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Paper long abstract:

This paper through a case study of a small industrial city- Yuhuan investigates how a rigorous local production system facilitates SMEs penetrate GVCs and its labor dimension.

First, in the case of Yuhuan, we argue that the LPS accommodates several sectoral value chains with overlapping demand for certain production tasks and components, which can facilitate the backward linkages-the service or components providers to achieve economies of scale by pooling society-wide demand. A large LPS with diverse demand can support more comprehensive value chains.

Second, the comprehensive sectoral value chains in Yuhuan support the business model of “components supermarket”, catering the demand for large variety and small quantities orders when local firms participate GVCs. Such a business model occupies a specific niche in the GVCs, where it can avoid competition from the next tier emerging economies with lower wages and costs and prevent confronting with developed countries that focus on highly automated sectors.

Third, our survey finds that technicians and assembly workers’ wages increase faster than administrative workers who usually have higher education than front line workers in a factory. Since migrant workers mainly play the role of technicians and assemblers while most administrative workers are local residents, our survey finds that migrant workers on average earn higher wages than employees with a local hukou. The wage structure is determined by the labor market supply and demand, which is influenced by the industrial structure.