic stimulus
as it generates new and relatively better-paid
employment in a specific locality (Nadvi 2004).
Second, value chain inclusion is frequently
associated with strongly segmented and dif-
ferentiated employment conditions, increasing
insecurity and longer hours, especially at the
furthest end of the chain. In essence, this means
that the general observation from labour studies
about impacts of economic globalisation –
increased insecurity and precariousness – is
confirmed by those GVC studies that have paid
attention to labour.
Third, studies of workers attitudes suggest that
in contrast to their initial euphoria of employ-
ment in such GVC supplier firms, workers
quickly start feeling the physical and emotional
pressure and stress of new work systems as well
© 2006 by the Royal Dutch Geographical Society KNAG
474
as not feeling either more skilled or more
secure in their jobs (Norris & Munday 1995).
Moreover, union representation has also been
noted to be under a new, more subtle but more
powerful threat (Delbridge 1995; Pegler 2002).
In sum, while there may be a redistribution of
global employment which favours specific poor
areas, from a qualitative and global perspective
increased competitive pressures are felt most
acutely on the last and weakest link in the chain
– new groups of workers in poor areas.
Nevertheless, these empirical GVC studies
suggest that when firms enter as incipient
producers in GVCs, both firm upgrading as
well as improvements in local labour conditions
are often significant and occur simultaneously.
Below we argue why simultaneous firm upgrad-
ing and improvements in labour conditions are
most likely an exception to the rule, as they are
usually limited to these initial phases of insertion
in GVCs.
The existing empirical GVC studies that
include labour impacts do not yet really connect
labour issues to firm upgrading, except in the
general sense of confirming the visible trend of
competitive pressures leading to more precari-
ous employment for larger groups of workers
within the GVC (Nadvi 2004). However, on the
conceptual side some significant progress has
been made by scholars that use the GVC
approach as one of their analytical devices. In
our view the most robust line of argument, put
forward in the GVC context by Kaplinsky (1998),
is on the concept of immiserising growth,1 where:
‘growing . . . participation in industrial activities
– reflected in the level of industrial activity, the
growth in physical trade and the increase in
industrial employment – may in fact become
associated with declining overall standards of
living’ (Kaplinsky 1998, p. 4). This negative
macro effect is not because of an inefficient
allocation of resources, but because of the
pressures arising from economic globalisation.
First, new suppliers in GVCs predominantly only
process or produce consumer goods, while the
designing, branding, marketing, and distribution
is carried out by the global spiders-in-the-web.
The revenues from being incorporated in a
GVC as a mere cut make and trim assembler or
processor are very limited as compared to the
revenues associated with designing, branding,
marketing and distribution. Second, because of
© 2006 by the Royal Dutch Geographical Society KNAG
PETER KNORRINGA & LEE PEGLER
economic globalisation and increased competi-
tive pressures all potential suppliers are ‘running
to stand still’: when all suppliers with limited
bargaining power upgrade their products and
production processes they cannot earn a pre-
mium from that investment, i.e. they will receive
similar returns from a more costly production
process. This also means that those suppliers
that remain at the same quality level are often
squeezed out or need to accept deteriorating
sales conditions. The increased insecurity and
precariousness of workers in firms at the lower
end of the chain needs to be seen within the
context of such firms being squeezed by
their global spiders-in-the-web in a cut-throat
competitive environment. Especially in those
labour-intensive sectors where developing
countries have in recent decades become successful
exporters, this trend is likely to lead to im-
miserising growth unless the firm or country in
question can outpace competitors in process or
product upgrading, or, even better but also
more difficult, in functional upgrading. While
individual firms or a specific country may use
this as a successful development strategy, the
tenet of the concept of immiserising growth is
that this survival of the fittest cannot constitute
the basis for a broader and more inclusive
development strategy that also benefits weaker
economic actors and regions.
