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.
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
Research Objective and Themes
The primary objective of this thesis is to investigate how ICT manufacturing firms from emerging economies can successfully move up along the "Smiling Curve" to capture higher value, specifically by identifying common strategic patterns among successful companies.
- Theoretical analysis of Global Value Chain (GVC) upgrading, Industrial Organization (IO) theory, and Resource-Based View (RBV).
- Empirical case studies of Taiwanese ICT firms: Foxconn, Acer, and HTC.
- Investigation into functional upgrading strategies, moving from imitation to innovation.
- Exploration of market creation through new product standards and new market segments to avoid head-to-head competition with established industry leaders.
Excerpt from the Book
5.2 Functional Upgrading – from Imitation to Innovation
So far, the successful insertion into the GVC is seen as a result of “supply-side” development that intensely focuses on process and product upgrading. It is also acknowledged that the value-seeking incentives motive the firms to move further and approach functional upgrading. The underlying question is how a firm can achieve a successful upgrading on its value chain by acquiring new functions. It is obvious that they will need new sets of skills. The authors assume it is a process from imitation to innovation.
According to the resource-based theory, firms need certain resources or capabilities to gain and sustain the competitive advantages against the others. As for the latecomers, it will be natural to begin with some extent of imitation of the incumbent firms in these new areas. But on the other hand, the same theory also identifies the difficulty to imitate the true “core capabilities” as they are defined to be “inimitable”. Then, how can the latecomers do it?
One of the answers might be to start with easier things first. Yes, capabilities are usually embedded within the firms and thus hard to be imitated; however business models, company strategies, even some features of the products are protected by lower barriers. Many firms amend the ideas from their advanced rivals - often through adoption and minor modification, and offer less complex products to the lower end of the market. Moreover, accumulation of capabilities is time-consuming and can not be achieved without real business involvement, so to start with imitating the imitable could be a good approach for the beginners, although it is short-term oriented and can not last for long.
Being a copy cat means you always have to follow the others. It is not the ideal way to win the leading position as it is too difficult to succeed. This is the time that innovation steps in, which is the key factor to move up the value chain, and/or to stay at the high end of it.
Summary of Chapters
1. Introduction: This chapter provides the research background, defines the problem formulation regarding value appropriation in the ICT industry, and outlines the research purpose and scope.
2. Conceptual Framework: This chapter establishes the theoretical foundation by discussing Global Value Chain upgrading, Industrial Organization theory, and the Resource-Based View, culminating in an initial conceptual model.
3. Methodology: This chapter details the deductive research approach and the use of qualitative case studies for analyzing firm strategies within the ICT industry.
4. Empirical Evidence: This chapter presents the background and development trajectories of the three case companies: Foxconn, Acer, and HTC.
5. Analysis: This chapter applies theoretical concepts to the empirical evidence, exploring upgrading processes and proposing a revised conceptual model that includes a "Competitor Phase" and market creation strategies.
6. Conclusion: This chapter summarizes the study's findings regarding the move-up process and offers suggestions for future research in the field of value chain dynamics.
Keywords
Smiling Curve, Value Chain Upgrading, Product Innovation, Market Creation, ICT Industry, Foxconn, Acer, HTC, Resource-Based View, Industrial Organization, Functional Upgrading, Latecomer Firms, Global Value Chain, Competitive Advantage, Innovation Strategy.
Frequently Asked Questions
What is the core focus of this research?
The research examines how ICT manufacturing firms from emerging economies, which are often stuck at the low-value assembly stage, can strategically move up the "Smiling Curve" to capture higher value through functional upgrading and innovation.
What are the primary themes covered in the study?
The study covers the evolution of technological capabilities, the role of GVC integration, the transition from being a passive supplier to an active market competitor, and the importance of innovation and market creation strategies.
What is the main research objective?
The main objective is to determine if a "common pattern" exists among successful ICT firms from emerging economies that have effectively moved up the value chain, and to develop a conceptual model illustrating these strategic essentials.
Which scientific methods were employed?
The authors utilized a deductive research approach, performing qualitative case studies on three Taiwanese firms (Foxconn, Acer, and HTC) using secondary data such as official reports, academic literature, and news analyses.
What does the main body of the work analyze?
The main body evaluates how companies use process and product upgrading to enter global value chains, and how they subsequently engage in functional upgrading (from imitation to innovation) and market creation to bypass head-to-head competition.
What are the key terms that characterize this work?
Key terms include the Smiling Curve, GVC upgrading, functional upgrading, competitive advantage, market creation, lead users, and innovation strategies.
Why is Foxconn considered a "no-move-up" case in the study?
Foxconn is highlighted because, despite its massive scale and global market dominance in manufacturing, it has remained primarily an Original Equipment Manufacturer (OEM) focused on low-value-added assembly services, avoiding the strategic transition to branding or upstream R&D.
How does HTC's strategy differ from traditional latecomer paths?
Unlike traditional linear paths of technological acquisition, HTC skipped early OEM stages by leveraging partnerships with telecom operators and entering the market as an Original Design Manufacturer (ODM), subsequently focusing on high-end innovation and establishing its own brand.
What role does the "Smiling Curve" play in the authors' conceptual model?
The Smiling Curve serves as the primary visual framework for understanding value appropriation. The authors use it to map where firms are positioned and to show how moving toward the "high ends" (upstream R&D and downstream branding) is necessary for capturing more value.
- Quote paper
- Saif Islam (Author), 2011, Moving Up the Value Chain. How to make the Smiling Curve smile?, Munich, GRIN Verlag, https://www.grin.com/document/337697
