Purpose This paper aims to examine why multinational enterprises (MNEs), despite their central role in orchestrating global value chains (GVCs), often fail to generate the expected investment-led upgrading among local suppliers in less developed countries (LDCs). The authors challenge the common assumption that MNE-led orchestration naturally produces positive spillovers. Design/methodology/approach The study draws conceptually on Acemoglu and colleagues’ work on institutions and investment, alongside Property Rights Theory. These frameworks are used to explain how contractual power asymmetries shape investment incentives within GVCs. Findings The authors argue that strong power imbalances between orchestrating MNEs and local suppliers weaken suppliers’ incentives to invest in upgrading. Because MNEs can shift perceived business uncertainty onto less powerful suppliers, the latter face heightened risks that discourage long-term capability development. This dynamic helps explain the limited empirical evidence of upgrading in many LDC contexts. Research limitations/implications The analysis is conceptual and calls for empirical work that more precisely measures contractual power asymmetries and their effects on supplier investment behaviour. It also suggests revisiting assumptions in IB and GVC research regarding the automaticity of upgrading outcomes. Practical implications Policymakers and development agencies should recognise that MNE participation alone does not guarantee supplier upgrading. Strengthening local institutional frameworks and improving suppliers’ bargaining positions may be necessary to foster meaningful capability development. Originality/value The paper provides a novel theoretical explanation for the persistent gap between expectations and evidence regarding upgrading in GVCs. By integrating institutional economics with Property Rights Theory, it highlights how contractual power asymmetries systematically undermine suppliers’ incentives to invest.
Forsgren et al. (Tue,) studied this question.