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International Labour Review, Vol. 150 (2011), No. 3–4
Copyright © The authors 2011
Journal compilation © International Labour Organization 2011
Economic and social upgrading in global
production networks:
A new paradigm for a changing world
Stephanie BARRIENTOS,* Gary GEREFFI**
and Arianna ROSSI***
Abstract.A key challenge in promoting decent work worldwide is how to improve
the position of both firms and workers in value chains and global production net-
works driven by lead firms. This article develops a framework for analysing the link-
ages between the economic upgrading of firms and the social upgrading of workers.
Drawing on studies which indicate that firm upgrading does not necessarily lead to
improvements for workers, with a particular focus on the Moroccan garment indus-
try, it outlines different trajectories and scenarios to provide a better understanding of
the relationship between economic and social upgrading.
significant proportion of trade now takes place through coordinated value
Achains in which lead firms play a dominant role globally and locally. The
outsourcing of production by Northern buyers has stimulated the growth of
manufacturing, agriculture and service industries in the South. It has promoted
regional and global production networks (GPNs) that have opened up supply
opportunities in new and expanding markets, including China, India and Brazil.
Firms engaged in GPNs have opportunities for economic upgrading through
engaging in higher value production or repositioning themselves within value
chains. However, they also face challenges meeting buyers’ commercial demands
and quality standards, which smaller and less efficient producers find hard to
satisfy.
The expansion of global production in labour-intensive industries has been
an important source of employment generation. Many of the new jobs have
been filled by women and migrant workers who previously had difficulty accessing
*Senior Lecturer, Institute for Development Policy and Management, and Associate
Director, Brooks World Poverty Institute, University of Manchester, email: s.barrientos@
manchester.ac.uk.**Professor of Sociology and Director, Center on Globalization, Govern-
ance & Competitiveness, Duke University, email: ggere@soc.duke.edu.***Technical Officer,
Better Work programme, ILO, email: rossi@ilo.org.The authors wish to thank Joonkoo Lee,
Anne Posthuma and two anonymous referees for their helpful comments on this article.
Responsibility for opinions expressed in signed articles rests solely with their authors, and
publication does not constitute an endorsement by the ILO.
320 International Labour Review
this type of wage employment, and they have provided new sources of income for
poorer households (Raworth, 2004; Barrientos, Dolan and Tallontire, 2003).
Where such employment is regular and generates better rights and protection for
workers, it can promote social upgrading and decent work. The demand
for higher quality standards often requires skilling of at least some workers and
provision of better employment conditions. But for many workers, this is not the
outcome. Much GPN employment is insecure and unprotected, and ensuring
decent work for more vulnerable workers poses significant problems.
Indeed, a key challenge is how to improve the position of both firms and
workers within GPNs. This is particularly important in developing countries,
where firms and workers are increasingly integrated into regional or global pro-
duction systems involving many locations. Accordingly, this article explores the
obstacles and opportunities for promoting decent work through economic and
social upgrading in the context of GPNs. It draws on previous empirical studies
in which we examined each type of upgrading/downgrading separately. Based on
these insights, it aims to advance a more integrated analytical framework linking
economic and social upgrading/downgrading. Rossi’s (2011) case study of the
Moroccan garment industry provides an early application of this framework,
which can inform much-needed future research on the linkages between eco-
nomic and social upgrading. This research indicates that firms’ economic upgrad-
ing can, but does not necessarily, lead to improvements for workers. Therefore,
the central question considered here is: under what circumstances can both firms
and workers gain from a process of upgrading?
The remainder of this article is organized into five sections. The first exam-
ines the literatures on global value chains, production networks and labour econ-
omics. It addresses the separation between the firm and worker levels of analysis
in the context of GPNs, where production and employment decisions are
influenced not only by local markets, but also by foreign buyers and their agents.
The second section introduces the concepts of economic and social upgrading as
means of assessing improvements for firms and workers engaged in GPNs. The
third section develops a framework for assessing the linkages between economic
and social upgrading based on type of value chain and type of work. It then exam-
ines some of the opportunities and challenges those linkages present, given that
regular and irregular workers have very different levels of access to employer-
based channels for promoting their rights, protection and voice. The fourth sec-
tion considers some of the trajectories (and mixed outcomes) that can be pursued
through economic and social upgrading or downgrading. The fifth offers con-
cluding remarks.
Changing patterns of trade, production
and employment
The rise of international outsourcing through global and regional production
networks requires a shift in our analytical approach. Nowadays, expanded
networks of firms and workers in Africa, Asia and Latin America are linked to
Economic and social upgrading in global production networks 321
the global economy. These range from large commercial factories and farms,
through subcontractors and outgrowers, to smallholders and homeworkers.
Global production and services account for a growing number of workers re-
cruited into export-oriented industries in developing countries, such as apparel,
footwear and agriculture (Gereffi, 1999 and 2006). These changing structures of
trade, production and employment have been defined in different ways, which
should be addressed from the outset.
Global value chain (GVC) analysis initially focused on the commercial
dynamics between firms in different segments of the production chain. A seminal
distinction was made between producer-driven and buyer-driven commodity
chains (Gereffi, 1994). In producer-driven chains, production was controlled by
integrated transnational manufacturers in capital- and technology-intensive
industries, such as automobiles and advanced electronics. Buyer-driven chains
evolved as developed country firms set up global sourcing networks to procure
labour-intensive consumer goods from low-cost suppliers in Asia, Latin America
and Africa. A novel feature of buyer-driven chains was that their lead firms were
large retailers (such as Walmart and Tesco) and global brands or marketers (such
as Nike and Gap). They had no direct ownership of factories, but increasing con-
trol over production through their ability to set prices, product specifications,
process standards and delivery schedules in their supply chains (Dolan and
Humphrey, 2000 and 2004). They also contributed to the institutionalization of
demand-responsive economies with lead firms or agents based in developing
countries, such as the Republic of Korea and Taiwan (China) (Hamilton and
Gereffi, 2009). The expansion of GVCs has encompassed not only the agricul-
tural and manufacturing sectors, but also global services, such as tourism, logis-
tics, finance and business process outsourcing located in diverse socio-economic
contexts across countries (Gereffi, Humphrey and Sturgeon, 2005; Staritz,
Gereffi and Cattaneo, 2011).
