Moving Up the Value Chain. How to make the Smiling Curve smile?

Table of Contents

1. Introduction
1.1 Background
1.2 Problem Formulation
1.3 Research Purpose
1.4 Research Scope and Delimitations
1.5 Thesis Deposition

2. Conceptual Framework
2.1 Global Value Chain (GVC) Upgrading Theory
2.2 Industrial Organization (IO) Theory
2.3 Resource-Based Theory
2.4 Conceptual Model

3. Methodology
3.1 Choice of Literature
3.2 Research Approach
3.3 Research Design
3.3.1 Research Process
3.3.2 Case Selection
3.3.3 Data Collection

4. Empirical Evidence
4.1 Foxconn
4.2 Acer
4.3 HTC
4.4 Summary of Case Companies

5. Analysis
5.1 Global Value Chain and Latecomer Upgrading
5.1.1 Is Upgrading an Incremental Process?
5.1.2 Acquiring Upgrading Know-How
5.2 Functional Upgrading – from Imitation to Innovation
5.2.1 Product and Process Innovation
5.2.2 Innovation Forecast
5.3 Market Creation
5.3.1 New Product Standards
5.3.2 New Market Segments
5.4 Revised Conceptual Model
5.5 Limitations of the Conceptual Model

6. Conclusion
6.1 Concluding Remarks
6.2 Contributions and Suggestions for Future Research

7. References

Abstract

The concept of Smiling Curve coined by Stan Shih, founder of Acer, shows the appropriable value added in different phases of an industry. Typically the part of a value chain that generates higher value proposition are controlled by firms from developed economies; while firms from developing world are 'stuck' at the manufacturing section with low value added. However, the unprecedented growth of ICT hardware market over the years has opened up possibilities for those latecomers to catch up. Although a handful firms have succeeded, little is known about how they managed to move up along the value chain. Trying to solve this mystery, a conceptual model is proposed based on case studies of ICT firms from an emerging economy, Taiwan. Knowing the difficulties for firms to survive head-to-head competitions that come along with the moving up activities, the model suggests that firms should look for new market opportunities by the means of functional upgrading and innovation, and eventually evolve into creating a new value chain with high end topped by themselves.

Keywords: Smiling Curve, value chain upgrading, product innovation, market creation

List of Abbreviations

illustration not visible in this excerpt

List of Exhibits

Figure 1. A simple value chain

Figure 2. Stan Shih’s Smiling Curve

Figure 3. Mudambi’s smile of value creation

Figure 4. Conceptual model of value chain movement

Figure 5. Applying the conceptual model over the Smiling Curve

Figure 6. The position of case companies on the Smiling Curve

Figure 7. Upgrading trajectory

Figure 8. Revised conceptual model of value chain movement

Figure 9. Applying revised conceptual model over the Smiling Curve

List of Tables

Table 1. Summarized facts of the case companies

Table 2. Some early-phase activities of Acer

Table 3. Selected R&D facilities of the case companies

Table 4. Gross profit comparison of key inputs in the Apple iPod and HP nc

1. Introduction

The opening chapter discloses the background information of the research which then leads to the research problem explicationand the research question. The purpose of the study as well as the scope and delimitations are also briefly outlined.

1.1 Background

Information Communication Technology (ICT)as a high growth markethas created unprecedented opportunities;particularly the ICT hardware market, which can be identified with computer hardware, peripherals and electronics,and most recently, the diffusion of mobile telecom and related technologies. Indeed, throughoutthe last twenty years from 1990 to 2010, worldwide mobile phone subscriptions havegrown from 12.4 million to over 4.6 billion(ITU, 2010; CBSNews, 2010), notablywith therecent intense growth of smartphones. In contrast, the global computer hardware market is forecasted to reach USD 511 billion in 2013, which will be an overall increase of 24.4% since 2008 (Datamonitor, 2009). ICT hardware manufacturing is one of the largest and fastest growing manufacturing industries in the world,in fact the share of which doubled during past two decades andreached almost one quarter of the world trade in manufactured goods(SOMO, 2005).

