The uneven path to global value chain upgrading: regulations, private governance, and supplier compliance

Abstract

Global value chains (GVCs) generate efficiency through production fragmentation but simultaneously create sustainability vulnerabilities that can undermine GVC resilience. While MNE buyer-led private ordering and state regulation represent the primary governance responses to these risks, their effects on supplier compliance remain contested. We develop a domain-sensitive governance framework showing that labor and environmental compliance differ systematically in their cost–benefit structures, and which in turn shape the effectiveness of governance forms in driving compliance across sustainability domains. Using a panel of over 2000 suppliers across emerging economies, we find evidence for the asymmetric effectiveness of governance forms across compliance domains. In the labor domain, both regulation and private ordering improve compliance, as stronger labor regulations increase MNE sourcing and reinforce suppliers’ incentives to upgrade. In contrast, in the environmental domain, while private ordering improves compliance, stringent environmental regulation reduces MNE sourcing, weakening suppliers’ incentives to invest in environmental improvements. We identify a buyer–regulation intermediation mechanism through which regulatory stringency shapes supplier compliance indirectly by altering MNE sourcing strategies. Our findings advance GVC governance research by showing that sustainability compliance, and thus resilience, depends not only on governance instruments but also on domain-specific incentive structures and buyer-mediated governance dynamics.