The growing complexity and pervasiveness of global production and
trade led to diverse formulations. GVC analysis drew attention to the role of
value creation, value differentiation, and value capture in a coordinated pro-
cess of production, distribution and retail (Lee, 2010; Bair, 2009; Gereffi, 2005;
Gereffi and Kaplinsky, 2001). A parallel literature around GPNs placed more
emphasis on the institutional or social context of interconnected commercial
operations (Henderson et al., 2002). GPN analysis examined not only the inter-
action between lead firms and suppliers, but also the whole range of actors that
contribute to influencing and shaping global production, such as national gov-
ernments, multilateral organizations, and international trade unions and non-
governmental organizations (NGOs) (Bair, 2009, p. 4; Hess and Yeung, 2006).
A GPN approach also emphasizes the social and institutional embeddedness of
production, and power relations between actors, which vary as sourcing is
spread across multiple developing countries.
Consideration of workers in GPNs has so far been limited, particularly in
academic studies (Pegler and Knorringa, 2007; Barrientos, Dolan and Tallontire,
2003; Cumbers, Nativel and Routledge, 2008; Coe and Jordhus-Lier, 2011; Rossi,
2011). In the early GVC/GPN literature, the focus was on the firm, with labour
322 International Labour Review
treated primarily as an endogenous factor of production. Analysis of labour in
value chains has largely been restricted to the aggregate number of workers at
different nodes of the chain, with an occasional breakdown of employment by
job category, skill or sex. The exceptions have mainly been case studies examin-
ing conditions of employment, protection and the rights of workers in GPNs.
These have included the study of female workers (Hale and Wills, 2005), home-
workers (McCormick and Schmitz, 2002), smallholders (ETI, 2005), social pro-
tection of informal workers (Barrientos and Ware Barrientos, 2002) and trade
unions (Miller, Turner and Grinter, 2011; Cumbers, Nativel and Routledge,
2008). NGOs have also engaged in research on poor working conditions and lack
of employment rights among workers in value chains as a basis for campaigns and
advocacy in relation to high-profile global buyers and their suppliers (Raworth,
2004; Oxfam International, 2010; ActionAid International, 2005; Wilde and de
Hann, 2006; CIVIDEP-India/SOMO, 2009; Clean Clothes Campaign, 2009;
Raworth and Kidder, 2009). However, there has been a disjuncture in the litera-
ture between a “firm focus” that treats labour as a factor of production, and a
“rights focus” on the conditions and entitlements of workers.
To bridge this divide between the economic and social analysis of labour,
we seek to integrate workers as productive and social agents into the changing
dynamics of GPNs in developing countries. Our aim is to gain a better under-
standing of how economic and social upgrading play out for firms and workers,
and how strategies for upgrading that benefit both firms and workers can be
enhanced. In order to capture the different dimensions of labour, we approach
the analysis of labour in the context of GPNs from two perspectives. The first
sees labour as a productive factor: Conventional economic theory views labour as
a factor of production, based on the marginal productivity of labour and labour
costs within individual firms or labour markets. An important assumption here is
that firms need to produce at the lowest possible marginal cost to remain compe-
titive. However, this does not fully take into account the role of labour within the
context of GVCs/GPNs, where an important commercial driver is the need to
meet both cost pressures and quality standards (Barrientos and Kritzinger,
2004). This affects the work intensity and skill levels of the labour required at dif-
ferent nodes within GPNs. In addition to the need to meet the requirements of
lead firms and buyers, this is also determined by local labour market conditions
(availability of different types of workers).
The second perspective sees labour as socially embedded: Viewing workers
as social agents looks beyond their role as factors of production, highlighting
them as human beings with capabilities and entitlements (Sen, 1999 and 2000).
Workers have rights under national legislation and international conventions,
such as the core Conventions of the ILO. Wage labourers are indeed largely
dependent on access to rights that enhance their well-being, and such access, in
turn, can be affected either positively or negatively by participation in GPNs.
Beyond the workplace, the well-being of workers and their dependants is
affected by formal and informal social protection networks and strategies sus-
tained by governments and communities.
Economic and social upgrading in global production networks 323
The analysis of GPNs allows for examination of both the narrower com-
mercial dimension of labour used within value chains and the broader, socially
embedded dimension of work (often as a gendered process) in the globalization
of production and services. However, the GPN context brings a number of chal-
lenges for the analysis of upgrading. Firstly, the quantity and type of employment
by individual supplier firms are affected not only by national labour market con-
ditions, but also by requirements dictated by foreign agents or buyers (in relation
to product quality, price and delivery schedules). Secondly, the quality of
employment is mediated not only by the national framework of labour legisla-
tion, inspection and industrial relations, but also by the codes of conduct of large
global buyers and a private system of monitoring and auditing. In this context,
the relationship between the quantity and quality of employment is poorly
understood.1 An important question is whether it is possible simultaneously to
improve both the quantity and quality of employment in GPNs. And if so, under
what circumstances might this occur, and what strategies could promote this? To
examine further the linkages between the two, we now explore the concepts of
economic and social upgrading and how they can contribute to a broader strategy
of development.