Certainly, the increasing global demand for ICT hardware is opening up possibilities for countries to capture a share in this global market pie. Italso exposes an opportunity for the latecomer manufacturing firms from emerging economies, which surged rapidly to “catch-up” with forerunners through leveraging their low-cost advantage(Mathews & Cho, 1999). In fact a significant presence of the latecomerICTfirmshas been witnessed;in some high-technology sectors such as telecomand semiconductors, latecomers are imposing substantial challenges to the precursors fromUS, Japan and Europe(Wu & Zhang, 2010). To take an example,today Taiwan, a representative of emerging economies, accounts for 65% of the world’s Electronics Manufacturing Services(EMS)^[1] business(ThomasWhite, 2011). A handful of Taiwanese firms, such as AsusTek, HTC and Foxconn, more than doubledtheir revenues over the last three to five years (ibid).Similarly Acer, the global PC giant originating from Taiwan, sets up a frontier example of latecomers by being one of the world’s largest suppliers of personal computers today. Butwhat have these firms done toachieve such competitiveness?

While the research and studies today highlight these success stories, the analysis of their development process is somewhat restricted. In other words, little is known about how thesefirms from emerging economiesare able to promote their technological capabilities, offer successful products and attain competiveness in their respective value chains. Existing studies often observed that latecomers’ development is a distinct process: unlike early movers, the latecomers are referred to be skipping certain stages of development or “leapfrogging” and devise their own paths of development (Hobday, Rush, & Bessant, 2004; Mathews & Cho, 1999). However this kind of conclusion is too broad and vague, thus further exploration is still required to unveil the true stories of their success.

1.2 Problem Formulation

Value configuration is a tool often used to gain insights into an industry and diagnose firm’s competitive advantages. Stabell & Fjeldstad(1998)identified three types ofmodels to createvalue: 1) the value chain that transforms inputs into product with a long-linked technology, 2) the value shop that resolves a particular customer problem by intensive technology, and 3) the value network that facilitatesdirect and indirect exchanges between customers using a mediating technology. While professional service firms and banks are typical examples of the value shop and value network respectively, the ICT (hardware) industry represents the concept of value chain quite well.

According to Kaplinsky(2000), value chain “describes the full range of activities which are required to bring a product or service from conception, through the intermediary phases of production, delivery to final consumers, and final disposal after use.” A simplified value chain of its most elementary form can be presented as Figure 1 although in reality it is much more complicated.

Figure 1 . A simple value chain

illustration not visible in this excerpt

Source: Kaplinsky, 2000

It is understandable that different sections of the same value chain may appropriate different added value. In this regard, in 1993, Stan Shih, the founder of Acer coined the idea of using a curve to show the appropriable value added of different sections of an industry, which he thought was determined by entry barrier and accumulation of capabilities - the higher an entry barrier and greater accumulation of capabilities, the more value added can be appropriated. The horizontal axis was made of component production, product assembly and distribution, corresponding with the upper, middle and down streams of the computer industry that Acer was competing in. Those different sections had high, low and high added value on the vertical axis respectively, thus bending the curve like a smile and hence got the name as the Smiling Curve (Figure 2) (Shih, 2005, pp. 213-215).

Figure 2 . Stan Shih’s Smiling Curve

illustration not visible in this excerpt

Source: Dedrick& Kraemer, 1998, p. 156

The idea has inspired not only the business society but also the academic world, being further developed by scholars. For example, Mudambi(2008) described the smile of value creation and argued that higher value is increasingly concentrated at the upstream end through activities such as R&D and design, as well as at the downstream end including marketing, branding and services. Meanwhile it generates lower value in the middle part of the value chain, which is mainly manufacturing and standardized services (Figure 3).As in most industries, the high value added activities (e.g. R&D, design) are largely controlled by firms from developed economies;however the “spillover” effect between them and the firms from emerging economies has given the lattera chance to “catch-up”.

