The Rise of Chinese Innovative Firms and the Changing Governance of Global Value Chains

Abstract

This paper proposes an interdisciplinary approach to understanding the rise of emerging economies innovative firms and the implications of their governance and control of global innovation value chains. The paper identifies that the rise of Chinese innovative firms poses a challenge to the traditional geography of innovation and governance of global value chains, where most of the value chain activities were mainly coordinated by developed economies firms. The governance of global value chain in this paper is understood to entail not only the coordination of production, but also the control of innovation. By taking a holistic view of innovation, we show that some Chinese firms have accumulated significant innovation capabilities. We argue, however, that many of the new breed of GVCs exert control of production but not yet innovation. Their governance structure is different from that of existing ‘orthodox’ GVCs where DMNEs enjoy control of innovation and coordination of GVCs at the same time. As Chinese lead firms continue to strengthen their innovation capabilities, we expect them to exert a stronger control of innovation in many sectors, which will entail a change in power relationships in and the governance structure of GVCs.