Chapter 5: Internalisation theory, global value chain theory and sustainability standards

To identify points of similarity and differences of emphasis between internalisation theory and global value chain (GVC) theory and to highlight how the latter’s particular approach is useful in analysing the impact of private sustainability standards.

Review of some key texts and reviews of internalisation theory combined with author’s reflections on GVC theory based on his contributions to its development.

GVC theory shares much common ground with the internalisation theory of international business, but their different starting points lead to different strengths and weaknesses. Internalisation theory is strong on the logic of decisions by transnational companies to internalise or externalise their activities. GVC theory is strongest in its consideration of how and why companies manage externalised activities in different ways, and its theory of network governance focuses on how governance challenges change in response to market requirements, shifts in the break point between enterprises, the role of codification in simplifying governance and the control of activities across multiple links in value chains. These factors explain how private and public–private standards in the field of sustainability are both a response to new external demands on value chains and, simultaneously, a means of reducing the complexity of governance challenges that such demands create.

Few attempts have been made to compare the two theories, and value chain theorists have not engaged with the international business literature. The chapter highlights the scope for a continuing and more systematic comparison of the two literatures.