Upgrading and technical efficiency in Kenyan garment firms: does insertion in global value chains matter?

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Date
2009-11-12Author
Kamau, Paul K
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
In value chains discourse, a widely held proposition is that industrial upgrading (a rapid build up
of industrial production capabilities) in developing countries occurs mostly when local producers
participate in global value chains (GVCs). It is argued that insertion in GVC is a vital step for
industrial upgrading because it puts local firms on a potentially dynamic learning curve. This
study explores the validity of this argument by using Kenyan garment data to examine the
upgrading potential of firms operating not only within GVC, but also within domestic and
regional value chains. To investigate these issues, this thesis combines quantitative and
qualitative methods to conduct a systematic comparison of the different types of value chains and
corresponding types of upgrading in the garment industry. Data used in this study was collected
in 2006 from forty-four (44) medium- and large-scale garment manufacturing firms in Kenya.
The survey was supplemented by ten (lO) case studies and 15 key-informant interviews.
The garment industry in Kenya has been earmarked for industrial development due to several
factors that differentiate it from Kenya' other manufacturing sectors. Unlike traditional
agricultural commodities, the garment industry has potential for diversification into export
categories with greater value addition. The industry also plays a critical role in employment
creation, particularly for low skilled workers, has low capital outlay, and integrates the country
into the global trade arena of manufactures.
The main finding of this study is that the upgrading potential for firms operating in a value chain
is dependent on the nature of governance in that chain. Furthermore, because of the governance
in GVC, quasi hierarchical, garment firms in GVC experience extensive process and product
upgrading but little functional upgrading. In contrast, functional upgrading for firms operating in
market-based chains is high and process and product upgrading moderate. Thus, the findings do
not support the widely held perception that upgrading occurs mainly to firms inserted in GVc.
Moreover, firms that simultaneously participate in domestic and export (tmulii-chain) value
chains demonstrate higher potential upgrading than those specializing in a single value chain. In
this case, firms use knowledge and experience gained in the domestic market to launch their own
brands in the export market.
In addition, the technical efficiency of this industry was estimated using the stochastic frontier
analysis (SFA). The SFA results reveal that garment manufacturing firms in Kenya are technically
efficient with a mean score of 83 per cent. Moreover, 'export' and 'firm size' variables have a
positive and statistically significant effect on technical efficiency in the garment industry. More
importantly, firms in multiple value chains have a higher technical efficiency score than the
average score for the entire industry. This finding appears to be consistent with the leaning-by exporting
hypothesis.
Drawing from these findings, the study concludes that the future of the garment industry in Kenya
lies in the hands of 'locally owned' firms which depend on market-based trajectories to upgrade.
These firms, as our findings suggest should be encouraged to increase their participation in the
export markets using their own branded garments. The importance of functional upgrading
supported by branding, marketing and design provide firms with strategic options that decrease
vulnerability associated in global value chains.
Citation
Kamau, P. K(2009). Upgrading and technical efficiency in Kenyan garment firms: does insertion in global value chains matter?Sponsorhip
University of NairobiPublisher
Institute of Development Studies, University of Nairobi
Description
Phd- Thesis