AREA DEVELOPMENT AND POLICY

2022, VOL. 7, NO. 2, 177–186

https://doi.org/10.1080/23792949.2021.1978299

RESEARCH NOTE

Regional value chains as new pathways to

development?
Sören Scholvin a, Ivan Turok b
, Justin Visagie c

and Javier Revilla Diez d

ABSTRACT
There is growing scepticism about global value chains because of their association with an unequal
global trading system. Regionally coordinated and integrated production in Asia appears to have served
as a better mechanism for promoting economic prosperity than direct integration into global markets.
This is founded upon regional cooperation on investment, trade and value chains. This research note
distinguishes different forms of these chains, discusses the conditions for their emergence and sheds
light on some of their effects – for both individual firms and entire continents. Asia’s experience is
compared with Africa’s and Latin America’s.
ARTICLE HISTORY
Received 18 June 2021; Accepted 5 September 2021
KEYWORDS
developmental regionalism, global value chain, Factory Asia, regional integration, regional value chain

摘要
区域价值链会成为新的发展途径吗Area Development and Policy. 由于全球价值链与不平等的全球贸易体
系相关,人们对全球价值链越来越持怀疑的态度。与直接融入全球市场相比,亚洲地区的地区协调和一体
化生产似乎是促进经济繁荣的更好机制。这是建立在投资、贸易和价值链方面的区域合作基础之上的。
本研究报告将这些‘链’区分为不同形式,讨论了它们出现的条件,并阐明了价值链中‘链’对于个人企业或是
整个大陆所造成的影响,将亚洲的研究经验与非洲和拉丁美洲进行比较。
关键词
发展地区主义, 全球价值链, 亚洲工厂, 域一体化, 域价值链

RESUMEN
¿Cadenas regionales de valor como nuevas vías hacia el desarrollo? Area Development and Policy. Sigue
creciendo el escepticismo con respecto a las cadenas globales de valor debido a su asociación con un

CONTACT Sören Scholvin soren.scholvin@ucn.cl

aDepartamento de Economía, Universidad Católica del Norte, Antofagasta, Chile
b iturok@hsrc.ac.za Human Sciences Research Council, Cape Town, South Africa
c jpvisagie@hsrc.ac.za Human Sciences Research Council, Cape Town, South Africa
d j.revilladiez@uni-koeln.de Institute of Geography, University of Cologne, Cologne, Germany

© 2021 Regional Studies Association

178 Sören Scholvin et al.

sistema desigual de comercio mundial. La producción integrada y coordinada de ámbito regional en Asia
parece haber actuado como un mejor mecanismo para fomentar la prosperidad económica que la
integración directa en los mercados globales. Eso se basa en la cooperación regional en inversión, comercio
y cadenas de valor. En la nota de investigación se distinguen diferentes formas de estas cadenas, se evalúa
cuáles podrían ser las condiciones para que surjan, y se arroja luz sobre algunos de sus efectos, tanto para
empresas individuales como en continentes enteros. Asimismo se compara la experiencia de Asia con África
y América Latina.
PALABRAS CLAVE
regionalismo de desarrollo, cadena global de valor, Fábrica Asia, integración regional, cadena regional de
valor

АННОТАЦИЯ
Региональные цепочки создания стоимости как новые пути развития? Area Development and Policy.
Растет скептицизм в отношении глобальных цепочек создания стоимости из-за их связи с
неравноправной системой глобальной торговли. Региональное скоординированное и
интегрированное производство в Азии, по-видимому, послужило лучшим механизмом содействия
экономическому процветанию, чем прямая интеграция в мировые рынки. Она основана на
региональном сотрудничестве в области инвестиций, торговли и производственно-сбытовых
цепочек. В данном исследовании рассматриваются различные формы этих цепочек, обсуждаются
условия их возникновения и описываются некоторые из их последствий – как для отдельных фирм, так
и для целых континентов. Опыт Азии сравнивается с опытом Африки и Латинской Америки.
КЛЮЧЕВЫЕ СЛОВА
регионализм развития, глобальная цепочка создания стоимости, фабричная Азия, региональная
интеграция, региональная цепочка создания стоимости