Defining economic and social upgrading
Upgrading has been identified as a move to higher value added activities in pro-
duction, to improve technology, knowledge and skills, and to increase the bene-
fits or profits deriving from participation in GPNs (Gereffi, 2005, pp. 171–175).
Initially, the GVC literature focused on labour-intensive manufacturing, such as
garments, footwear and toys. These industries exemplified the outsourcing of
labour-intensive segments of production to low-wage countries; and their study
used the concept of “industrial upgrading” (Gereffi, 1999; Bair and Gereffi,
2001). However, GPNs have more recently widened beyond manufacturing to
include sectors such as agro-food and services – e.g. call centres, tourism and
business-process outsourcing – where the term “industrial upgrading” is less
appropriate. The more generic concept used here is that of economic upgrading
which applies across sectors.
There are four types of economic upgrading, each with different implica-
tions for skill development and jobs:
•Process upgrading involves changes in the production process with the
objective of making it more efficient; this can be achieved by substituting
capital for labour – i.e. higher productivity through automation – and
thereby reducing skilled or unskilled work.
•Product upgrading occurs where more advanced product types are intro-
duced, which often requires more skilled jobs to make an item with en-
hanced features.
1On this point, see the article by William Milberg and Deborah Winkler in this Special
Feature of the International Labour Review.
324 International Labour Review
•Functional upgrading occurs where firms change the mix of activities they
perform towards higher value added tasks. In the apparel industry, for
example, the inclusion of finishing, packaging, logistics and transport can
be done in at least two distinct ways: via vertical integration, which adds
novel capabilities to a firm or an economic cluster; or via specialization,
which substitutes one set of activities for another (e.g. an apparel firm that
moves out of production and into brand marketing and design). In elec-
tronics, this can happen when firms move from simple assembly to con-
tract manufacturing by engaging in full-package production or to original
design manufacturing by developing their own design. Both involve new
workforce skill sets linked to expanded firm capabilities.
•Chain upgrading – i.e. shifting to a more technologically advanced produc-
tion chain – involves moving into new industries or product markets, which
often utilize different marketing channels and manufacturing technol-
ogies. This may also require a different workforce or innovations that
allow existing manufacturers to enter new industries as end markets (such
as textile firms shifting from traditional fabrics, like denim for apparel, to
specialty nanofibers and strong lightweight materials that can be used in
the medical, defence or aircraft industries).
Each type of economic upgrading embodies a capital dimension and a
labour dimension. The capital dimension refers to the use of new machinery or
advanced technology. The labour dimension refers to skill development or to
increased dexterity and productivity on the part of workers. In this formulation,
labour is considered primarily as a productive factor determining the quantity
and type of employment.
Social upgrading, by contrast, is the process of improvement in the rights
and entitlements of workers as social actors, which enhances the quality of their
employment (Rossi, 2011; Sen, 1999 and 2000). This includes access to better
work, which might result from economic upgrading (e.g. worker who has
acquired skills in one job is able to move a better job elsewhere in a GPN). But it
also involves enhancing working conditions, protection and rights. Improving the
well-being of workers can also help their dependants and communities. The con-
cept of social upgrading is framed by the ILO’s Decent Work Agenda, which
encompasses employment, standards and rights at work, social protection and
social dialogue. This package promotes work performed under conditions of
freedom, equity, security and human dignity, in which rights are protected and
adequate remuneration and social coverage are provided (ILO, 1999). Econo-
mists have long established methods for quantifying the upgrading of labour
through measures of labour productivity and skill, but not all aspects of social
upgrading are as easily quantifiable.
Social upgrading can be subdivided into two components: measurable
standards and enabling rights (Elliott and Freeman, 2003; Barrientos and Smith,
2007). Measurable standards are those aspects of worker well-being that are
more easily observable and quantifiable, including type of employment (regular
or irregular), wage level, social protection and working hours. They can also in-
Economic and social upgrading in global production networks 325
clude data on sex and unionization, such as the percentage of female supervisors
or the percentage of union members in the workforce. However, measurable
standards are often the outcome of complex bargaining processes, framed by the
enabling rights of workers. These are less easily quantified, such as freedom of
association, the right to collective bargaining, non-discrimination, voice and em-
powerment. Lack of access to enabling rights undermines the ability of workers
– or specific groups of workers, such as women or migrants – to negotiate im-
provements in their working conditions that can enhance their well-being.
It is often implicitly assumed that economic upgrading in value chains auto-
matically translates into social upgrading through better wages and working con-
ditions (Knorringa and Pegler, 2006). However, case studies provide a mixed
picture. While social upgrading can be the outcome, it may be thwarted if the
employment created is highly insecure and exploitative. A vivid but tragic
example where apparent economic upgrading failed to translate into compar-
able social upgrading is that of the Foxconn factory in China, which became
associated with multiple worker suicides. Since 2005, China has become the
world’s largest exporter and producer of mobile phones. Supplying Apple,
Nokia and other prominent global electronics brands, Foxconn, a Taiwanese
contract manufacturer, has emerged as the largest private employer in China,
with over one million workers across more than a dozen factories. The avail-
ability of jobs, however, has not necessarily led to social upgrading for Fox-
conn’s workers. Excessive working hours, involuntary and often unpaid
overtime work, lack of adequate safety measures, and military-style manage-
ment practices led to growing discontent among young migrant workers,
culminating in a series of suicide attempts that claimed 17 workers’ lives during
the first eight months of 2011 (SACOM, 2010). However, the links between
economic and social upgrading/downgrading are often complex, with different
workers experiencing different outcomes on the same production site, as shown
by the example from the Moroccan garment industry reported below.
