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This commentary examines the gap between the political promises attached to the European Chips Act and what the resulting investments can realistically deliver. Since 2022, the Act has subsidized 18 semiconductor investments worth €36 billion, justified repeatedly in terms of supply security, resilience, technological sovereignty, and autonomy. Yet most support has gone to front-end manufacturing, while Europe remains highly dependent on non-European capabilities in back-end production, equipment, materials, and design. Drawing on the structure of semiconductor global production networks, the article argues that additional production capacity in Europe can strengthen industrial capabilities and Europe’s position in the global industry but cannot by itself create secure or autonomous European semiconductor supply chains. This does not imply that semiconductor subsidies are necessarily misguided; rather, they should be assessed against more realistic objectives. Recent policy debate has begun to place greater emphasis on “strategic indispensability,” but the Chips Act 2.0 proposal largely adds this concept to the existing vocabulary of sovereignty, resilience, dependency reduction, and security of supply instead of replacing it.
Bridging the literatures on regional industrial path development and global production networks, this article examines the conditions under which regional industrial path extension based on structural coupling can generate sustained positive development outcomes. Drawing on a case study of Malaysia’s semiconductor industry (1971–2025), with the state of Penang at its centre, the analysis combines export and foreign direct investment data with 22 semi-structured interviews. Contrary to expectations of path exhaustion and decoupling, Malaysia’s experience shows that prolonged positive development outcomes can occur based on repeated multinational reinvestment, driven by industry dynamism (motivation to invest) and by facilitative policy and cumulative cluster effects reinforcing a competitive cost-capability ratio (location choice). While recent geoeconomic tensions have intensified investment inflows, standard global production network drivers remain decisive, highlighting the need to contextualise geoeconomics within broader production network dynamics.
The transition from internal combustion engines to electric vehicles is fundamentally reshaping innovation and value capture across the global automotive industry, with European automakers and suppliers falling behind East Asian competitors dominating battery chemistry innovation, cell manufacturing, and process innovation in precision manufacturing. This report examines the emerging European battery supply chain based on interviews with East Asian and European battery firms, policymakers, and industry experts. We find that a battery supply chain is taking shape in Europe, but it is overwhelmingly dominated by East Asian firms investing in Central Eastern Europe. South Korean cell makers pioneered European production in the mid-2010s, producing in Poland and Hungary to supply German premium automakers. Since 2023, Chinese battery firms and their material suppliers have also been expanding into Europe, pushed by price wars eroding margins in the Chinese domestic market and pulled by European carmakers’ reliance on Chinese batteries. Hungary is emerging as a key hub for Chinese investment, alongside major investments by Chinese firms in Spain. In parallel, a Northern and Western European battery supply chain, driven by European battery startups and supported by government industrial policies began to take shape in the late 2010s, but has not yet materialized. Many of the announced investments by European startups in Northern and Western Europe were recently downscaled or cancelled, and some European battery startups went bankrupt. Thus far, no European-owned battery producer has caught up on knowledge and manufacturing capabilities with the East Asian battery producers and achieved competitive production yields at scale.
For the first time in over two decades, semiconductor firms have significantly increased their manufacturing investments in Germany between 2021 and 2023. We argue three interconnecting factors have influenced these firm strategies in what we call the ‘post-2020 context’: heightened risks of supply chain disruptions, geopolitical trade tension, and state subsidies. Conceptually, we integrate these factors into the global production network 2.0 framework by discussing how risks and the de-risking state interact with the market imperative and cost–capability ratio dynamics to influence firm strategies. Drawing on interviews with semiconductor firms, we discuss the interaction between positive market dynamics for automotive semiconductors, customer concerns for supply chain resilience related to environmental risk, the effect of heightened geopolitical risk mainly concerning China, and European Union subsidy schemes which reduced Germany’s cost disadvantage. We show how these varied interactions drove unprecedented semiconductor investment in Germany.
