Global value chain breadth and firm productivity: the enhancing effect of Industry 4.0

Abstract

PurposeGlobal value chains (GVC) incorporate internationally fragmented sources of knowledge so as to increase global competitiveness and performance. This paper sheds light on the role of Industry 4.0 technological capabilities in facilitating knowledge access from international linkages and improving firm productivity.Design/methodology/approachDrawing on organizational learning research, the present study argues that the relationship between GVC breadth, analyzed in respect to the geographical fragmentation of production facilities and productivity follows an inverted U-shaped pattern that can be explained by the interplay between external knowledge access and the coordination costs associated with GVC breadth. We test our predictions using a purpose-built survey that was carried out among a sample of 426 Spanish manufacturing firms.FindingsOur results indicate that organizations adhering to a traditional manufacturing system are able to benefit from fewer transnational relationships (concretely 11 foreign facilities) in the search for productivity improvements. This can be largely attributed to the marginal value of the knowledge accessed and the costs of coordinating international counterparts production and knowledge transfer. However, our study reveals that the adoption of Industry 4.0 technologies has the potential to broaden optimal GVC breadth, in terms of the number of linkages to interrelate with (concretely 131 foreign facilities) so as to obtain productivity gains while mitigating the complexities associated with coordination.Originality/valueThe study unveils that Industry 4.0 technologies enable management of broader GVC breadth, facilitating knowledge access and counteracting coordination costs from international counterparts.