Transactional Dependence and Technological Upgrading in Global Value Chains

Abstract Whether and how original equipment manufacturers (OEMs) engage in technological upgrading matters for the sustainable development of global value chains (GVCs). Drawing on a power‐dependence perspective, we hypothesize that OEMs’ dependence on the lead firms may weaken OEMs’ technological upgrading. We further identify technology‐related boundary conditions to moderate such a dependence‐upgrading relationship. We analyse a large longitudinal sample of Chinese OEMs that provide original equipment manufacturing for overseas lead firms and find strong support for the hypotheses. Our findings highlight the importance of considering the eroding effect of power‐asymmetric transactional dependence in shaping OEMs’ upgrading trajectory. By focusing on the power asymmetry in the transactional dependence between OEMs and lead firms in GVCs, this study opens a new and broad avenue for future GVC studies. The study also extends power‐dependence theory by identifying the hindering effect of high power asymmetry on avoidance activities.