This article examines how Chinese firms BYD and CATL achieved technological catch-up and became global leaders in electric vehicles and EV batteries, disrupting the automotive industry. The global value chain (GVC) and global production network (GPN) approaches struggle to explain how latecomer firms not only join global networks but also transform into lead firms themselves. The article addresses this gap by integrating insights from the economics of innovation literature and putting firm-level technological effort at the centre of analysis. It develops and applies a technological catch-up matrix that captures firm-level effort across five dimensions: proprietary knowledge, organizational capabilities, capital investment, market demand, and local supporting nexus. The article finds that BYD and CATL’s success is based on their early investments in lithium-ion battery technology for EVs beginning in the mid-2000s, preceding and actively shaping government industrial policies rather than merely responding to them. Both firms leveraged existing capabilities from China’s consumer electronics battery sector while building automotive-specific knowledge and capabilities through strategic partnerships with incumbents and recruitment of foreign expertise. The article’s comparative analysis of BYD and CATL with other Chinese EV and EV battery firms demonstrates that while government industrial policies were necessary, firm-level technological effort was equally crucial for achieving market leadership. The article contributes to understanding latecomer industrialization by showing how firms escape subordinated positions in global production networks through systematic technological effort, challenging explanations that attribute China’s EV success exclusively to government intervention.
A central feature of industrial policy today is governments’ growing willingness to direct economic activity into strategic sectors. However, identifying which sectors or technologies are strategic is not trivial, and little is known about how this is actually done. In this article, we introduce and conceptualize the notion of state capacity for strategic identification (SCSI), comprising internal capacity (to gather and validate information) and external capacity (to build consensus and coordinate around strategic priorities). We examine how SCSI has developed in the EU based on the need to identify strategic sectors for Important Projects of Common European Interest, one of the flagship initiatives of the EU’s new industrial policy. We analyze the evolution of SCSI from ad-hoc processes (2014) through the Strategic Forum (2018–2020) to the Joint European Forum (2023–present). Based on primary documents and original interviews, we document a process of policy learning where policy failures led to the gradual institutionalization of SCSI. We find that the Joint European Forum represents substantial external SCSI through institutionalized coordination and maintaining industry connections while avoiding capture, whereas internal SCSI remains more limited due to a lack of systematic integration of technical expertise.
This article examines the varying outcomes of countries participating in the automotive global value chain (GVC), focusing on Thailand, South Africa, and Argentina. While all three countries had similar starting points in the 1990s, Thailand outperformed the others by achieving greater scale in vehicle production, leading to significant local economic benefits, such as trade surpluses, expanded supply chains, and the localization of R&D activities. The paper introduces the concept of the ‘adding-up problem’ in automotive GVC participation, where lead firms centralize production and R&D to maximize economies of scale, leaving competing countries with limited production volumes and weaker local supply chains. Based on more than 100 semi-structured interviews, along with industry statistics, this study compares the automotive industries of the three countries, focusing on their competition in medium-sized pickup truck production. The paper contributes to GVC literature by refining the understanding of zero-sum dynamics in global production. We demonstrate that countries’ success is constrained by the relational nature of GVC competition, but show that the automotive GVC nonetheless offers substantial economic development benefits for participating countries. Thailand’s superior performance is explained through serendipitous factors like income level and location, as well as first-mover advantages due to strategic industrial policies.
Overcapacities, particularly from China, are perceived as a threat to European manufacturers, distorting competition and straining bilateral trade. On the basis of a dynamic definition of ‘industrial overcapacity’, this study identifies overcapacities for most industrial sectors in China. Absorption occurs primarily through inventory accumulation, while six sectors with rising export-to-revenue ratios account for the large increase in China’s exports to the EU. At the same time, case studies of semiconductors, electric vehicles and batteries, hydrogen, and robotics show that concrete risks from overcapacity for manufacturing in the EU are sector-specific and partly mitigated by value-chain dynamics and technological leadership. In China, overcapacities — discussed as ‘involution’ — are perceived as an unwelcome outcome of industrial policies and an obstacle to the high-priority objectives of technological upgrading and self-sufficiency. As the effectiveness of Chinese policies to reduce overcapacities remains uncertain, competitive pressures upon European companies are likely to persist or intensify. This highlights the need for context-specific EU policy responses, including the full use of traditional trade defence as well as other EU instruments. Policy space provided by WTO law should be tested, renewed efforts for a targeted reform of WTO rules be made, while cooperative efforts with China should be maintained.