Figure 3 .Mudambi’s smile of value creation

illustration not visible in this excerpt

Source: Mudambi, 2008

Yes, we have witnessed the rising of a handful ICT firms like Acer and HTC from emerging economies, but a very large proportion of the firms are still getting stuck in the low value added end of simple manufacturing and assembly. How did those successful ones manage to climb up? Are they only some special cases, or is there anything in common that can be learned by the others? This leads to the research question:

How can the ICT manufacturing firms from emerging economiesmove up along the Smiling Curve?

1.3 Research Purpose

The authors believe that certain circumstances must be fulfilled for a firm to move up the value chain. Although it may not be possible for all the firms to do so, there might be a “common pattern” behind the firms that have successfully moved up towards the higher end of the value chain. The purpose of the study is to find out whether this common pattern exists, and if yes, what does it look like?The authors are aiming at proposing a conceptual model of the essentials of the successful strategy examples, and hoping that the findings may help other firms to earn useful insights about how to achieve better value appropriation positions on their value chains.

1.4 Research Scope and Delimitations

The Smiling Curve is a beautiful concept created by Stan Shih. It is rooted in the computer industry, which can also be considered as a subbranch of the ICT industry. However, the shape of the value-added curves changes from time to time and differs from industries, e.g. the assembly of computers used to capture high value added, and the petrochemical industry even has a curve like a reversed smile (Shih, 2005, pp. 213-215).

As for this study, the authorslimit the scope within the ICT industry which is recognized as a representative of the value chain concept as well as the Smiling Curve. Moreover, with the purposeto find out the move-up process of the value chain, the authors natually focus on the firms from emerging economies, many of which have just experienced or are still experiencing this dramatic change of their business, no matter they succeed or not. For the same reason, the authors also narrowed the studywithin the process itself, in other words, what firms do to retaintheir postions on the value chain after they have moved up falls outside the research scope.

The authors assumethe Smiling Curve is factual when conducting this study, althoughbeing aware ofitas a controversial concept. Questions regarding the validity of the Smiling Curve and whether firms should (try to) move up also lie outside the present study. However, the authors will come back to these in the further research suggestions (Chapter 6.2).

1.5 Thesis Deposition

Whereas the introduction chapter briefly provides the background and objective of the study, the remainder of the thesis is composed as follows: Chapter 2 builds up a conceptual framework with several theories related to subject and proposes a conceptual model of value chain movement. Chapter 3 unveils the methodology the authors used to carry out the study and Chapter 4 represents the empirical evidences ofthree case companies that are from emerging economies. The authors then analyze those evidences within the umbrella of conceptual framework and finally come up with a revised conceptual model in Chapter 5. Last but not least, the conclusion of the study and further research suggestionsare drawn in Chapter 6.

2. Conceptual Framework

The purpose of the conceptualframework is to provide atheoretical umbrella of the concepts and hypothesis that will have impacts on the research being conducted. As for the study on the Smiling Curve, three main theories will be discussed with details in this chapter, and a conceptual model of the value chain move-up processis proposed thereafter.

2.1 Global Value Chain (GVC) Upgrading Theory

According to Humphrey (2004) , more and more new low-cost producers are entering the global markets to leverage the low-cost advantage, apparently making the market highly competitive for manufacturing industries. Thus pressure mounting for firms from developing countries to improve their performances as italso imposing challenges to attain and/or retain their competitiveness; such challenges require firms to respond while remaining competitive in the business.In that case, followed by the literature on competitiveness,Cattaneo, Gereffi, &Staritz (2010, p. 129) noted:“the most viable response is to ‘upgrade’: to make better products, make them more efficiently, or move into more skilled activities”; such view was also strongly urged byKaplinsky (2000) andHumprey (2004).