Framework for linking economic and social
upgrading in GPNs
A number of factors can affect the economic and social upgrading (or downgrad-
ing) of firms and workers. These include their position within the value chain, the
type of work performed, and the status of workers within a given category of
work. This section provides a framework for identifying different types of work
across GPNs, highlighting key elements of economic and social upgrading for
each category. This schema will be used to analyse possible trajectories of eco-
nomic and social upgrading in the next section.
Typology of work in agro-food, apparel, IT and services GPNs
When discussing upgrading from a GPN perspective, it is important to emphasize
that the unit of analysis is not the individual country, firm or worker, but the
326 International Labour Review
value chain (linking primary production, processing, distribution and retail)
within which firms and workers are located. GPNs are constituted by a mix of
activities that require combinations of labour-intensive, low-skilled activities
with knowledge- and technology-intensive higher-skilled activities. Different
types of GPNs are likely to be composed of different ratios of both low-skill and
high-skill production, therefore requiring a comprehensive typology of work.
Here we outline different types of work performed within GPNs.
Small-scale household and home-based work
Small-scale, household-based work is found in many GPNs with operations in
developing countries. This type of work is typically performed by small-scale pro-
ducers or outgrowers involved in agricultural production, and homeworkers in
more labour-intensive or artisanal types of manufacturing. These workers
usually have access to their own assets and means of subsistence, and are often
(but not always) located in poorer countries and regions. Production takes place
in or around the household residence, with limited separation between commer-
cial productive activity (producing saleable goods) and unpaid reproductive
activity (e.g. household subsistence and childcare). Small-scale production and
home-based work involve both paid and unpaid family labour, often including
child labour. Homeworkers and small-scale producers are linked into GPNs
through very different types of commercial arrangements. In small-firm econ-
omies like Taiwan’s, homeworking was often the initial stage in the development
of what later became factory-based export production in buyer-driven commod-
ity chains for consumer goods industries, such as garments, toys and sporting
goods (Hamilton and Gereffi, 2009; Feenstra and Hamilton, 2006; McCormick
and Schmitz, 2002).
Low-skilled, labour-intensive work
Labour-intensive production involving the use of wage labour in a formal factory
setting is clearly distinct from household-based production. It involves a relation-
ship based on wage employment between an employer (who may be the pro-
ducer or an agent) and a worker (normally paid in cash, but sometimes in kind).
Global brands and retailers have been able to reduce costs and spread their mar-
ket reach through outsourcing to lower-cost developing countries. This stimu-
lated the expansion of production and employment linked to GPNs. In
manufacturing, since the first offshoring wave in the 1960s and 1970s, the nature
of outsourced work has evolved. Whereas the first-generation maquila jobs
based on the assembly of garments in Mexico were quite labour-intensive, subse-
quent generations oriented to the assembly of automotive parts and advanced
electronics have often involved substantial automation. As one moves from
apparel to auto-parts to electronics, the very nature of assembly work changes to
second- and third-generation maquila work. This explains why workers in a given
industrial district – e.g. Torreon, Tijuana or Ciudad Juarez in Mexico – often earn
higher wages when they move from apparel to auto-parts to electronics (Bair and
Gereffi, 2001; Carrillo, 1998).
Economic and social upgrading in global production networks 327
China’s phenomenal export success during the past two decades can also be
linked to a variety of labour-intensive production arrangements – e.g. govern-
ment-created Special Economic Zones and more locally rooted but highly spe-
cialized industrial districts – which have quite different implications for both
economic and social upgrading. Recently, China has begun to adopt explicit pol-
icies to improve wages and working conditions in response to worker protests and
growing uncertainty about the economic prospects for the country’s huge migrant
workforce, which could create a strong political mandate for linking economic
and social upgrading (Zeng, 2010; Gereffi, 2009; Barboza and Tabuchi, 2010).
Medium-skilled, mixed production technologies work
This type of work is associated with full-package production, driven by the rise of
global buyers whose preferred suppliers are required to coordinate all of the
operations leading to the delivery of the final good, including design, inputs, pro-
duction, pre-pricing, packaging and presentation (Gereffi, 1994 and 2005; Dolan
and Humphrey, 2000). While global buyers control the orders for full-package
production, developing country suppliers coordinate the supply of inputs, make
the final product and send it to the buyer. For developing country firms to fill full-
package orders from global buyers, they need access to varied production tech-
nologies and skilled workers capable not only of making key components and
finished products, but also of performing production-related service jobs like
product design, quality control, packing and logistics, which require a broad
range of skills.
High-skilled, technology-intensive work
High-skilled, technology-intensive work emerged in the 1980s and 1990s from a
different set of offshore activities as lead firms in capital- and technology-
intensive industries, such as automobiles and electronics, set up international
production networks not only to assemble their finished goods, but also to
develop a supply base for key intermediate items and sub-assemblies. This form
of production is reflected in the rise of global contract manufacturers in the elec-
tronics industry and “mega suppliers” in the automotive industry. A dramatic but
not atypical example from electronics is Celestica, which spun off from IBM in
1996. From two initial production locations in Canada and the United States,
Celestica grew to nearly 50 factories across Asia, Europe and the Americas by
2001 (largely via acquisitions), increasing its sales from $2 billion to $10 billion
during this period (Sturgeon and Lester, 2004, pp. 47–49). At the uppermost tiers
of these production networks, the suppliers tend to be very large and technolog-
ically sophisticated, and they concentrate “good” jobs in relatively few locations.