INTRODUCTION

Participation in global value chains (GVCs) has become an attractive paradigm promoted by
the World Bank (2020) and World Trade Organization. However, many stakeholders in the
South are sceptical because of the difficulties of gaining access to Northern markets or because
the outcomes have proven to be less favourable than anticipated. For example, many resource-
abundant territories find it difficult to diversify from exporting basic commodities to value-
added manufacturing (Gorenstein & Ortiz, 2018). At the subnational level, dual economies of
globally networked winners and sidelined losers may emerge (Walker et al., 2009). At worst,
entire business sectors are downgraded when they become a part of GVCs (Murphy &
Carmody, 2015).
These negative experiences appear to be more common in Africa and Latin America
than in Asia. Many Asian countries benefit from close ties among themselves, forming the
so-called Factory Asia. Such ‘regional factories’ also exist in Europe and North America
and are built around a hub that buys from and sells to a wide range of trading partners.
Neighbouring countries are spokes that depend upon the hub (Baldwin & López
Gonzáles, 2015). In Asia, these ties date back to trade liberalization within the
Association of Southeast Asian Nations (ASEAN). As trade costs fell, firms benefited
from economies of scale and exploited comparative advantages by splitting their value
chains across the region. Reforms in China and especially the China–ASEAN free trade

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 Regional value chains 179

agreement gave another boost to these dynamics, which have stimulated growth in all
member states.
Should countries elsewhere seek to replicate this strategy? Could regional coordination and
integration of production support development and industrialization in lagging continents?
A recent World Bank report assessed whether South Africa might serve as a hub that
transmits growth impulses to spokes elsewhere in Africa (Draper et al., 2016). Another
World Bank study by Ahmad et al. (2017) argued that strong regional value chains (RVCs)
are a condition for GVC-driven growth. This suggests that a Factory Africa and a Factory
Latin America could accelerate development in these continents.
Unfortunately, the current state of knowledge of RVCs – the backbone of regional
factories – is limited. The arguments and evidence are only just emerging, as this research
note demonstrates. The literature on value chains is still largely about connections beyond
the regional level. Thus, only one of the 35 chapters in the seminal Handbook on Global Value
Chains pays any attention to RVCs (Morris & Staritz, 2019). Horner and Nadvi (2018)
define RVCs as chains ‘for which lead firms supply markets in neighbouring and regional
economies, and that source from and subcontract to regional suppliers’ (p. 222). More
conceptual and empirical research is needed to capture different forms of RVCs, identify
the conditions under which they emerge and establish the extent to which they are beneficial
to firms and wider regions. The purpose of this research note is to lay some foundations for
further investigation, drawing the threads together of what is already known about these
three issues.
Research on RVCs is timely in the throes of the Covid-19 pandemic, when many countries
in the South have been hit by an economic depression and adverse political reactions to
globalization and vaccine nationalism. Most cannot afford the scale of stimulus packages
launched in the North, and fear protectionism and rising tariff barriers. Stronger intra-
regional investment and trade could potentially enhance development through economies of
scale and specialization, thus promoting prosperity. The pandemic may reinforce the regio­
nalization of value chains that began in the aftermath of the 2008–09 economic crisis, when it
became clear that certain Southern end markets were more buoyant than those in Europe and
North America (Gereffi, 2014).

TYPES OF RVCS

Bamber et al. (2014) distinguish usefully between RVCs focused on regional production for
regional markets – such as car manufacturing in Asia, Europe and North America – and
functionally interconnected regional operations that supply global markets. The latter are
exemplified by the electronics industry, which minimizes costs and mitigates risks by making
use of competitive advantages across Asia (see also Borrus et al., 2000; Lee & Lim, 2018).
The clothing sector is also increasingly characterized by regional sub-networks that feed into
GVCs (Pickles et al., 2015). A minor example involves engineering firms based in Cape
Town that have ventured into Africa by serving as suppliers of overseas lead firms in the oil
and gas sector (Scholvin, 2020a). The importance of regional sub-networks has been
acknowledged in research on GVCs for many years (e.g., Gereffi, 1999; Rugman et al.,
2009). However, there are also regionally bounded value chains. South African and Kenyan
supermarkets, for instance, have expanded into the wider regions, contracting local suppliers
(Barrientos et al., 2016; Das Nair, 2020). Black et al. (2021) add that firms from a regional
hub may produce for that hub and source inputs from neighbouring countries, either
through trade or, alternatively, by setting up subsidiaries. Although we do not exclude
regional sub-networks of GVCs, value chains that are regionally bounded are the focus of
this research note.1

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180 Sören Scholvin et al.