Similarly, Humphrey & Schmitz(2005) viewed that typically suppliers/producers fromdeveloping countries are expected to meet buyers’ requirementswhich extractthe demand from advanced markets. To be able to meet such demand often requiressupplier firms to add or develop skills. As a result, it enhances firms’ capabilities, which may also allow them to tap into new market niches (Cattaneo, Gereffi, & Staritz, 2010, pp. 128-129; Kaplinsky, 2000). These shifts in activities can be referred as upgrading, which is also argued to beparticularly significant for low-cost producersnew to the global market(Humphrey, 2004).

The GVC literature suggests that upgrading can be identified in a chain perspective as following: p rocess upgrading refers to transforming inputs into outputs more efficiently by reorganizing and/or introducing superior technology to the production system; product upgrading facilitates the firm moving into furthercomplicated product lines; f unctional upgrading aims at acquiring new functions (or abandoning existing functions) to increase the overall skill content of firm.This leads the firms to generate higher income and conversely, and “ceasefrom low-income activities”(Humphrey & Schmitz, 2000). It also indicates that firms may change their positions on the value chain, for example, moving from merely production to design or branding.

On the other hand, the GVC literaturesuggests that there are“inter-firm” linkages andthe knowledge required for upgradingactually flows throughout the value chain(Cattaneo, Gereffi, & Staritz, 2010). The role of powerful lead firms was particularly noted by Gereffi (1999) as these firms undertake the functional integration and coordination of their activities which are internationally dispersed along the value chain. For instance lead firms may engage into importing or sourcing raw materials, components or even finished products (e.g. ready-made garments) from different locations. At this premise,Humphrey & Schmitz (2005) argued that global value chain offers a possibility for local producers to learn a great deal from global buyers about how to improve their production processes, attain consistency and high quality whileminimizing lead-time. In addition, there is scope for product upgrading as Gereffi (1999) attributed this to “organizational succession” - a process by which manufacturers often start with producing simple, non-complex products (low valueadded)and then move to producingfurther complicated products allowing higher valueadded.

The chain perspective also emphasizes a further category as functional upgrading. As noted earlier value chain analysis is identified with production networksdispersed geographically. This also means firms and/or localities mayspecialize in a specific function or “a narrow range of activities”;particularly developing countries that seem to specialize in manufacturing activities, however, theyplay little role in product design, marketing or branding(Humphrey & Schmitz, 2005). Therefore, acquiring new functionsoffers anopportunity for these firms to generate higher income, which is potentially a crucial part of an upgrading strategy (ibid).

2.2 Industrial Organization (IO) Theory

Industrial organization concerns the mechanism of markets and industries, particularly the relationship between firms in a market and the linkages within the structure of its industry(Cabral, 2000, p. 3; Ferguson & Ferguson, 1994, pp. 2-3; Shy, 1995, pp. 3-7). The main reason for considering the IO theory is its emphasis on firms’ strategies that characterizestheirmarket interactions, such as price, competition, product development, advertising, entry barriers and etc.

Most economists often view the industrial organization referring to a framework known as the Structure-Conduct-Performance paradigm. Structure describes the composition of markets and industries in an economy; it can refer to the number and size of the distribution of firms in the economy as a whole and portray the environment(particular market) within which firms operate (Cabral, 2000, p. 3). Conduct refers to the behaviour or actions of firms -signify the decisions firms make in the market and the waysthose decisions are taken. For instance, how firms set prices and decide on R&D budgets, advertising andetc. are some attributes to firms’behaviour. Performance leads to the key question of whether or not firms’ operations “contribute to overall economic welfare”, which can be dealt with how well firms satisfy the consumers in a given period within an economy(Ferguson & Ferguson, 1994, p. 15).The sense of these terms within the paradigm carries significant meaning:it argues that performance is determined by the conduct of firms, whichis determined by the characteristics of the marketstructure(Cabral, 2000, p. 12). This linkage between structure, conduct and performance isendeavoured to fit in the structural characteristics of a marketsuch as the models of perfect competition or imperfect competition,monopoly and oligopoly.Such relatedness identified by the paradigm will certainly help to map out firms’behaviour within a particular market structure.

