Upgrading Challenges in Global Value Chains

Upgrading local companies is one of the key concerns of host government, especially in developing countries, in the age of Global Value Chains (GVC). GVC provide both opportunities and threats for host countries. One side, GVC are the window of opportunities for local companies to catch up with the global leaders. On the other hand, GVC 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 insert in GVC. Four main upgrading challenges are identified, namely: limited value capture, inefficiency, Neoliberal regime, and bad policies and institutions. A countrylevel and a firm-level case study research are employed as the illustration how these challenges inhibit a country and its leading and potential local company to grow and upgrade its position in GVC. Indonesia and Astra International and its automotive subsidiaries (Astra) are chosen as the case study. Astra is an interesting case 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, Astra gives very rich insights for other Indonesian local companies and government how to grow, manage and support businesses in the age of GVC. Several implications for managerial strategy and policy recommendation are also discussed. The analysis is conducted by using mixed methods and triangulation from various previous literature, data sources, interviews, news, and company’s historical archives. Keywords—Global value chains, Global production networks, upgrading, automotive, Indonesia, Astra