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What is the scope for local upgrading strategies where producers operate in global value chains? The recent literature on industrial clusters is optimistic about the possibility of fostering competitiveness through local governance. The value chain literature, in contrast, emphasises that global buyers govern the chains in which export oriented clusters operate. This paper examines the interaction of global chain governance and local cluster governance. For both researchers and policy makers, the key question is whether insertion in global value chains enhances or undermines local upgrading strategies. The main purpose of this paper is to unpackage this issue. In order to do so, it distinguishes between different kinds of chain governance and examines why they arise. It also distinguishes between different types of upgrading. On the basis of these distinctions, the paper shows that certain types of chain governance favour some forms of upgrading but not others. Operating in quasi hierarchical global chains helps local producers to embark on rapid product and process upgrading, but makes it difficult to progress into the design and marketing functions of the chain.