An alternative classification relates to firm strategies, which may be either opportunistic or

targeted towards particular RVCs. The former are created by firms that tried but failed to fully
integrate into GVCs. Krishnan (2018) analysed horticulture in Kenya, showing that crops that
do not meet the standards required for global markets are sold in East Africa. In contrast,
targeted RVCs are about producing items customized for the region. For instance, Senegalese
information technology (IT) companies provide high value-added services to mostly West
African customers, including data processing, design and maintenance of applications and
websites, and systems integration (English, 2018). Stuart (2019) argues that IT firms from
South Africa’s Western Cape province are well placed to expand into Africa, connecting their
existing GVCs with new RVCs. Phiri and Ziba (2019) see potential for Zambia’s agricultural
sector to supply supermarkets in neighbouring countries.
Targeted RVCs may complement GVCs and thus contribute to the resilience of compa­
nies. They also reflect the competitive advantages of firms in their own region. These range
from business languages and customer tastes being similar to meeting the real-time needs of
clients within the same time zone. It is not surprising that the Argentinean e-commerce giants
Despegar and Mercado Libre have expanded across Latin America, establishing quasi-
monopolies there, but are unheard of elsewhere in the world. Companies that opt for regional
markets appreciate lower costs and simpler organization, which compensate for lower prices.
As Barrientos et al. (2016) and McCarthy et al. (2012) report, quality standards and monitor­
ing are less strict across the South. Regional markets are particularly attractive to small and
medium-sized enterprises (SMEs), which dominate in the developing world and have weaker
distribution and marketing capabilities. Keijser and Iizukaa (2017) found that foreign-owned,
large IT firms with operations in South Africa concentrate on global markets, while indigen­
ous, smaller enterprises engage in value chains of national and regional range.
Engaging in RVCs that are not merely sub-networks enables firms from the South to
operate independently from transnational corporations, although this is not always easier than
GVC participation. National value chains and RVCs require them to handle almost every­
thing necessary for producing and marketing their outputs (Navas Alemán, 2011). Such tasks
are often beyond the capabilities of SMEs, especially when they involve operating in different
jurisdictions. Typical GVC participation, on the other hand, is limited to narrower functions
such as basic production for overseas customers, which provide the essential branding, design
and sometimes even logistics support.

FREE MARKETS OR THE STATE AS A FACILITATOR?

The previous section suggests that there are two sets of factors that matter to RVCs: firm
strategies and structural conditions. The latter comprise characteristics of regional markets and
also complementary location advantages such as cheap labour provided by one country and
sophisticated technology available in another (on the latter, see also Suder et al., 2015).
The current academic discourse among economic geographers calls for governments to
take a proactive role, guiding the economy so that RVCs will be formed and bring develop­
ment that is beneficial to all countries involved. Pasquali et al. (2021) argue that regional trade
regimes should protect indigenous companies from global competition. Regional investment
regimes must facilitate intra-regional investment. Horner (2014) suggests that developing
countries decouple from global networks, nurture infant industries and later recouple to
GVCs. This should enable them to take higher value-added positions therein. He refers to
India’s pharmaceutical industry as an example. The significance of this has been illustrated by
India’s capacity to produce Covid-19 vaccines. Lee et al. (2017) make the same argument
about Brazilian and South Korean firms in the automotive and footwear sectors, respectively.