According to the IO theory, in a perfect competition model (numerous buyers & sellers) firms are engaged into fierce competition (e.g. price war), which leaves themunable to influence the price determined by the market thuslikely to gain only marginal profit in long term. Firms struggle with attaining as well as retaining competitive advantage in such condition where the market structure determines their performance. In contrast, this traditional premise of structure determining performance seems “unsound” according to a number of theorists and economists(Ferguson & Ferguson, 1994, pp. 17-19). Literature for “new industrial organization”, for example Tirole(1994)and others,stirred away from the prominence of structure, rather arguing conduct as the key element, which interactsboth structure and performance.

Concerning the conduct or firm’sbehaviour,Russo &Fouts(1997)claimed the resource-based view (RBV), which will be discussed later,grew out of a frustration with the Structure-Conduct-Performanceparadigm of the IO view. Referring to the work of Porter’s “Competitive Strategy” in 1980 and Bain’s “Industrial Organization” in 1959, theyargued the IO view - that a firm’s success is wholly determined by its external environment - to be unrealistically limited. To counter the IO view, theorists likePrahalad& Hamel(1990)and others built the RBV theory around the internal competencies offirms, which determines its competitiveness over others.

2.3 Resource-Based Theory

The resource-based theory, also known as RBV, deals with firm’s ability to deliver sustainable competitive advantage. According toWernerfelt(1984),the underlying principle of RBV implies the basis for competitive advantage of a firm“primarily lies in the application of bundle of valuable resources atthe firm’s disposal.”Based on Daft’s (1983) previous work, Barney(1991)defined firm resources as “all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness.”He argued that the heterogeneityand immobility of the resources madeit possible for a firm to obtainsustainable competitive advantage.

Amit&Schoemaker(1993) further distinguished the differences between resources and capabilities, as resources are tradable and non-specific to the firm while capabilities on the other hand are deeply embedded in the firms. Makadok(2001) defined capability as a special type of resource - an organizationally embedded non-transferable firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm. Thus there are two managerial mechanisms can be applied. The resource-picking mechanism asserts that firms create economic rent by being more effective than their rivals at selecting resources, while the capability-building mechanism emphasizes on being more effective at deploying resources.

Later, scholars added the organizational view into the resource-based theory. For instance, Barney further developed the 1991 VRIN framework to VRIO, arguing that Value, Rarity, Inimitability and Organization are the four criteria to examine the competitive potential of a firm’s resources, thus emphasizing more on the organization’s capability to support and deliver the exploitation of its valuable, rare and costly to imitate resources (Barney, 1991; Barney & Clark, 2007, pp. 69-72). Similarly, Teece et al. (1997)proposed dynamic capabilities, “the ability to integrate, build, and reconfigure internal and external competencies to address rapidly-changing environments.” By using this new term, they concentrated on organizational learning, firm’s ability to develop and leverage its strategic assets while being able to reconfigure its existing assets for transformation as a necessary component to respond the changing environment. As Barreto(2010) identified: “A dynamic capability is the firm’s potential to systematically solve problems, formed by its propensity to sense opportunities and threats, to make timely and market-oriented decisions, and to change its resource base.”

To sum up, the resource-based theory addresses the fi tness between ability and opportunity: what the firm is able to do and the opportunity it has to do, as Russo &Fouts(1997) argued that firm’s resources only become valuable under the conditions where the external factors meet firm’s internal capabilities. They quoted fromCollis & Montgomery (1995): “Resources cannot be evaluated in isolation, because their value is determined in the interplay with market forces. A resource that is valuable in a particular industry or at a particular time might fail to have the same value in a different industry or chronological context.”However, the weakness of the resource-based theory remains as little is considered how these resources and capabilities are developed, integrated or even employed within as well as outside the firm (Barreto, 2010).