The special issue asks whether developing countries can leverage the transition to renewables capitalism to escape their peripheral status in the global economy. This contribution focuses on how capitalism, and thus also renewables capitalism, creates windows of opportunity during periods of disruptive technological change and how latecomer countries can exploit these windows for technological catch-up; it suggests possible pathways out of the periphery that have been downplayed or overlooked in the development studies literature. The authors argue that successfully leveraging windows of opportunity requires three interconnected dynamics: (1) local firms must access and assimilate foreign knowledge through transnational networks; (2) firms must use this knowledge base for innovation while securing adequate market demand and financing to scale production and reduce costs; and (3) governments must provide strategic support through targeted industrial policies. The article makes a novel contribution to the debate on technological catch-up in development studies by demonstrating that all three dynamics are not only important but necessary for technological catch-up. It illustrates this argument through two industry case studies from the more distant past (South Korea and Taiwan in semiconductors) and the more recent past (China in electric vehicles). Its insights can inform strategies regarding the windows of opportunity related to green decarbonization technologies which will inevitably arise under renewables capitalism.
Radical changes in the technologies of existing industries linked to the green transition create windows of opportunity for African countries to strategically link up to these technological developments and use them to catalyse economic development on the continent. The chapter explains the green and sustainability shifts occurring in three manufacturing sectors—textile and apparel, automobiles, and green hydrogen and related applications—and examines the opportunities that they provide and how African countries can take advantage of them. Moving to the technological frontier in these industries requires that African governments leverage foreign knowledge and incentivize foreign direct investment but also support local firms to use the presence of foreign firms to enter global value chains, build their capabilities, and generate scale economies.
With the global return of industrial policy, most literature examines why states increasingly resort to market activism. Much less is known about how industrial policy works “on the ground.” In this paper, we address this how-question through an in-depth case study of the poster child of the EU’s new industrial policy: the Important Projects of Common European Interest (IPCEI). We argue that while the literature has rightly pointed out that attaching conditionalities to public money is key to steering markets effectively and equitably, conditionalities also come with costs. Moreover, they are not the reflection of policy design principles but reflect political, institutional, and ideational constraints that shape which and how conditionalities are applied. We show how the constrained politics of EU industrial policy have shaped both the creation and application of the conditionalities that govern IPCEIs, and how this has led to costs in the form of perverse outcomes, adverse selection, and workarounds.
Incumbent advantages have prevented most latecomer firms from being successful in the automotive industry. The industry to this day is dominated by the first mover firms from North America and the fast followers from Western Europe and Japan. Many developing and emerging countries have significant automotive industries, but they are dominated by these incumbent foreign firms. Some of them have tried to prop up indigenous carmakers, but largely failed. In those few cases where firms managed to pursue some degree of catch-up with the US first mover automotive firms, government industrial policy played an important role, but this paper argues that the developmental state framework, emphasizing industrial policy, is insufficient in explaining catch-up by automotive firms. It presents what we call the Barriers to Entry approach, which focuses on the barriers to entry that latecomer firms face when trying to catch up in a given industry. These barriers to entry are constituted by the advantages of incumbent firms with accumulated knowledge, capabilities and a supporting nexus. The paper demonstrates these advantages but also how some firms successfully overcame them through firm cases in Japan, South Korea and China. It highlights the striking parallels between these cases and summarizes them in terms of our barriers to entry categories: closing the knowledge gap, closing the capabilities gap, building a supporting nexus, and commercializing new technologies. The evolutionary economics literature on latecomer catch-up has emphasized the importance of firm-level efforts in technological capability building as opposed to passively expecting technology transfer through foreign direct investment. Our Barriers to Entry approach builds on but extends this literature by specifying the nature of capabilities that latecomer firms needed to build in the automotive industry as well as the origins of their absorptive capacity (prior knowledge and intensity of effort) that drove them to indigenize automotive technology (scientific and tacit knowledge). In this context, we stress the importance of migratory knowledge through transnational networks as well as of role models for both industrial policymaking and firm strategies. The opportunities afforded to latecomer firms depend on the situation in a global industry at a certain moment in time, which is conditioned by foreign firms’ business strategies and incumbent countries’ government policies.
The shift to electric mobility is driving disruptive transformations in the automotive sector worldwide. It poses significant but different opportunities and challenges to incumbents and latecomers at both the firm and country levels. China’s green industrial policy has facilitated its rapid catching up and even leapfrogging in some domains of electromobility. This article asks whether the exploitation of this window of opportunity can be replicated in other latecomer countries. Accordingly, it provides a comparative analysis of the automotive green window of opportunity in Brazil, India, and South Africa, three emerging economies with long established but structurally different automotive industries. To do so, it examines domestic preconditions, policy and enterprise responses, and preliminary industrial development outcomes. Although all the three countries face constraints in replicating China’s relative success, the article shows how green opportunities and threats are unequally divided between the three countries.