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These suggestions can be linked to RVCs, which then become staging posts for successful
integration into global markets.
This is the sentiment behind the African Continental Free Trade Area (AfCFTA), which
came into effect in early 2021. Expectations for the AfCFTA to act as an accelerator of
development are high. The World Economic Forum (2021), which does not share the policy
convictions summarized above, argues that the AfCFTA offers a pathway to RVCs. These
may enhance Africa’s competitiveness through the specialization of individual countries
according to competitive advantages and subsequent intra-AfCFTA coordination of produc­
tion activities. The continent could also become more attractive to overseas investors and more
resilient to economic crises because RVCs will contribute to economic complexity and
diversity.
In Latin America, regional integration peaked during the first decade of this century
when left-wing governments in Argentina, Brazil, Paraguay and Uruguay – the member
states of the Common Market of the South (Mercado Común del Sur – Mercosur) –
decided to deepen their collaboration and facilitate RVCs. Yet, it proved difficult to agree on
‘productive integration’, meaning the reorientation towards complementary rather than
competitive products and services (Porta, 2011). Rather than coordinating and dispersing
value-adding tasks across the region, Brazilian companies set up subsidiaries in the other
countries. These subsidiaries sourced, produced and sold in separate national markets. Brazil,
the region’s powerhouse in those days, also increased its exports of consumer goods to
Mercosur members, but it did not import more from them (Chen & De Lombaerde, 2011).
Today, integration appears to have been discredited, with deep fault lines between national
governments.
An open-minded assessment should allow for alternative conclusions that might ascribe
development through RVCs to more spontaneous processes. This should, of course, be an
outcome of empirical observation rather than an assumption. Instead of state-centric
approaches, the ‘flying geese model’ is based upon considerations of comparative advantage
that triggers RVCs. It explains latecomer industrialization as the outcome of human and
physical capital accumulation, which causes economies to diversify into more capital-intensive
industries, using increasingly productive techniques. The lead goose, Japan, transmitted this
pattern to its follower geese via value chain-oriented investment. Japan’s less productive
activity was transplanted to neighbouring countries in such a way as to strengthen their
comparative advantages. Production and trade expanded across the region, resulting in invest­
ment-led growth for the lead goose and its followers (Kojima, 2000).
Regardless of whether RVCs are facilitated by proactive governments or result from market
dynamics, our initial conclusions about Asia suggest that a prosperous regional hub is essential.
Unfortunately, there is no country in Africa and Latin America that compares with Japan (or,
more importantly today, China). Brazil is separated from its neighbours by geographical
barriers and by economic and political obstacles (Scholvin & Malamud, 2020). Post-
apartheid South Africa has made significant contributions to Africa’s development, but it
lacks substantial economic and political hegemony (Alden and Schoeman, 2015). What is
more, RVCs in Asia are the outcome of informal, bottom-up regionalization in the economic
sphere (Pempel, 2005). They reflect genuine competitive advantages, which are much less
pronounced elsewhere. Africa and Latin America are characterized more by formal, top-down
regionalism that rests upon intergovernmental organizations and whose success varies con­
siderably from one case to another.
Government action may also undermine RVCs. Hartzenberg and Kalenga (2015) point
out that most rules of origin in the Southern African Development Community and other
willingly reinforced non-tariff barriers aim to protect domestic industries from competition.
The above-mentioned engineering companies from Cape Town hardly ever relocate parts of

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their production to places elsewhere in Africa. Corruption and state inefficiency in hydro­
carbon-rich countries as well as restrictions on the repatriation of profits hamper RVC
formation in this particular case (Scholvin, 2020b). These observations suggest that govern­
ments in the South should focus in the first instance on ‘getting the institutions right’ – that is,
creating a conducive business environment – without which active industrial policies are bound
to fail.

