New Europe College Regional Program Yearbook 2001-2002

N.E.C. Yearbook 2001-2002
uses innovation as one of the features of industrial upgrading, whereas
Kaplinsky and Readman (2001) try to distinguish industrial upgrading
from innovation. According to them, innovation is the development of
new products/processes or improvement of existing products by the firms
compared to their previous position, whereas upgrading is how fast the
firm reacts to its changing environment in comparison to its rivals. This
definition brings in dynamics analysis to the industrial upgrading concept,
which I try to grasp through dynamic capabilities (internal to the firm)
and networks (external to the firm).
Kaplinsky and Readman (2001) have worked on industrial upgrading
at the firm level (at small and medium-sized enterprise [SME] level) and
associated it with the value chain concept. 3 They distinguish four types
of upgrading:
• Process upgrading: increasing the efficiency of internal processes
such that these are significantly better than those of the rivals,
both within individual links in the chain (for example, increased
inventory turns, lower scrap), and between the links in the chain
(for example, more frequent, smaller and on-time deliveries from
suppliers).
• Product upgrading: introducing new products or improving old
products faster than rivals to reap a market advantage. This involves
changing new product development processes both within
individual links in the value chain and in the relationship between
different chain links.
• Functional upgrading: increasing value added by changing the
mix of activities conducted within the firm (for example, taking
responsibility for, or outsourcing accounting, logistics and quality
functions) or moving the locus of activities to different links in the
value chain (for example, from manufacturing to design).
• Chain upgrading: moving to a new value chain (for example,
Taiwanese firms moved from the manufacture of transistor radios
to calculators, to TVs, to computer monitors, to laptops and now to
WAP phones).
They have suggested that ‘standards’ 4 have become crucial parameters
determining the upgrading of process or product or both, due to their role
as qualifying requirements for participation in global product markets
and value chains. For this reason, upgrading follows a logical path, starting
with process upgrading to decrease costs and improve quality. On this
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