SME upgrading in emerging market clusters: The case of Taiwan’s bicycle industry

Existing arguments on the economic upgrading of small and medium-sized enterprises (SMEs) in emerging markets emphasise the role of multinational enterprises (MNEs) from developed markets in providing the necessary new knowledge based on a top-down logic. Adopting the Taiwanese bicycle industry cluster as a case study, we investigate alternative factors influencing the upgrading of SMEs in emerging markets through vertical and horizontal relationships within global value chains and clusters. The findings show that knowledge exchange and collaboration via horizontal, trust-based linkages between SMEs within a cluster and the development of formal and informal institutions by leading local MNEs are crucial for the upgrading of locally clustered SMEs. We provide typologies for vertical and horizontal interfirm linkages and show how the combination of linkages affects the upgrading of these emerging market SMEs. Our typologies can assist practitioners with identifying options for successful upgrading through strategic engagement and development in interfirm relationships.