However, as shown in the case of Foxconn above, global contract manufacturers
may also hire large numbers of workers in highly labour-intensive jobs
Knowledge-intensive work
Knowledge-intensive work in GPNs is being driven by a new wave of offshoring
in services (Gereffi and Fernandez-Stark, 2010). Although white-collar outsourcing
328 International Labour Review
started with simple service jobs like call centres and telemarketing, it now in-
cludes more advanced business services such as finance, accounting, software,
medical services and engineering. Knowledge-intensive service jobs are increas-
ingly seen as an opportunity for developing economies to reap both economic
and social benefits from technological learning, knowledge spillovers, and higher
incomes. On average, however, the volume of employment in this work category
is relatively small on account of its requirements for high skills and advanced de-
grees, mainly in science and engineering. Accordingly, the unskilled or less well-
educated majority in many countries is excluded from the very desirable employ-
ment opportunities provided by knowledge-intensive work.
Based on a simplified typology identifying five GPNs that combine labour-
intensive, low-tech manufacture, medium-tech manufacture, technology-intensive
and knowledge-intensive activities, figure 1 shows how different GPNs incorp-
orate different types of work and skill levels. While all five types of work are rep-
resented in each GPN, there are significant differences in the proportions of each
type of work across these sectors. Agro-food involves a relatively large propor-
tion of small-scale and low-skill labour-intensive production, particularly at the
farm level. Within manufacturing, if we compare industries that can be classified
as relatively low-tech (apparel), medium-tech (automotive) and high-tech (elec-
tronics), the proportion of low-skilled and household-based types of work
decreases, and the relative importance of knowledge-intensive and high-skilled
Economic and social upgrading in global production networks 329
work increases. This progression in the nature of the work involved is associated
with economic upgrading: as we move to more technology- and knowledge-
intensive GPNs, such as IT, labour-intensive production does not disappear but
becomes relatively less prominent. However, there is no systematic connection
between the proportion of labour-intensive work and social upgrading.
Status of workers
The type of work undertaken at any point within a GPN has to be further un-
packed. Here we draw on Rossi’s (2011) case study of economic and social up-
grading in the Moroccan garment industry to show that the status of workers can
have important implications for their ability to benefit from or participate in eco-
nomic and social upgrading. Empirical data collected through semi-structured
manager interviews and focus group discussions with workers show that the
workforce in supplier factories participating in garment GPNs is far from homo-
geneous.2 In response to lead firm requirements in terms of low cost, short lead
times, flexibility for last-minute changes in orders, and high quality, which char-
acterize the fast-fashion buyers sourcing from Morocco,3 supplier firms resort to
employing two different categories of workers. The first consists of regular
workers, who are senior and experienced, thereby guaranteeing high skills and
good quality. They are usually employed on permanent contracts (albeit often
oral contracts based on trust), and they are paid a premium over the minimum
wage. The second category consists of irregular workers who are employed in the
unskilled segments of the production chain, typically the most time-sensitive,
such as packaging and loading trucks. These unskilled workers are usually young
women, often internal migrants, who are frequently discriminated against, not
covered by any formal contract, paid below the minimum wage, and not covered
by any type of social protection.
These two categories of workers face very different opportunities for social
upgrading. Regular workers with strong employer attachment can more easily
access statutory employment protection and benefit from measurable labour
standards. Their greater security of employment may increase their ability to par-
ticipate in workplace-based trade union organizations and reduce their fear of
reprisals, thus enhancing their enabling rights. Irregular workers, with their weak
employer attachment, are less able to avail themselves of employer-based pro-
tection or measurable standards. Since irregular workers are over-represented
among women and ethnic and migrant groups, they often face double discrim-
ination on account of both their social and their employment status. Irregular
2Interviews and focus group discussions were carried out in a sample of 19 factories in Casa-
blanca, Rabat, Fez and Tangiers in 2008 (Rossi, 2010 and 2011).
3The fast-fashion segment of the apparel GPN was pioneered by the Spanish brand Zara
(which belongs to the Inditex group). The business strategy associated with fast fashion is based on
extremely flexible production which follows the latest fashion trends. A garment is produced within
two weeks of its design in Spain. Thanks to its proximity to Spain, Morocco has emerged as a key
sourcing platform for Zara (Plank, Rossi and Staritz, 2011).
330 International Labour Review
workers in any type of job are therefore more likely to suffer a “decent work def-
icit”, which denies them access to enabling rights and undermines their relative
ability to reap the benefits of economic and social upgrading.
A related but under-researched issue is the role of third-party labour con-
tractors as a channel for recruiting and employing irregular workers in global
production. Research by Barrientos (2011) on the garment industry in India and
horticulture in South Africa and the United Kingdom indicates that such con-
tracting is increasingly prevalent in the labour-intensive nodes of GPNs involving
footloose or seasonal production, such as agro-food and apparel. Labour con-
tracting can involve multiple types of relationship between the producing firm,
the contractor and the worker (e.g. payment by the number of workers where the
contractor takes a percentage, or payment by task, such as clearing a field). Con-
tractors move groups of workers between sites and locations depending on the
season and shifts in demand for labour. They play an increasingly important role
in matching “the right type” of workers to tasks, in coordinating labour supply to
firms on a “just-in-time” basis (Rogaly, 2008), and in channelling migrant labour
(internal and international) to production locations (Martin, 2006). Labour con-
tracting also allows firms to offset production or market risks and minimize
labour costs (as well as associated human resource management needs). Such
contracting can help workers enhance their continuity of employment between
different producers and provide some form of protection in sectors where there
are seasonality or “just-in-time” pressures. But it can also open up space for
unscrupulous agents who expose workers to high levels of exploitation both on
and off site, thereby undermining decent work conditions (Barrientos and Kritz-
inger, 2004; Kuptsch, 2006; Theron and Godfrey, 2000; Theron et al., 2004). Bar-
rientos (2011) finds that this can include new forms of bonded and forced labour
at the heart of global production. Thus the role of labour contractors can signifi-
cantly affect the relationship between economic and social upgrading, and their
workers can be vulnerable to extreme forms of exploitation.
