Paper short abstract:

The paper re-claims the role of firms and states in shaping innovation and upgrading among SMEs in regional and global value chains. This is achieved through a comparative case study of Kenyan handbag and footwear manufacturers.

Paper long abstract:

The surge of trade in global value chains (GVCs) has prompted a vast literature on the relationship between multinational firms in developed economies and delocalised suppliers in the global South. Nevertheless, less attention has been paid to how firms in developing countries upgrade production and self-select into regional and global markets. By focusing on the firm as the fulcrum of value-addition, this article overcomes the vertical approach dominating the literature and (re)claims the centrality of firms and regulatory governance in shaping innovation and upgrading across local, regional, and global value chains.

This is achieved through a comparative analysis of firms' upgrading in the Kenya leather handbag and footwear subsectors. In the former, local access to foreign knowledge within emerging SMEs and a sense of distrust towards state policies favoured a process of learning and differentiation which prompted upgrading and participation in competitive global markets. Conversely, in the latter, a system originally dominated by large subsidised firms and apprenticeship-based learning led to the cutback of production costs, quality, and labour conditions, further triggering informalisation and limiting participation in GVCs. In this context, the overreliance of footwear producers on public institutions discouraged rather than favour innovation and upgrading.