How global value chains are reshaping jobs in South Africa

Integration with global value chains can be critical to the manufacturing industries of developing countries. But what impact do those connections have on employment? By studying South Africa Gideon Ndubuisi and Solomon Owusu find that that the employment benefits depend less on whether firms enter global markets and more on whether they can survive, upgrade, diversify and expand after entry. Global value chains (GVCs) have transformed how production is organised worldwide. Products are increasingly produced through networks that span multiple countries, with firms specialising in different stages of production. A vehicle assembled in South Africa may include components, technologies and inputs sourced from multiple countries. Participation in these networks has become an important pathway for firms in developing economies to access larger markets, improve productivity and upgrade production capabilities. Yet South Africa’s experience highlights that integration into GVCs does not automatically translate into broad-based employment growth. Despite expanding trade and greater integration into global production networks, unemployment in South Africa remains stubbornly high, reaching 32.7 per cent in the first quarter of 2026. While some firms have expanded and become more competitive internationally, others have reduced employment or exited markets due to intense competitive pressures. The question is therefore not simply whether GVC participation “creates jobs”, but how participation reshapes employment within and between firms. This is the central issue examined in our research. We examine 18,704 formal manufacturing firms across 23 industries. The sample includes firms producing food and beverages, textiles and clothing, chemicals, pharmaceuticals, metals, machinery, electrical equipment, motor vehicles and transport equipment, among others. Their exposure to GVCs differs considerably. Around 48 per cent of firms in tobacco manufacturing were classified as GVC participants using our principal measure. Participation was also above 30 per cent in pharmaceuticals, chemicals, computer and electronic products, electrical equipment, machinery, motor vehicles and other transport equipment. By contrast, fewer than 10 per cent of firms producing wood products were similarly integrated. Findings from our empirical analysis show that the relationship between GVC participation and employment is more complex than the simple expectation that globalisation creates or destroys jobs. GVCs participation reshapes firms, reorganises production and may accelerate job creation and destruction. The key policy question is therefore not whether GVCs create jobs, but how participation in global production networks changes employment dynamics within firms. The role of global value chains on employment GVC participation can generate employment through several channels. A firm confined to South Africa’s domestic market can grow only as rapidly as local demand allows. Entry into international production networks gives that firm access to international markets. The firm may then expand production and hire additional workers. GVC participation can also increase productivity by improving access to foreign technologies, inputs, managerial practices and knowledge. Higher productivity can allow firms to reduce costs, compete more effectively and expand output. When increased productivity leads to higher production levels, firms may create jobs through a scale effect. However, productivity improvements can also reduce labour demand. Firms can achieve greater efficiency by adopting labour-saving technologies or reorganising production. GVC participation can contribute to manufacturing productivity growth without generating proportional employment gains. This reflects a broader trend identified in the literature – a manufacturing puzzle where manufacturing in many developing countries, especially in Africa, has become less capable of absorbing large numbers of workers despite continued productivity improvements. The employment effects of GVC participation therefore depend on whether firms can expand production sufficiently to offset labour displacement caused by technological upgrading and organizational restructuring. The hidden churn behind South Africa’s employment growth Findings from our research show that GVC participation in South Africa is associated with significantly higher job reallocation among firms. GVC firms experience both greater job creation and destruction compared with non-GVC firms. On average, however, job creation exceeds job destruction among GVC firms, resulting in a net employment gain in the sample of firms studied. This demonstrates that global integration can support employment growth. But the aggregate numbers conceal substantial labour market reorganisation. This process reflects the competitive dynamics of global markets. International integration allows more productive firms to expand while placing pressure on less competitive firms to exit. Such reallocation can improve overall productivity by shifting resources toward more efficient producers. However, the adjustment costs for workers can be significant. Workers displaced from declining firms may face difficulties finding comparable employment due to time lags in reskilling, labour market regulations, location barriers and available opportunities. Which firms create jobs? Firm dynamics are central to understanding the employment effects of GVC participation. In our study, we show that job creation in GVCs is driven predominantly by firm entry. Firms entering GVCs experience substantial job creation largely due to the advantages of newness. Conversely, firms exiting GVCs experience significant job losses. Losing export markets or international production linkages can lead firms to reduce production, close operations or cut employment. These effects can also extend to domestic suppliers that depend on internationally connected firms. A more unexpected finding is that firms that remain continuously engaged in GVCs experience net employment losses. For these firms, we find that job destruction exceeds job creation. This suggests that long-term participation in global markets involves continuous competitive pressure. Firms must constantly improve efficiency, reduce costs, adopt new technologies and reorganise production to maintain their position within global networks. Consequently, firms may become more productive and competitive while employing fewer workers. This does not imply that technological upgrading and productivity improvements are undesirable and should be resisted as without them, firms risk losing international markets altogether. Rather, it highlights the importance of policies that help firms expand into new activities and markets so that productivity gains translate into employment growth. The role of size and age as determining factors The employment effects of GVC participation differ substantially across firms. In our study, we show that younger and smaller firms account for much of the positive employment gains associated with GVC participation in South Africa. This finding challenges the assumption that large, established firms are always the main drivers of job creation in global production networks. Large firms often possess stronger capabilities, are more productive and have international connections. But they may also rely more heavily on labour-saving technologies to remain competitive. Reimagining global integration for jobs The evidence suggests that the employment benefits of GVC participation depend less on whether firms enter global markets and more on whether they can survive, upgrade, diversify and expand after entry. Policies focused only on increasing the number of firms connected to GVCs are unlikely to generate sustained employment gains. Instead, policymakers should focus on strengthening firms’ ability to compete over time. This includes supporting technological upgrading, improving access to skills and finance, strengthening local supplier capabilities and helping firms move into higher-value activities. The findings also highlight the importance of labour market policies that help workers manage adjustment. Since GVC participation generates job reallocation, policies that reduce the social cost of displacement are essential for ensuring that the gains from global integration are broadly shared. Ultimately, successful GVC integration should not be measured only by export volumes or the number of firms connected to international markets. The more important question is whether participation enables firms to continuously create better employment opportunities. This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment. Image credit: Wesley Poon provided by Shutterstock.