Factors contributing to economic and social upgrading
or downgrading
The different types of work and status of employment provide the context for
social upgrading, highlighting the interplay between economic and social upgrad-
ing. Table 1 provides an initial overview of how the two are related in these dif-
ferent contexts. Social upgrading is mainly represented by measurable standards,
although future work in this area should also utilize research tools to assess the
existence and effectiveness of enabling rights. Case study evidence suggests that
certain aspects of social upgrading/downgrading, such as flexibility, vulnerability,
discrimination, voice and empowerment, cut across the types of work and thus
characterize household-based work and knowledge-intensive work alike.
A number of early case studies highlighted problems of poor working
conditions and lack of access to decent work (Smith et al., 2004; Collins, 2003;
Hale and Wills, 2005; Raworth, 2004). Conditions vary by sector and product, but
Economic and social upgrading in global production networks 331
Table 1. Key drivers of economic and social upgrading and downgrading, by type of work
Small-scale, household-based Low-skilled, labour-intensive Medium-skilled, mixed
production technologies
High-skilled, technology-
intensive
Knowledge-intensive
Economic upgrading/downgrading
(+) Allows poor workers and
producers to engage in GPNs
(+) Provides access to niche
produce and labour skills, such
as high plateau teas or hand-
sewn embroidery
(+/–) High dependence on
intermediaries who can support
or exploit
(–) Difficulty meeting standards,
hence exclusion from GPNs
(–) Often low value-capture
within chain
(+) Good for ramping up output,
exports, and foreign exchange
(+) Helps to attract foreign
investors and to meet
international quality standards
(–) Highly dependent on global
buyers in control of inputs and
orders
(–) Minimal local linkages to
host economy/local firms
(–) Low value added
(–) Vulnerable to buyers’
purchasing decisions
(–) Few opportunities for skill
improvement
(+) Integrated production and
control in final production, key
inputs, even in finance, logistics,
product development
(+) A process of buyer-oriented
upgrading
(+) Stronger forward and
backward linkages
(+) Higher value added
(–) More stringent performance
standards and reduced margins
procured by global buyers
(+) Higher capital- and
technology-investment inflows
(+) Increasing modularity
(+) Technology learning and
knowledge spillovers – “supplier
upgrading”
(+) Emerging “global firms”, e.g.
in China and India
(–) High entry barriers for local
firms in lucrative segments and
know-how
(+) Better income and export
prospects
(+) Technology learning and
knowledge spillovers
(+) Upgrading from simple service
jobs (e.g. call centres) to more
advanced business services
(software, medical services,
engineering)
(+) Newest area: offshoring of
design and innovation (R&D
centres in developing countries)
(–) Entry barriers in lucrative
segments and know-how
Social upgrading/downgrading
(+) High quantity of jobs,
especially for female workers
(+) Women can balance
productive and reproductive
work
(–) Likelihood of unpaid family
labour, including child labour
(–) Lack of contracts or security
(–) Long or insecure working
hours and poor conditions
(–) Lack of social protection and
rights
(+) High quantity of jobs,
especially for female workers
(–) Low quality, low wages;
“footloose” jobs
(–) Operation of labour relations
predominantly on a flexible,
casual basis
(–) Absence of fixed working
hours
(–) Lack of employment security
and other benefits
(–) No skill improvement
(repetitive, scrappy work)
(+) Fair quantity of jobs
(+) Relatively higher wages than
assembly jobs
(+/ –) Relatively high job security
in vertically integrated firms, but
increased use of flexible
employment
(+) Layers of skills and jobs
down the supply chain make it
possible to retain core skills and
outsource others to peripheral
workers
(–) Relatively small volume of
employment
(+) High-quality jobs (higher
wage than that of other
manufacturing industries)
(+) Relatively high job security
(–) Flexible work arrangements
on the rise
(–) Concentration of “good
jobs” in advanced countries
(+) Opportunity for skill
improvement
(–) Small number of jobs
(+) High wages and benefits by
domestic standards
(+) Continuous skill improvement
(+) Flexible work arrangements
not making employees vulnerable
(+) Greater possibility of gender-
neutral work
(–) High entry barriers, e.g.
education, English language –“not
inclusive”
(+/–) High individualization of
work
Source: Adapted from Gereffi and Güler (2008 and 2010).
332 International Labour Review
mainly in relation to whether employment is regular or irregular. Labour condi-
tions are consistently found to be better among permanent workers than among
temporary and casual workers. Gender bias has also been found to play an
important role: Women are preferred by many employers for their perceived
dexterity and “nimble fingers” (Elson and Pearson, 1981). However, they tend to
perform the insecure and low-paid work, often in temporary or seasonal employ-
ment arrangements (Barrientos and Kritzinger, 2004), while men typically
occupy the better-paid and more skilled jobs. The position of workers in different
nodes of GPNs also plays a role in their overall labour conditions. In manufactur-
ing, for example, conditions are likely to be better in the factory of a preferred
supplier that is regularly audited than in a subcontracted firm further down the
chain that goes unmonitored (Locke et al., 2007).