2.4 Conceptual Model

In earlier sections several theories have been introduced, embarking upon global value chain network, market structure, firms’ performance, resources, capabilities and etc. Based on that, the authors intend to develop a conceptual model, which corresponds with those theoretical premises. Referring to the development of a conceptual model, Järvelin& Wilson (2003) noted that all research has an underlying model of the phenomena it investigates, regardless if that is tacitly assumed or explicitly, such model provides “a working strategy, a scheme containing general, major concepts and their interrelations.” In that case, acknowledging GVC as an underlying phenomenon, the following model (Figure 4) is proposed, trying to understand as well as explain firms’value chain move-up processin accordance to theories.

Figure 4 . Conceptual model of value chain movement

illustration not visible in this excerpt

Source: Authors

In the model, i nsertion refers to firms being in a certain GVC or an international production network where they may just produce a small part of the final products. However, insertion to such network or GVC carries intrinsic value for suppliers as it can open up further possibilities leading to upgrading (UNIDO, 2002). Humphrey(2004)argued that once entering into GVC there are technological learning effects that arises from supplier-buyer relationship, which promotes the upgrading. Firms from emerging markets enhance their production capability by upgrading their process technologies and etc, and later intend to produce advance or further complicated products, which can be captured mainly as process upgrading and product upgrading. They are capable to do those upgrading not only due to their intrinsic motivation such as improving the efficiency and being more profitable, but also due to the extrinsic pressure and requirements from their advanced customers by whom the possible knowledge sharing and transfer are “permitted”. However, they shall go no further.

According to Grant (1991), competitive advantage of a firm is determined by the firm’s capability or competency to utilize its assets to generate superior performance. With respect to the RBV, those resourcesor capabilities are described as valuable, rare and most importantly, inimitable. Thus if the firms from emerging markets want to further move up along the value chain, they will face huge challenges as they lack the capabilities to compete with the incumbent firms nor can they imitate those core competences. Moreover as indicated by the IO theory, firms in the perfect competition market cannot make any more money than necessary to cover its economic costs. The manufacture supplying market of ICT products is quite close to the perfect competition, thus those firms are struggling with low profit and facing difficulties to invest in alternative solutions. Last but not least, high entry barriers to the upstream and downstream also block the manufacturers’ presence there, as they are likely to lag behind in R&D competences, technical and market development skills, as well as distribution channels.

Figure 5 is endeavoured to apply the conceptual model over the Smiling Curve. The figure indicates there are strong incentives for firms to move towards the high end of the value chain since it offers further value appropriation potentials. It is true that insertion into the global network and deploymentof process and product upgrading can gain the latecomer firms some value added benefits,however, the authors argue that firms cannot move up further due to the inimitability of core resources required to catch up on high end of the value chain as well as the high entry barriers that exist.

Figure 5. Applying the conceptual model over the Smiling Curve

illustration not visible in this excerpt

Source: Authors

3. Methodology

This chapter provides the methodologies employed to carry out the research as well as some reasoning behind the authors’ choices. It covers the choice of literature, research approach, design and process, as well as the case selection and data collection.

3.1 Choice of Literature

Since the Smiling Curve is one way to illustrate the value chain and the purpose is to study firms’ movement along the curve, the authors first focus on the global value chain upgrading theory which provides the basic structure and perspectives of the research. The industrial organization theory and resource-based theory that emphasize the power of market structure and firms’ capabilities respectively are also included. Those three theories set up the main theoretical umbrella of the thesis.

