A great leap? Domestic market growth and local state support in the upgrading of China's LED lighting industry

Abstract

In this article we analyse the conditions for industrial upgrading in the Chinese LED industry, which proactive local state policies and expanding domestic markets have greatly facilitated. State initiatives provoked overinvestment, but eventually led to the emergence of competitive domestic enterprises. Simultaneously, firms benefited from a growing domestic market on which they outcompeted foreign companies in mid‐price segments. The combination of these factors accounts for the peculiarly Chinese upgrading experience. Neither the resources provided by a new version of the ‘developmental state’ nor domestic market growth alone can explain the Chinese players' success. Based on these results, and given that the emerging economies have become the most important markets for certain consumer goods – a development that (local) industrial policies for industrial upgrading can influence – we provide further proof that it is necessary to rethink the export‐led upgrading paradigm in theories of globally dispersed production.

Global value chains and the rise of the Global South: unpacking twenty‐first century polycentric trade

“…In a different sector, Chinese firms such as Lenovo and Ziiguang turned to original brand manufacturing (OBM) by supplying the domestic market -and learning relevant technology and marketing expertise -while also accessing knowledge from supplying the global market (Zhou 2008(Zhou : 2365. Thus, some authors have suggested that participating in and creating domestically-oriented VCs or PNs could be a key avenue for upgrading (Butollo and Ten Brink 2017) -a different emphasis from the earlier GVC literature. More broadly, upgrading considerations in the Global South must continue to consider not only social and environmental dimensions, but also markets beyond the Global North as part of a wider approach that explores VCs and PNs oriented towards different end markets.…”

State policies and upgrading in global value chains: A systematic literature review

“…In the majority of cases analyzed wherein the state has played a facilitating role, a variety of economic upgrading outcomes have been identified, particularly regarding product or inter-chain upgrading (see Table 4). This is especially apparent in relation to strengthening links between research institutions and local companies (knowledge infrastructure), to enable local firms to enter new industries and adopt more value-added activities (e.g., Bȃzȃvan, 2019;Butollo & Ten Brink, 2018). A case in point is the Penang Export Hub, where a stateprogram was launched specifically to support firm innovation, access to markets and advanced technologies in the electronics sector to boost local R&D capabilities (see Athukorala, 2014;Athukorala, 2017).…”

“…The stringency of the regulatory framework is found to be especially effective in supporting product upgrading (see Table 4). The setting of quality or price standards (e.g., Behuria, 2019) and/ or banning specific (low-value) technologies (e.g., Butollo & Ten Brink, 2018), can foster shifts in local production toward higher value-added products. State regulation has also been associated with improved social conditions, requiring or supporting the adoption of internationally or locally developed certification schemes (Behuria, 2019;Schouten & Hospes, 2018); and through stricter enforcement of labor regulation (e.g., Braun-Munzinger, 2019;Hossain, 2019).…”

“…The few examples observed were primarily in the context of complex product GVCs located in upper-middle or high-income economies (Table 3). This state role is often established to support the development of new industries, as in the case of the LED lighting products or electric vehicles in China (see Butollo & Ten Brink, 2018;Yeung, 2019), or the furniture sector in Mexico (see Klooster & Mercado-Celis, 2016). Furthermore, in a significant number of cases analyzed, the state's buyer role was aimed at achieving improved environmental performance at a local level (Table 2).…”

“…Particularly when local producers have not yet achieved the standards required to serve foreign markets in new, value-added products, public procurement can play a pivotal role in strengthening their competitiveness (e.g., Chalaby, 2017;Gao et al, 2019). More specifically, public procurement can accelerate domestic firms' ability to achieve economies of scale and develop advanced production technologies, while enabling own-brand development, initially for local and then subsequently foreign markets (see e.g., Butollo & Ten Brink, 2018). As evidenced in Table 4, the state's buyer role can also be particularly effective in strengthening social and environmental standards, requiring the adoption of Ethical Sourcing Policies -as in the case of Transport of London described in Martin-Ortega and O'Brien (2017); or by ensuring sustainable inputs (certified wood) are used in manufactured products, such as the case of school furniture production in the Oaxaca region (see Klooster & Mercado-Celis, 2016).…”