Governance and learning in global, regional, and local value chains: The IT enabled services industry in South Africa

Global value chain (GVC) participation is generally seen as an important avenue for developing countries to access new markets and diversify exports, to add value to local industries and to increase employment. For developing country firms it provides opportunities to access knowledge to enhance learning and capability building. However, many firms in developing countries do not directly integrate into GVCs but rather into regional value chains (RVCs) or local value chains (LVCs), as these have become increasingly important due to the emergence of “Southern”-end markets and increased South-South trade. In this paper we examine and compare the role of involvement in these different types of value chains in stimulating supplier learning in the context of the IT-enabled service (ITES) industry. We distinguish between different types of learning and argue that learning outcomes depend crucially on value chain governance: the power balance and interactions between the lead firms and suppliers. We draw on a survey among the population of ITES providers in South Africa. These novel firm level data allow for a study of learning mechanisms in value chains at the firm level, going beyond prior studies of aggregate level relationships. In a multivariate analysis, we find that service providers in GVCs learn via interactions with their client firms. Yet, GVC participation is not the only avenue for client learning and capability building; we similarly observe learning in LVCs and RVCs. Learning is generally and strongly enhanced by trust-based governance of the client-supplier relationship, while in GVCs, control-based governance additionally promotes learning specifically in the IT domain. These findings provide a better understanding of how firms in developing countries can build capabilities in local, regional and global value chains of services, a topic that has gained interest among development practitioners.