The link between economic and social upgrading in global supply chains: Experiences from the Southern Cone

• Date: 01 December 2019
• Published date: 01 December 2019
• DOI: http://doi.org/10.1111/ilr.12148

International Labour Review, Vol. 158 (2019), No. 4

Copyright © International Labour Organization 2019

Journal compilation © International Labour Organization 2019

* Senior Specialist in Employment Policies, ILO Subregional Ofce for the Southern

Cone of Latin America, Santiago, email: reinecke@ilo.org. ** Senior Specialist in Employment

Policies, ILO Ofce for Brazil, email: posthuma@ilo.org. The authors are grateful to the anonym-

ous reviewers who provided valuable comments and suggestions for the revision of this text.

Responsibility for opinions expressed in signed articles rests solely with their authors,

and publication does not constitute an endorsement by the ILO.

The link between economic and social

upgrading in global supply chains:

Experiences from the Southern Cone

Gerhard REINECKE* and Anne POSTHUMA**

Abstract. This article uses nine case studies of global supply chains (GSCs) in

Southern Cone countries to explore the extent to which economic and social up-

grading are linked and spread from lead rms to their supply chain. While eco-

nomic and social upgrading are found in lead rm segments throughout the case

studies, the impacts on suppliers are varied. Pattern groupings enable the authors

to develop a three-part typology of development in GSCs, in the light of which

they consider the roles of public policies, company behaviour and social actors in

addressing developmental outcomes for GSC lead rms and suppliers.

The expansion of global supply chains (GSCs) in recent decades has es-

tablished the predominance of this business model in global production,

trade and investment. GSCs have spread widely in Asia, as the principal chan-

nel of outsourced production, and are increasingly expanding in Africa (World

Bank et al., 2017). Evidence shows that countries in Latin America and the

Caribbean participate relatively less in GSCs than countries from these other

regions. Active participation has however been found in labour-intensive as-

sembly processes, among others in the apparel, toy and auto parts industries in

Mexico and in countries of Central America and the Caribbean. There are also

examples of participation in more knowledge-intensive areas, such as engineer-

ing and design in the Mexican automotive industry (ECLAC and ILO, 2016).

The Southern Cone, by contrast, is a subregion in which the largest economies

have a strong tradition of import substitution industrialization, and where la-

bour market institutions are often comparatively well structured. These econ-

omies have been incorporated into GSCs more recently.

International Labour Review678

From a developmental perspective, it is not only participation in GSCs

that matters, but also whether that participation is a vehicle for upgrading, in

both economic and social terms. Participation in GSCs is widely promoted as

a development strategy that can open opportunities to spur economic growth

and employment generation, and to raise competitiveness (World Bank et al.,

2017; WTO et al., 2019; UNCTAD, 2013 and 2018). However, it is also recog-

nized that incorporation into GSCs has not always brought economic upgrad-

ing, understood as the successful transition over time into higher value added

activities (Barrientos, Geref and Rossi, 2011). Moreover, and more import-

antly from the point of view of labour, economic upgrading has not automat-

ically led to social upgrading (Milberg and Winkler, 2013). When speaking of

social upgrading, it is important to consider not only the quantity of employ-

ment but also the quality of jobs. Governance through policies, institutions

and private and public actors can play an important role in promoting more

inclusive economic and social upgrading in GSCs, and in preventing and miti-

gating the effects of negative spillovers and downgrading pressures (Mayer,

Phillips and Posthuma, 2017).

This article explores the extent to which economic and social upgrading

are linked within supply chains, with particular attention to whether upgrad-

ing spillovers are spreading from lead rms to domestic suppliers. To this end,

we examine nine case studies of GSCs in Southern Cone countries, identify-

ing three typological patterns in economic and social upgrading between lead

rms and suppliers, namely oppositional development, truncated development,

and more integrated upgrading within the chain.

Key ndings from our analysis of this research show that lead rms in

the nine GSC case studies achieved both economic upgrading (moving into

higher value added activities) and social upgrading (improving the quality of

employment). However, in the case of suppliers of inputs and intermediary

goods, we nd diverse outcomes of both upgrading and downgrading spillovers

from lead rms. Under the pattern of oppositional development, downgrading

effects were prevalent among smaller suppliers engaged in lower value added,

resource- and/or labour-intensive activities. Under the pattern of truncated de-

velopment, lead rms attained modest economic and social upgrading, but

policies and other conditions were inadequate to foster backward linkages1 and

developmental spillovers among potential domestic supplier rms. Two cases

of more integrated upgrading within the chain were associated with policy and

institutional frameworks that promoted more balanced economic and social

upgrading in both lead rms and their suppliers, while also preventing or di-

minishing downgrading pressures. Overall, informal and small-scale rms in

low value added activities experienced downgrading pressures through price,

quality and scale requirements, and faced greater challenges to seize potential

1 We use the term “backward linkages” to refer to the channels through which infor-

mation, materials and nancial resources ow between a company and its supplier(s), creating

inter-rm interdependence.