Social upgrading may occur for some workers but not for others working in
the same factory. Evidence from Morocco’s garment industry shows that high-
skilled workers – even those employed in factories in the cut-make-trim segment
of the apparel GPN – may have opportunities for social upgrading, especially in
terms of measurable standards, when lead firms are preoccupied with their brand
reputation and require compliance with labour standards in their supplier facto-
ries. At the same time, unskilled workers may be largely excluded from social
upgrading in order for the factory to remain cost-competitive and flexible in
terms of last-minute changes in orders. The challenges of social upgrading
remain significant for irregular workers even as factories shift their production
towards higher value added items. Indeed, the new activities taken on by the fac-
tory as a result may well lead to social upgrading for regular workers – through
the development of more skills and training for new capabilities – but irregular
workers continue to be needed in order to respond to buyers’ requirements in
terms of low cost, short lead times and high flexibility; their very status impedes
their social upgrading.
Trajectories in economic and social upgrading
As indicated previously, economic upgrading does not necessarily lead to social
upgrading (Brown, 2007, Locke et al., 2007). Research (often by civil society
organizations) has highlighted the adverse role company purchasing practices
can play, with negative outcomes for the workers engaged in GPNs (Insight
Investment/Acona, 2004; Raworth, 2004; Oxfam International, 2010; CAFOD,
2004; Barrientos and Kritzinger, 2004). However, this needs to be investigated
further by exploring the conditions under which economic upgrading may lead to
social upgrading or downgrading.
There are competing pressures for each of these two outcomes within GPNs
as suppliers balance higher quality with lower cost. For example, if economic up-
grading requires high and consistent quality standards that are best provided by
a stable, skilled and formalized labour force, then economic and social upgrading
may be positively correlated, especially when they increase worker productivity.
This is particularly true of process upgrading, which refers to improved efficiency
Economic and social upgrading in global production networks 333
of the production process and is therefore closely linked to an efficient use of
labour as a human resource. At the same time, pressures to reduce costs and in-
crease flexibility might lead employers to combine economic upgrading with
social downgrading (for example, by outsourcing employment to an exploitative
labour contractor), although this raises questions about commercial sustainabil-
ity if quality is to be assured.
Rossi’s (2011) case study of GPN garment factories in Morocco led by fast-
fashion buyers shows that functional upgrading brings about social upgrading
and downgrading simultaneously, for regular and irregular workers, respectively.
On the one hand, factories supplying a finished product and overseeing pack-
aging, storage and logistics for their buyers offer stable contracts and better social
protection to their high-skilled workers to ensure a continuous relationship as
well as full compliance with buyers’ codes of conduct. On the other hand, in order
to be able to respond quickly to buyers’ frequently changing orders and to oper-
ate on short lead times, they simultaneously employ irregular workers on casual
contracts, especially in the final segments of the production chain (such as pack-
aging and loading), often imposing excessive overtime as well as discriminating
against them on the basis of wages and treatment (Rossi, 2011).
To maintain or advance their position in GPNs, suppliers have to engage in
a balancing act between maximizing quality (to meet buyers’ standards) and
minimizing costs/prices (to remain competitive to buyers). This has important
implications for labour and the potential for social upgrading. In response to
commercial pressures, suppliers’ labour strategies can take a “low road” in-
volving economic and social downgrading, a “high road” involving economic
and social upgrading, or a mixed approach (see the article by William Milberg
and Deborah Winkler in this Special Feature of the International Labour
Review). Those taking a low-road approach based on worsening labour condi-
tions risk losing out on quality. Those taking a high-road approach by improving
wages and labour conditions risk losing out on price competitiveness. Many
producers therefore adopt a mixed approach of high quality and low-cost
employment which facilitates both standards and cost flexibility. This is reflected
in the simultaneous use of regular and irregular workers on any given site.
Analysing economic and social upgrading trajectories involves understand-
ing that economic upgrading is not always the most appropriate strategy for long-
term sustainability. Such strategic decision-making depends largely on the char-
acteristics of the actors. One identified path of upgrading from integrated or
“full-package” production activities – also known as original equipment manu-
facturing (OEM) – to original design manufacturing (ODM) and original brand
name manufacturing (OBM) has been very beneficial for some firms in GPNs,
including a number of East Asian apparel companies (Gereffi, 1999). However,
it cannot work for everyone because risk and competition are much higher in the
more advanced segments of GPNs. Some firms choose to remain in their more
secure niche of OEM without attempting to upgrade further. For these firms,
economic “downgrading” becomes a business strategy. In the computer industry
of Taiwan (China), Acer decided it could upgrade by developing its own brand of
334 International Labour Review
computers, and was successful in doing so; its competitor, Mitac, initially opted to
pursue an OBM strategy as well, but soon returned to OEM where the profits
were lower, but more secure (Gereffi, 1995, pp. 131–132).
Another example of tactical downgrading occurs in the highly competitive
South African wine value chain, where some wine makers were shown to prefer
a lower position on the price and quality pyramid for wines exported to the Euro-
pean market. Indeed, some strategies of product and functional “downgrading”
– such as selling higher volumes of basic quality or bulk wines rather than pre-
mium wines, vertical disintegration by moving away from the high fixed costs of
grape growing, and reduced emphasis on premium brands – have enabled firms
to maintain stable market shares and margins for mid-range or basic wines, espe-
cially during the economic crisis when cost cutting was necessary for survival in
some segments of the industry (Ponte and Ewert, 2009). While these strategies
have been associated with certain forms of social downgrading, such as reduced
lead times and the increased casualization of labour, tactical downgrading in
selected areas of the value chain can permit forms of upgrading when economic
conditions improve. In short, suppliers in developing economies can adopt mixed
strategies of moving up and down the value chain according to domestic and
international conditions.