This article assesses the impact of the COVID-19 pandemic, the war in Ukraine and geopolitics on geographies of production. Criticizing simplified perspectives on globalized versus intraregional production, we stress the multi-scalarity, the role of industrial policies and sector-specific path dependencies in shaping global production. Based on expert interviews and policy and industry documents, our analysis focuses on the automotive, clothing, and electronics industries. Although concerns for resilience increasingly shape lead firms’ strategies, increased regionalization of production through re- or near-shoring is only one of several strategies. Where it does occur, it has been driven by state policies that tackle certain strategically important products, not production networks as a whole. Hence, while recent events exposed the vulnerabilities of global production, we do not observe deglobalization in the sense of a comprehensive retreat from globalized in favor of intraregional production. Nonetheless, state interventions that are geopolitically motivated and affect firms’ investment decisions have intensified particularly in the United States and the European Union.
International trade in the 21st century operates through global value chains (GVCs). There is a growing literature on how the emergence of GVCs has changed the playing field for catch-up industrialization of developing countries. Inter-industry linkages have historically been a central aspect of catch-up industrialization. How such linkages on the country level are affected by the reality that trade is conducted via GVCs is an important research question. This paper synthesizes the theoretical elaborations on inter-industry linkages from the classic development economics literature with secondary empirical data from the East Asian industrialization experience to illustrate the importance of inter-industry linkages for the industrialization process. Using primary data from the South African automotive industry, the paper shows how the dynamics of the automotive GVC have affected domestic inter-industry linkage building in the country. The backward linkages to the domestic component manufacturing industry and to the domestic materials industries from South Africa’s successful integration into the automotive GVC have been disappointing. Both local policy decisions as well as GVC-specific dynamics of follow sourcing and the proliferation of manufacturing technologies and material standards have undermined more substantial backward linkages from exports of automobiles.
This article aims to contribute to the theoretical debate on GVCs-driven industrialisation in emerging economies and to the South African policy debate by closely investigating the local manufacturing base in the South African auto industry and the prospects for its further expansion. For this purpose, it builds on more than 50 semi-structured interviews, conducted throughout 2021 with assemblers, large multinational component firms with subsidiaries in South Africa, local component manufacturers, policymakers and industry experts. The paper argues that only by combining an understanding of lead firms' sourcing strategies and local component suppliers' perspectives, an assessment of obstacles and opportunities for localisation is possible. In this regard, the paper provides an in-depth analysis of sourcing strategies of the assemblers and multinational component firms and a comprehensive picture of structural, policy-related, market-dependent, and capability-related issues that local component suppliers face with regards to deepening local value addition.
In the 21st century, international trade in manufactured goods in the 21st century operates through global value chains (GVCs). This doctoral thesis investigates whether this fact has changed the playing field for catch-up industrialization, and what limitations and opportunities it provides for developing countries integrating with GVCs. It does so mainly through an analysis of the automotive GVC, relying on both secondary data for a broad set of emerging economies and on primary empirical data from the South African automotive industry, which has successfully integrated itself with the automotive GVC over the last thirty years. The thesis puts forward a holistic theoretical understanding of catch-up industrialization. Combining this theoretical understanding with a deep appreciation of GVCs provides a strong analytical framework for analyzing catch-up industrialization attempts and achievements in the 21st century. This combination of three strands in the literature – the classical development economics perspective, the evolutionary innovation and technology perspective, and the GVC perspective – is novel and is capable of resolving the shortcomings of analytical frameworks that only use one or two of these perspectives.
The international debate on the governance of global value chains (GVCs) is dominated by the efficiency logics of the participating firms and the proposals of voluntary or mandatory due diligence regulations. The Research Network Sustainable Global Supply Chains held a conference on “Human Rights and Environmental Due Diligence in Global Value Chains: Perspectives from the Global South” in Berlin, Germany, in order to hear the perspectives and experiences from the Global South regarding due diligence in GVCs. This working paper recaps the discussions from the conference and embeds them in the wider scientific debate on the role and impact of due diligence legislation in GVCs.
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