Abstract The capability investments by local OEM/ODM firms imbedded in global value chains have dyadic relational specificity. What roles the specific investments play on GVC upgrading keeps being debated theoretically in between upgrading or degrading. From the perspective of international buyer-supplier relationship governance theory, and based on the definition of upgrading by relational rent appropriation, the empirical study of the 146 Zhejiang dyadic OEM/ODM relationship samples shows: relational construction effect of relationally specific investment promotes relational rent appropriation and upgrading, while power weakening effect gives rise to relational rent loss and degrading. The exclusion of OEM/ODM firms’ capabilities moderates the relationships between relationally specific investment and relational rent appropriation performance. This conclusion settles the controversy of upgrading or degrading, clarifies the mechanism, and contributes to the GVC governance theory and international buyer-supplier governance theory, directly beneficial for the policy design and upgrading practice.
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