The concept of ‘governance’ is central to the global value chain approach. This article explains what it means and why it matters for development research and policy. The concept is used to refer to the inter-firm relationships and institutional mechanisms through which non-market coordination of activities in the chain takes place. This coordination is achieved through the setting and enforcement of product and process parameters to be met by actors in the chain.
In global value chains in which developing country producers typically operate, buyers play an important role in setting and enforcing these parameters. They set these parameters because of the (perceived) risk of producer failure. Product and process parameters are also set by government agencies and international organisations concerned with quality standards or labour and environmental standards. To the extent that external parameter setting and enforcement develop and gain credibility, the need for governance by buyers within the chain will decline.
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