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How do firms coordinate production that spans multiple countries, each specializing in a different stage of the same product? This question lies at the heart of the Global Value Chains (GVC) subfield. The answer has shifted over time as scholars moved from viewing the multinational enterprise (MNE) as a self-contained hierarchy to seeing it as one node in a network of relationships, and finally to analyzing the entire chain of activities that turn raw materials into finished goods. The GVC framework emerged as a synthesis of earlier theories, but it also replaced some of them by offering a more comprehensive unit of analysis: the chain itself, rather than the firm or the transaction.
In the 1970s, Internalization Theory provided the first rigorous explanation of why firms create subsidiaries abroad instead of relying on markets. Drawing on transaction cost economics, it argued that firms internalize cross-border activities when the costs of using external markets—search, negotiation, enforcement—are high. This framework treated the MNE as a hierarchy that replaces imperfect markets, especially for knowledge-intensive assets. Its core insight—the make-or-buy logic—later became a building block for GVC governance analysis. However, Internalization Theory focused almost exclusively on the firm's boundary decision, leaving little room for the possibility that production could be coordinated across multiple independent firms without full ownership.
By the 1980s, scholars began to notice that many international activities were not governed by either pure markets or pure hierarchies. The Network Approach to Internationalization shifted attention to the web of relationships—supplier partnerships, joint ventures, long-term contracts—that connect firms across borders. Unlike Internalization Theory, which saw external relationships as costly failures to be internalized, the Network Approach treated them as valuable resources in their own right. It introduced methods for mapping inter-firm ties and emphasized trust, reputation, and embeddedness. This relational perspective directly influenced the later GVC framework, which adopted the idea that chains are governed not only by ownership but also by power and coordination among legally independent actors.
At roughly the same time, the Resource-Based View (RBV) entered International Business from strategic management. It argued that a firm's competitive advantage stems from its unique, valuable, and hard-to-imitate resources. Applied to global production, the RBV explained why some firms could lead a chain while others remained suppliers: lead firms possessed intangible assets such as brands, technology, or proprietary processes. The RBV coexisted with Internalization Theory, but it addressed a different question—not why firms internalize, but why they outperform others. This focus on firm-level heterogeneity later proved essential for understanding upgrading within value chains, as firms could move into higher-value activities by developing new resources.
In the mid-1990s, the Global Commodity Chain (GCC) framework emerged from world-systems theory and economic sociology. It shifted the unit of analysis from the firm to the entire chain of production, from raw materials to final consumption. The GCC framework introduced the concept of governance—the way lead firms coordinate activities along the chain—and distinguished between producer-driven chains (common in capital-intensive industries like automobiles) and buyer-driven chains (typical in labor-intensive industries like apparel). This was a major departure from Internalization Theory, which had treated governance as synonymous with ownership. However, the GCC framework had limitations: it focused heavily on manufacturing and on the role of large retailers or brand-name firms, and it struggled to account for the growing importance of services, knowledge-intensive activities, and institutional variation across countries.
Around 2000, the Global Value Chain (GVC) framework directly succeeded the GCC, absorbing its core insights while addressing its weaknesses. The GVC framework broadened the analysis to include services, innovation, and multiple forms of governance beyond the producer-driven/buyer-driven dichotomy. It introduced a more nuanced typology of governance modes—market, modular, relational, captive, and hierarchy—based on the complexity of transactions, the codifiability of information, and the capabilities of suppliers. This typology allowed researchers to describe how chains are coordinated without assuming that ownership is the only mechanism. The GVC framework also incorporated the RBV's emphasis on firm capabilities: upgrading—moving to higher-value activities—became a central topic, explained by a firm's ability to develop new resources. At the same time, it retained the Network Approach's relational logic by recognizing that many chains are governed through trust and repeated interaction rather than contracts or ownership.
As the GVC framework matured, scholars realized that the RBV's static view of resources could not explain how firms adapt when chains are disrupted by technology, trade policy, or shifting consumer demand. The Dynamic Capabilities framework, which emerged in the late 1990s, filled this gap. It focused on a firm's ability to integrate, build, and reconfigure internal and external competences in response to rapidly changing environments. In the GVC context, dynamic capabilities explain why some lead firms can restructure their chains—for example, by offshoring production to new locations or by introducing digital platforms that change how suppliers are coordinated. The Seiko watch industry case illustrates this: after 1990, Seiko lost competitiveness in the global watch chain partly because it failed to develop the dynamic capabilities needed to shift from mechanical to quartz technology and to reconfigure its supplier network. Dynamic capabilities thus complemented the GVC framework by providing a firm-level mechanism for chain reconfiguration and upgrading.
From 2000 onward, the Institution-Based View (IBV) added a macro-level layer to GVC analysis. It argued that formal and informal institutions—laws, regulations, norms, and cultures—shape firm strategy and chain governance. The IBV coexists with the GVC framework but introduces a point of tension: while the GVC framework often assumes that lead firms choose governance modes based on transaction characteristics and supplier capabilities, the IBV emphasizes that institutional environments constrain those choices. For example, weak contract enforcement in a country may push firms toward hierarchical governance even when modular or relational governance would be more efficient. The IBV also explains cross-country variation in upgrading outcomes: firms in countries with strong intellectual property protection and skilled labor are more likely to move into high-value activities. This institutional perspective does not replace the GVC framework but broadens it, forcing researchers to consider how national contexts shape chain dynamics.
Today, the leading frameworks in the subfield are the GVC framework, the Institution-Based View, and Dynamic Capabilities. They agree on several points: production is fragmented across borders; governance involves more than ownership; and firm-level capabilities matter for upgrading. However, they disagree on the primary driver of chain structure. The GVC framework emphasizes transaction characteristics and power asymmetries between lead firms and suppliers. The Institution-Based View argues that institutional environments are often more decisive. Dynamic Capabilities scholars contend that firm-level adaptation is the key, especially in fast-changing industries. These disagreements are productive: they push researchers to combine frameworks rather than choose one. For instance, a study of upgrading in the electronics chain might use the GVC typology to map governance, the IBV to explain why Chinese firms upgraded faster than Mexican ones, and Dynamic Capabilities to analyze how a specific firm reorganized its R&D function.
The GVC framework remains the most widely used because it provides a flexible analytical toolkit that can incorporate insights from other theories. It has absorbed the Network Approach's relational methods, the RBV's focus on resources, and the GCC's attention to power. Its governance typology is still debated—some scholars argue that the five modes are too static or that digital platforms create new forms—but it has proven remarkably durable. The subfield's enduring contribution is a multi-level view of global production: firm-level capabilities, chain-level governance, and country-level institutions all interact to determine who wins and who loses in the global economy.