3.2 Research Approach

In order to investigate the research question, a deductive approach is employed. This approach commences from a general theoretical understanding where the researcher derives (deduces) an expected proposition, which is then tested through observations and finally confirms the probable outcome (Babbie, 2010, pp. 48, 51). Correspondingly, in this research a conceptual framework provides the theoretical ground, based on which a conceptual model is developed and tested by empirical study, and finally leads to a revised model to corroborate the conclusion.

Moreover, the authors employ case studies during the empirical section. According to Yin(1994, p. 37), case studies are appropriate when it addresses questions such as “how” and “why” while it aims to observe a phenomenon within the“real-life” context. In addition, case studies allow researchers with opportunitiesnot only to challenge or confront models and theories,but also engage with authors’ own understandings and experiencesin order to “confirm, challenge or extend the theory” (ibid). Therefore, a case study approach appears to be appropriate for this research as it provides a practical platform of value chain movement conformed by companies.

3.3 Research Design

3.3.1 Research Process

The research begins with a conceptual framework providing the theoretical ground. The purpose of the conceptual framework is to identify and understand theories related to value chain movement as well as to gain a preconception on the research enquiries. Based on the issues identified with conceptual framework, the authors develop a conceptual model that aims to configure the value chain move-up process under the theoretical umbrella. In order to test and validate the proposed model, further observation is required which primarily calls for empirical study.

The empirical study is conducted through three cases related to value chain move-up process. After gathering the case data, the next step moves to the interaction and interpretation between the conceptual framework and empirical evidences. This allows the initial conceptual model to be confronted with reality.While proceeding, however, the authors find certain assumptions of the initial model are disconfirmed by empirical verification. It then leads to the redevelopmentof the conceptual model which describes the move-up process and finally findsconvergencesof the existing theories and cases.

3.3.2 Case Selection

There are a handful of ICT companies from emerging economies that have successfully moved up along the Smiling Curve, while a much larger proportion of them haven’t. The three case companies Foxconn, Acer and HTC that are chosen for this study all come from Taiwan. The case selection is made upon convenience sampling, by which “elements for the sample are selected for the convenience of the researcher” (Black, 2009, p. 224). This is due to the facts that 1) one of the authors is Chinese thus more familiar with the related business environment and also able to investigate more data that is written in case companies’ mother language apart from English; and 2) being a pillar industry of the Taiwan economy, the ICT industry has bred quite a number of successful companies that fit the study. Meanwhile, the authors are also aware that bias is introduced by using convenience sampling technique (Black, 2009, p. 226), however this is hard to avoid anyway considering the number of the possible case samples available and the scale of the study.

Among the three case companies, Foxconn is a typical example of no-move-up, as it has been an unknown manufacturer behind lots of famous brands and products for years. Only until recently its name became more familiar to the public due to the infamous employee suicide clusters (Branigan, 2010), which clearly is not the way that Foxconn had ever wished.

On the other hand, computer giant Acer has long time been recognized as a symbol of the latecomers that has successfully seized its position on the value chain high end, while HTC earned its reputation as a branded mobile phone supplier very recently. Both of the two companies have their own strategies to capture higher value added and the authors tend to search for the common essences among them.

3.3.3 Data Collection

The case studies are conducted based on secondary data by using company official websites,books, written cases, newspaper reports, journal articles and etc. This is due to the facts that 1) the top management who are capable / authorized to answer the strategic questions regarding value chain movement are extremely difficult to get contact for a deep interview; and 2) the behaviour and performance of the firms in the past years are quite easy to observe even as an outsider, since all of the three case companies are public listed.

4. Empirical Evidence

Three ICT firms from emerging economies are presented inthis chapter for in-depth empirical study. All from Taiwan, Foxconn, Acer and HTC are operating in the electronics manufacturing, computer and telecommunication business respectively. The discussion of each company proceeds as following: a company background presenting how they initiated their business, a description of their development over the years and lastly where they stand today. The chapter is then winded up by a brief summary of the case companies.