Kaplinsky concludes that: ‘in previous eras,
participation in industrial segments of the value
chain provided the source for sustainable income
growth. But, increasingly, in a globalising econ-
omy these industrial niches have become highly
competitive, raising the spectre of immiserising
growth’ (Kaplinsky 1998, p. 31). He argues that
firms or countries need to identify and exploit
specific rents from competitive advantages, but
that the main lesson from recent history is that
all rents are transitory and that new suppliers
in GVCs basically carry out ‘rent-poor’ activities.
Again, escaping from this immiserising-growth
trap is something that might be achieved by
some individual firms or countries, but the
general trend is expected to be one of: ‘declining
real wages and declining real incomes in those
countries specialising in rent-poor products . . .
The challenges thus confronting producers
everywhere is to upgrade by appropriating what-
ever categories of rents are within their grasp,
but to do so more rapidly than competitors in
GLOBALISATION, FIRM UPGRADING AND IMPACTS ON LABOUR
the knowledge that a rate of innovation lower
than the average will result in immiserising
growth.’ (Kaplinsky 1998, p. 34). This compelling
and ‘gloomy’ picture brings home two messages.
First, while improving labour conditions for
specific groups of (skilled) workers in particular
firms in specific GVCs are a transitory possibility,
the overall trend for workers in developing country
suppliers of GVCs is one of increased insecurity
and precariousness, as well as downward pressure
on real wages. Second, more general improve-
ments in labour conditions will not emerge
from the existing type of economic globalisation.
This suggests that any campaign to increase the
probability of labour rights improvements must
be based on a broader and more inclusive
human development agenda, for example by
integrating the decent work approach within
national industrialisation strategies.
Another quite different line of argumentation
can be seen as an extension of modern manage-
ment literature dealing with the challenges of
key global companies to motivate their highly
skilled staff in a situation of high performance
ambiguity (Ouchi 1980). Moral hazard is a main
threat in a working environment where it
becomes more difficult, or virtually impossible,
to assess the contribution of a particular person
to the end result, as in the typical example of a
research & development department of a major
global company. In this type of situation, social-
isation has proved to be an effective complement
to an authority relation in checking the threat of
moral hazard (Ouchi 1980; Kochan & Osterman
1994). To put it bluntly, due to a perception of
goal congruence, workers self-police their efforts
and do not even try to shirk, which enormously
facilitates monitoring (Whitley 1991). More-
over, the workers in question are highly-skilled,
relatively scarce, and possess significant tacit
knowledge. Therefore, companies are anxious
to enlist and keep such ‘repositories of know-
how’. This conceptualisation of workers and of
owner-manager-worker relationships clearly has
its merits in an increasingly knowledge-intensive
globalising economy characterised by the need
to continuously adapt and learn. Moreover,
while the initial conceptualisation focused on
R&D type of activities, at least parts of this logic
can be extended to a broader variety of activities
in the value chain such as design and marketing,
and even as part of the actual production of
475
goods (Palpacuer 1997, 2000; ILO 1999). How-
ever, one should be careful not to over-generalise
the extent to which this approach can serve as
a model for all types of labour relations. In
essence, it is a model primarily suited to the
core workers who carry out core activities in
core firms in the value chain. Therefore, this
model does not fit well with the type of labour-
intensive processing activities that constitute
the bulk of production in developing-country
suppliers in GVCs. In order words, adopting this
model to conceptualise impacts on labour from
economic globalisation would amount to wish-
ful thinking for the bulk of developing-country
low-cost suppliers to GVCs. Moreover, its already
limited relevance may well diminish over time,
due to possible further declines in core worker
proportions. Finally, the labour studies literature,
discussed above, also argued why, in situations
of higher inequality and bargaining differences,
combined with relatively lower levels of tacit
knowledge among more easily replaceable
workers, improvements in labour conditions
are unlikely to occur.
A third and more fashionable as well as more
promising line of argumentation is developed
by a rapidly increasing number of authors who
stress the potentially positive impact on labour
through the drive towards corporate social
responsibility (CSR), ethical sourcing, fair trade,
and related initiatives (Blowfield 1999; Barrien-
tos et al. 2003). Even though these initiatives
empirically provide at present only a glimmer
of hope in an ocean of immiserising growth,
such initiatives are often portrayed as possibly
catalytic interventions with potentially large
impacts once consumers start wielding their
potential bargaining power (Shaw et al. 2005).
