Beyond Value Capture — Exploring Innovation Gains from Global Networks

Increasingly complex and diverse global corporate production networks (GPNs) and global innovation networks (GINs) are transforming international trade, production, and innovation, creating new, yet little understood, challenges for national policies that seek to foster economic growth and prosperity through productivity-enhancing innovation. As countries are integrated into these global networks (GNs), they are forced to rethink a broad array of policies. A fundamental tension needs to be addressed between global knowledge sourcing, which requires trade liberalization, and domestic capability development, which requires supporting industry and innovation policies. To reap innovation gains from GNs, countries need to address simultaneously two challenges. From the “outside,” national policies have to deal with a multitude of bilateral and regional trade agreements (RTAs) and attempts to establish a new architecture of megaregional trade agreements, like the Trans-Pacific Partnership (TPP), that seek to create and harmonize new international benchmark standards for national policies, rules and regulations, for example, for intellectual property, technical standardization, government procurement, taxation, and competition policy. National policies need to take into account these changes in the governance of the international economy (as demonstrated throughout the book). This chapter focuses on a second set of challenges that originate from the “inside”: countries differ in their capabilities to learn and innovate, and hence they differ in their capacity to capture potential gains from integration into GPNs and GINs. The chapter outlines a conceptual framework and describes the research needed to trace the dissemination (or lack thereof) of innovation resources and capabilities through knowledge-sharing within those networks that span developed and developing worlds. The analysis focuses on the experience of China and other leading Asian electronics manufacturing exporting countries. All of these countries are deeply integrated into international trade and foreign direct investment (FDI) through GPNs, and in some cases, through GINs. The author argues that research on GNs needs to move beyond value capture. Instead more effort should be invested in exploring whether and how integration into these networks might foster or erode a country’s absorptive capacity and firm-level innovation capabilities. The chapter reviews what is known about driving forces and characteristics of GPNs and GINs and highlights the increasing diversity and complexity of these networks in the electronics industry. To establish whether GN integration might foster or erode the host country’s absorptive capacity and firm-level innovation capabilities, three scenarios are considered: (i) the “Gains from Trade” effect; (ii) the “Domestic Disintegration” effect; (iii) the “Innovation Trap” effect; and (iv) the “Limits to Modularity” effect.