4.1 Foxconn

The low profile Hon Hai Precision Industry Company Ltd (thereafter as “Foxconn”), the anchor company of Foxconn Technology Group, is the world’s leading EMS provider. It offers joint-design, joint-development, manufacturing, assembly, and after-sales services to global computer, communication and consumer-electronics leaders (Foxconn, 2011).

Foxconn was founded by Terry Gou in Taiwan 1974 with USD 7,500, started as a manufacturer of plastic channel-changing knobs for black-and-white television sets. Foxconn entered the PC industry by producing connectors in the early 1980s and by 1985 it has established the US branch and introduced its own brand “Foxconn”. The company set up its first factory in Mainland China in 1988 to take advantage of the cheap labour and land rental cost, where its major production sites now locate (Dean, 2007; Foxconn, 2011; ifeng, 2010).

Foxconn expanded extremely fast in the 1990s with the growth of the PC industry and the prevailing of Internet. As a result, it was listed on the Business Week IT 100 in 1998 for the first time and two years later reached the revenue of USD 3 billion. Foxconn went through a series of merge and acquisitions during the 2000s. It became world’s largest EMS provider in 2004 with the revenue of USD 17.2 billion, later also as world's largest handset and digital still camera manufacturing services provider. In 2010 it was listed No. 122 of the Fortune Global 500. Nowadays with over 700,000 employees worldwide, Foxconn is listed in Taiwan, London, Hong Kong and NASDAQ stock markets together with some of its subsidiaries(Fortune, 2010; Foxconn, 2011; Hon Hai, 2010).

Foxconn’s current products include PC components and connectors under its own Foxconn brand which may somehow help to lower the OEM production cost, but the majority of its production capability is to provide EMS to customers, including Hewlett-Packard, Dell, Sony, Nokia, Motorola, Nintendo, and most notably Apple(Dean, 2007). With the boost of Apple iPhone and iPad, Foxconn is predicted to take half of the global EMS market in 2011 (Dinges, 2010). However, the fast growing market share and revenue (CAGR>50%) do not guarantee higher profit, its gross profit in 2010 further decreased to 8.1% from 9.5% the year before (Foxconn, 2011; Liao, 2011; TWSE, 2011).

In fact, although Foxconn is focusing on fields of nanotechnology, wireless connectivity, material sciences, and has set up several R&D centres around the world(Foxconn, 2011); it is still mainly operating in the low valueadded manufacturingactivities and fights for larger economies of scale, particularly compared with Apple which is known for strong control of the value chain. For example, Foxconn’s estimated revenue of assembling one iPad 32G CDMA version is merely USD 10, which accounts only 3% of Apple’ total manufacturing cost (USD 333) and 1.4% of the retail price (USD 729) (Rassweiler, 2011). With its continuously large investment of the production facilities in China, we see no signal that Foxconn is going to change the strategy and move towards higher valueadded activities in the near future.

4.2 Acer

Acer is a Taiwan-based multinational enterprise engaged in research, design, manufacture and distribution of computers, peripherals, media electronics and related IT products. Its product range includes desktop PC, notebook computers, mainframe servers, high-definition televisions (HDTVs), liquid crystal display (LCD) monitors, projectors, handheld &navigational devices, and most recently smartphones. Acer is headquartered in Taiwan and has a global workforce of 8,000 employees (Acer, 2011a).

The company was established in 1976 as Multitech International Corporation. Founded by Stan Shih, his wife and a group of friends, it began with only eleven employees and a capital of USD 25,000. Initially, Multitech was primarily a distributor of electronic components until offered its first PC in 1981. In 1982, the company introduced a Chinese home computer for the Taiwanese market. It started to manufacture IBM-compatible PCsthe same year while in 1984 introduced its own IBM-compatible PC. The company changed its name to Acer in 1987 and went public on the Taiwan stock marketnext year.

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^[1] EMS refers to providing design and manufactureservices of electronic components and assemblies for OEMs.