FIRM UPGRADING AND MUTUALLY BENEFICIAL DEVELOPMENT

Companies that diversify their activities by supplying regional markets strengthen their
bargaining position vis-à-vis transnational corporations (Barrientos et al., 2016; Krishnan,
2018). Horner and Nadvi (2018) accordingly stress that firms in the South now have different
options for their business relations, not being limited to subordination to lead firms from the
North. World trade has become manifold and polycentric, with value chains oriented towards
distinct end markets. Morris et al. (2016) found that enterprises involved in regional networks
perform better than those that only rely upon GVCs. In other words, high resilience to
external shocks appears to result from diversification, not from replacing GVCs by RVCs.
With regard to firm upgrading, the state of the art provides contradictory answers. The
above-mentioned contributions by Horner (2014) and Lee et al. (2017) imply that value
chains that are not global may enable companies from the South to take high value-added
roles and become lead firms. Navas Alemán (2011) drew similar conclusions from her research
on the footwear and furniture industries in Brazil, as did Kadarusman and Nadvi (2013) for
Indonesian electronics and garment producers. Barrientos et al. (2016), meanwhile, concluded
that process and product upgrading in RVCs occurs at a slower and more varied pace than in
GVCs. Functional upgrading is limited to GVCs, at least for the suppliers of supermarkets
surveyed by these scholars. Keijser et al. (2021), who assessed South African IT firms, found
that learning effects in terms of quality standards are strongest in GVCs compared with
national value chains and RVCs. The process of upgrading is bound to differ from one
business sector to another, although further research is required to confirm this.
As noted, RVCs promise development outcomes that benefit the most advanced economy
and its neighbours. Black et al. (2021) add that regional sub-networks that feed into GVCs
imply economies of scale for all interlinked countries. If firms obtain inputs and sell products
in RVCs, regional markets for final and intermediate goods will expand, contributing to
growth throughout the region. In such cases, one might expect consumption, fiscal and
horizontal linkages to complement these production linkages, further boosting economic
dynamism.
Yet, this may be over-optimistic. The publications referred to above raise expectations
regarding the benefits of RVCs, despite scanty supporting evidence. South African super­
markets only source a small share of their merchandise locally. The bulk is imported from
South Africa, as local suppliers cannot meet the stringent demands for product quality and
quantity (Das Nair et al., 2018). As noted, the Mercosur countries have also failed to build
sophisticated RVCs, with market-seeking investment and trade in finished products dominat­
ing instead. This is not a new problem. In the 1950s and 1960s, the Economic Commission
for Latin America and the Caribbean advocated ‘developmental regionalism’ to provide ‘the
expanded markets and the increasingly efficient use of resources [in RVCs] necessary for the
accelerated economic growth of each [regional country]’ (Sloan, 1971, p. 142). Developmental
regionalism was expected to enable these countries to concentrate on specific segments of
RVCs, thereby raising competitiveness. A few years later, it was admitted that the geogra­
phical organization of RVCs often created winners and losers, leading to difficult bargaining
processes among governments.

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There is also ambiguity about whether proponents of RVCs really envisage widespread
benefits. The rhetoric of RVCs sometimes disguises the self-interest of advanced states in
exporting their products to the region, while keeping out competitors from elsewhere
(Scholvin, 2018). Similarly, the flying geese model has been criticized for serving Japanese
hegemony. It remains to be seen whether subordination to a regional hub in RVCs is any
different from subordination to a global hub in GVCs, and if governments of smaller states
should adopt a different bargaining position.

CONCLUSIONS

As Horner and Nadvi (2018) rightly point out, the world economy is undergoing considerable
change. Research on value chains should not focus exclusively on lead firms from the North.
RVCs – the backbone of Factory Asia and potential regional factories in Africa and Latin
America – appear to offer new pathways to development. Three issues are vital for follow-up
studies. First: Are regionally bounded value chains conducive to development or should the
South strive for regional sub-networks of GVCs? There appear to be marked differences
between these in terms of constraints and potential. Second: Is top-down regionalism that
protects regional markets and takes a proactive approach towards RVCs the best way to
proceed or should governments concentrate on creating a business environment that facilitates
bottom-up regionalization? The latter strategies reflect Asia’s experience, but the question of
whether Africa and Latin America can simply replicate this approach arises. The third topic
requiring investigation is the impact of RVCs upon firm upgrading and regional development.
Current knowledge is inconclusive. Concerns about hubs benefiting at the expense of spokes
appear justified.
Lastly, a timely research agenda on RVCs should go beyond traditional industries to
include digital and other technology-based branches (to support diversification and moder­
nization), the green economy (to facilitate adaptation to climate change and expand renewable
energy), and various service industries that increase the overall competitiveness of Southern
economies through better design, engineering, logistics and marketing.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the author(s).

NOTE

1. As an aside, the comments of anonymous reviewers suggest that researchers who focus on
Asia tend to think of RVCs as sub-networks of GVCs. Current debates on development in
Africa and Latin America, which have shaped our understanding of RVCs, are rather about
regionally bounded value chains.

ORCID
Sören Scholvin http://orcid.org/0000-0001-5911-2718
Ivan Turok http://orcid.org/0000-0001-5520-2492
Justin Visagie http://orcid.org/0000-0002-2526-231X
Javier Revilla Diez http://orcid.org/0000-0003-2065-1380

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184 Sören Scholvin et al.

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