The garment industry in eastern and central Europe (ECE) provides an
excellent example of how upgrading and downgrading trajectories have been
intertwined. In the early 1980s, some of the ECE economies began to carry out
outward-processing trade (OPT) for markets in western Europe, primarily with
German buyers and contractors. Given their legacy of established industrializa-
tion, the emphasis on apparel exports might be considered economic downgrad-
ing. Within the apparel industry, more advanced economies like Slovakia’s were
able to move more quickly from OPT to full-package export production, and
eventually to ODM and OBM, while less developed economies such as Bul-
garia’s had far more difficulty moving beyond basic OPT contracting. In the ECE
economies, however, it was often easier to develop ODM and OBM upgrading
strategies for the domestic retail market, than for the more discriminating fast-
fashion markets of western Europe (Pickles et al., 2006; Evgeniev and Gereffi,
2008).
With regard to social upgrading, certain choices might be considered
social “downgrading” for some actors, but not for others. For example, in agri-
culture the choice to move from a smallholder job to wage employment in a
farm might be regarded as an example of social downgrading, due to loss of
independence and access to land. However, if the person making this choice is
a woman who used to be an unpaid family worker, the move to wage employ-
ment can represent an improvement in terms of access to wages. Research on
Senegal’s horticultural industry found that some small-scale producers were
able to comply with European supermarket standards, and that both they and
wage workers on large estates received better incomes than small-scale pro-
ducers unable to enter the supply chains (Maertens and Swinnen, 2009). In order
fully to understand economic and social upgrading trajectories, it is important
Economic and social upgrading in global production networks 335
to keep in mind the social context and profile of the different actors involved,
which can vary between countries and sectors.
Figure 2 illustrates implications for decent work by portraying three pos-
sible trajectories. The horizontal axis sets out the different types of work, from
small-scale household-based production, through low- and medium-skilled jobs
to high-skilled technology- and knowledge-intensive work. The vertical axis rep-
resents social upgrading, according to the measurable standards discussed above.
Enabling rights are, by their very nature, not quantifiable in a chart of this form.
Recognizing the limitations of figure 2, being located below zero (the horizontal
axis) in the diagram constitutes a “decent work deficit” for any given type of
work, while being above zero represents levels of “decent work attainment” for
any given type of work: the further above zero, the greater the social upgrading
gains achieved.
The social upgrading trajectories presented in figure 2 depict a range of
possible situations:
A. Small-scale worker upgrading occurs where workers remain within home-
based production (agriculture or manufacturing), but are still able to
enjoy improvements in their working conditions. For example, it is pos-
sible for improvements to occur for those working in small-scale horti-
culture in Africa, through the establishment of producer organizations
and provision of more secure contracts, better pay and personal health and
safety equipment.
336 International Labour Review
B. Labour-intensive upgrading occurs where workers move to better types of
labour-intensive work where they can also obtain better working condi-
tions. In Bangladesh or Sri Lanka, for example, women who have migrated
from subsistence farming to wage employment in the garment industry may
be able to obtain jobs in factories that have implemented buyers’ codes of
labour practice.
C. Higher-skill upgrading occurs where workers move towards better types
of paid employment associated with progressive social upgrading. For
example, workers in India or China who have gained sufficient education
and training can move from low-paid low-skilled work into the IT sector
and, at the same time, obtain higher-paid employment in firms where
labour standards are improving.
Case study evidence suggests that a shift from lower to higher skilled types
of work may directly lead to social upgrading, but not always. The challenge,
therefore, is how to pursue strategies that will enhance labour standards for all
workers in all types of work.
Research to date, including the findings from the garment industry in
Morocco presented in this article, indicates that the main improvements gener-
ated by GPNs in terms of measurable standards and enabling rights tend to be
limited to regular workers, i.e. those in stable, usually permanent jobs with a high
degree of attachment to their employers. However, extending such improve-
ments to irregular workers, such as casual, migrant and contract workers poses
serious challenges. There are indications that the underlying constraints are
structurally embedded, as suppliers use a mix of labour categories to achieve
both quality and flexibility of output as required by their buyers: employing
regular workers to secure quality and consistency of production and irregular
workers to cope with fluctuating orders and downward price/cost pressures.
Concluding remarks
This article has sought to develop a more systematic framework for analysing
economic and social upgrading in GPNs, taking into account the different levels
of integration of firms and workers that can exist across industries. Drawing on
case studies in a variety of sectors has helped to highlight the issues, but their limi-
tation is that they separately examine either economic or social upgrading/down-
grading. Rossi’s (2011) case study of the garment industry in Morocco sets out to
address this gap by applying a framework for integrated analysis of economic and
social upgrading in GPNs. Our approach reveals different economic and social
upgrading opportunities, and downgrading risks. By analysing the relationship
between economic and social upgrading/downgrading more systematically, we
hope to have laid the foundations for future research that incorporates both firms
and workers as productive actors as well as social agents with rights.
An important aim is to better understand how and why economic upgrad-
ing does not automatically lead to social upgrading, thereby providing a more
Economic and social upgrading in global production networks 337
informed basis for designing and promoting interventions that will promote
both (the so-called “win-win” scenario). Such interventions – reviewed briefly
in the preceding article in this Special Feature based on Mayer and Pickles
(2010) – can occur at different levels, including: independent trade union rep-
resentation of workers; company-level initiatives (including buyer and multi-
stakeholder codes of labour practice); government legislation; and multilateral
initiatives (such as ILO and OECD guidelines). A key topic for future GPN
research is how to design cross-border interventions that yield benefits for poor
workers and firms linked through their involvement in the same GPN, but located
in different countries.
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