According to a recent study by Pollin et al.
(2004), significant improvements in wages of
garment producers in Mexico would lead to
only very limited price increases at retail level
in the United States, a price increase well within
what American consumers, according to polls,
are willing to pay extra for ‘responsibly’
produced products. Also more generally, it seems
safe to assume that globally operating branded
companies could (if codes of conduct were both
inclusive and effective) push local entrepreneurs
in their supply chain to pay workers in develop-
ing countries higher wages without compromis-
ing competitiveness. Moreover, brand name
© 2006 by the Royal Dutch Geographical Society KNAG
476
companies can use ‘responsible’ or ‘ethical’
sourcing as a marketing tool to strengthen their
brand name goodwill. For example, a study on
athletic shoe producers who source from China
showed how these brand name companies
have developed progressive codes of practice
to counter allegations of labour exploitation
(Frenkel 2001).
Probably the best known example of CSR
with a supply chain focus is the Ethical Trading
Initiative (<www.ethicaltrade.org>), in which a
group of well-known brand name companies
work together with trade unions and NGOs
to ensure that labour conditions of suppliers
‘meet or exceed international labour stand-
ards’. Recent independent studies on ethical
trade (summarised in Barrientos et al. 2003, and
at <www.ethicaltrade.org>) indicate that such
international labour standards are successfully
met for core workers in core supplier firms, but
that the picture becomes more variegated for
indirectly employed workers or for smaller
firms and farmers who supply to core suppliers
of global buyers.2
Moreover, while ethical trade can and has led
to improvements in labour conditions in specific
GVCs, it complements but cannot substitute for
a broader development strategy in developing
counties (Barrientos 2000). Additionally and
related to the previous points, strong codes of
conduct may well push out weaker and often
smaller suppliers that pay lower and more ir-
regular wages to poorer workers. While this leads
to relatively large benefits to a relatively small
group of workers in core suppliers, and to global
brand name companies being able to claim full
ethical sourcing, an increasing share of smaller
and weaker producers are cut-off from these
relatively attractive supply chains and upgrad-
ing opportunities. This may increase the gap
between a relative elite of local firms supplying
to GVCs with improved labour conditions, and a
mass of local firms ruled by a ‘race-to-the-bottom’
with deteriorating labour conditions (Gibbon &
Ponto 2005).
Finally, a main reservation about optimism
towards the possible ‘rolling out’ of this approach
is its almost inherent limitation to branded
consumer products and to internationalised
companies/products. Whether branded pro-
ducts will gain a larger or smaller share in future
consumer markets is an open question, and will
© 2006 by the Royal Dutch Geographical Society KNAG
PETER KNORRINGA & LEE PEGLER
depend among others on whether the four
billion consumers ‘at the bottom of the pyramid’
(Prahalad 2005) will in the near future start
pushing for ethical sourcing.
CONCLUSION: AN EMERGING RESEARCH
AGENDA?
This paper has investigated when firm upgrad-
ing of developing-country suppliers in global
value chains (GVC) and improvements in labour
conditions are more likely to go together. While
firm upgrading is a central issue in GVC studies,
and more recent GVC studies increasingly also
pay attention to labour issues, employment
relations and employment conditions have not
yet been systematically incorporated into GVC
analysis.
The hypotheses in Table 13 roughly arise
from the previous discussion and summarise
some working hypotheses on the likelihood of
firm upgrading and improvements in labour
conditions, focusing on different levels of
analysis. A discernable trend in these hypotheses
is that improvements in labour conditions are
more likely in situations that are less likely to
apply to workers in developing-country low-cost
suppliers in GVCs. Moreover, processes that
influence firm upgrading and those that influ-
ence improvements in labour conditions appear
to be rather weakly connected, with one important
exception: the initial inclusion of developing-
country suppliers in GVCs.4
So, while economic globalisation pushes
firms to upgrade, such firm upgrading does not
as a rule seem to also lead to improvements
in labour conditions in developing-country sup-
pliers in GVCs. This conclusion may not come as
a surprise to scholars in labour studies, but
for some academics and practitioners in the
field of industrial policy it may be a sobering
observation. Even though improvements in the
quantity and quality of employment are often
invoked as the ultimate justification in much of
industrial policy, it seems clear that at least
widespread and sustainable improvements in
labour conditions will not arise as a by-product
from firm upgrading in GVCs. Instead, to
counteract the seemingly inevitable onslaught
of immiserising growth in many developing
countries as a key feature of further economic
globalisation in the present neo-liberal world
GLOBALISATION, FIRM UPGRADING AND IMPACTS ON LABOUR
Table 1. Working hypotheses on likelihood of firm upgrading and improvement in labour conditions.
Hypotheses Firm upgrading is more likely . . .
Firm level When management has a longer-term
commitment to the business and a
stronger mix of technological and
marketing expertise.
Value chain When the value chain is more
quality-driven and/or brand sensitive.
Country With a more active and sector-specific
innovation and R&D policy; when a
country is already on the ‘radar screen’
of global buyers.
Global Increasing importance of standards and
codes of conduct will lead to increasingly
selective upgrading in major branded
global value chains.
Source : Compiled by authors.
order, two complementary strategies can be
envisioned to increase the number of excep-
tions to the rule. First, to push the CSR and ethical
trade agenda through raising awareness among
consumers about their potential influence on
global buyer purchasing strategies. This could
then broaden the number of products and
market segments within which ethical sourcing
becomes a real concern for supply chain man-
agers. Second, to support the ongoing struggle
by workers in developing countries and their
collective action representatives, whether unions
or NGOs, in an effort to increasingly implement
the ILO decent work agenda.
In terms of a possible research agenda on
how GVC analysis might help in getting a better
grip on where and when firm upgrading can
stimulate improvements in labour conditions,
two suggestions can be made. First, new field
research can more systematically unpack labour
impacts and can compare chains in terms of
their differentiated labour conditions. Second,
ethical sourcing presents itself as an interesting
area for future research. Not because it already
reaches substantial groups of workers in develop-
ing countries, but because of its potential as a
role model. Moreover, in principle the GVC
approach seems a suitable analytical device to
conceptualise the role of consumers in value
chains in general and in ethical sourcing in
477
Improvements in labour
conditions are more likely . . .
When activities require more skills and
higher levels of tacit knowledge; when
management offers more opportunities
for representation and learning.
When chain responsibility is more
mainstreamed as part of ethical sourcing.
When sector-specific labour markets are
tighter; unions are more representative and
inclusive; when political representation is
more effective.
With a stronger unifying role of global
union bodies in co-determining global
standards.
particular. However, this requires a systematic
inclusion of consumer decision-making in GVC
studies (cf. Shaw et al. 2005). In effect, this
means that a further integration of labour
issues, at one end of the chain, can be facilitated
by including attention for consumer decision
making, at the other far end of the chain.
Acknowledgements
This paper is completely different from but builds
upon a paper entitled ‘Shifting Perceptions of Labour
rights and Conditions: SMEs in Global Value Chains’
which was presented at an EADI Workshop on ‘Working
in Small Enterprises – Job Quality and Labour
Conditions in a Globalising World’, 17 January 2003,
Free University, Amsterdam. Pertinent comments from
two anonymous referees are gratefully acknowledged,
as are comments and support from Evert-Jan Visser
and Meine Pieter van Dijk.
Notes
1. The phrase was initially coined by Bhagwati in
1958, and further developed in Bhagwati (1987).
2. While the Ethical Trade Initiative is more or less
exclusively oriented towards reaching and consoli-
dating compliance with direct labour standards,
the Fair Trade movement goes a step further and
also addresses broader issues of for example,
© 2006 by the Royal Dutch Geographical Society KNAG
478
market access (Blowfield 1999; Redfern &
Snedker 2002).
3. A preliminary version of this table was presented
at a workshop on Local Development and Value
Chains in Utrecht University, December 2004.
4. See for example Pegler & Knorringa (2006) for
white goods in Brazil.
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