Vol. 6 Num. 1 - GCG: Revista de GlobalizaciÃ³n, Competitividad y ...

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Edy Wongindustry. Second, value chain leadership can be created by a firm’s ability to organize andcoordinate the existing supply chain in a way that creates new value for consumers, eitherthrough a rise in efficiency or a fall in production cost. Such leadership is best exemplified bycompanies like Walmart, Dell Computers, Proctor and Gamble, Unilever, and Toyota. In bothscenarios, the firms’ ability to create value through new products or new processes givesrise to a strong market position in their own industry. Their market dominance is the result oftheir ability to develop a brand identity that consumers can relate to, one that communicatesa certain unique and desirable quality to consumers. In turn, the resultant brand equity andloyalty lead to a high degree of market power that allows the firms to dominate a supplychain and become value chain leaders.151The above analysis suggests that upgrading China’s global value chain position outside ofproduct and process upgrading will take time. Developing brand equity in the global marketwill be challenging, and will require a skill set that Chinese firms have yet to demonstrate.Acquisition of foreign brand names and expertise will likely continue to play a major rolein China’s movement up the value chain in the near future. However, China’s move up thelearning curve is likely to accelerate as China exercises what Child and Rodriguez (2005)call the late-comers’ advantage. As late-comers in the international economy, Chinese firmsare now in a position to selectively acquire and invest in complementary assets and skillssuch as technology, brand knowledge, R&D capabilities, and internationally experiencedmanagement to address their value chain weaknesses. Lenovo’s acquisition of IBM andCheely’s acquisition of Volvo are examples of “complementarity”-driven investments.Nevertheless, the long-term success of this strategy must not be taken for granted.Much movement up the learning curve is still required of Chinese firms engaged in thisstrategy. Our analysis suggested that, to become global value chain leaders, Chinese firmsmust develop the value chain leadership skills and brand equity enjoyed by the current valuechain leaders. China must be able to duplicate the skills, knowledge, and expertise requiredfor value chain management and design. Chinese firms must develop the kind of capabilitiesthat companies like Walmart, Intel, and Toyota are known for. Given that global competition isnow between international value chains rather than individual firms, functional weaknesses atthe top end of any China-led value chain would represent a major obstacle for Chinese firms.The corollary to this observation is the question of where China might enjoy an advantageand not suffer a disadvantage in assuming the leadership of a value chain. In other words,how would Chinese firms develop the value chain leadership skills necessary to becomeglobal value chain leaders? The answer may lie with China’s domestic economy.6. Upgrade through the Domestic MarketMost discussions of China’s value chain strengths and weaknesses are undertaken in thecontext of the global value chain. However, given China’s expanding economy and itsgrowing impact on world trade, an analysis of China’s future value chain position is notcomplete without taking into account its domestic developments. Indeed, China’s pheno-GCG GEORGETOWN UNIVERSITY - UNIVERSIA ENERO-ABRIL 2012 VOL. 6 NUM. 1 ISSN: 1988-7116pp: 136-155
China’s Move up the Value Chain. A Framework for Analysis152menal economic growth in the past two decades has transformed it into one of the mostimportant consumer markets in the world. With most of the world mired in recession duringthe past two years, China has continued to expand and has emerged as a bright spot in theotherwise gloomy global economy. It is now the fastest growing market for Western brandedluxury products in the world. A side effect of the stimulus measures applied by China to protectits economy from the global downturn in 2008 has been a stronger domestic economy.It is this rising strength of the domestic economy that will have a strong impact on China’smove up the value chain.As indicators of the growth in China’s domestic market, the annual growth rates in China’sreal GDP and real per capita GDP are reported in Table 5. According to this Table, the averageannual real GDP growth in China between 1991 and 2010 is an impressive 10.27 percent.The real per capita GDP growth for the same period of time is 9.40 percent. Despite thecontinual income gap between China and the developed world, this uninterrupted economicgrowth has helped lay the foundation for an emerging consumer market in China.Table 5: Annual Rates OF Growth in Constant Prices, 1990 - 2009Year GDP Per Capita GDP Year GDP Per Capita GDP1991 9.2 7.7 2001 8.37.51992 14.2 12.8 2002 9.1 8.41993 14 12.7 2003 10 9.31994 13.1 11.8 2004 10.1 9.41995 10.9 9.7 2005 10.4 9.81996 10 8.9 2006 11.6 111997 9.3 8.2 2007 13 12.51998 7.8 6.8 2008 9 8.41999 7.6 6.7 2009* 9.1 9.92000 8.4 7.6 2010* 10.3 8.8Note: * denotes figures calculated from data reported in World Fact Book - CIA, 2010 and 2011.Sources: China Statistical Yearbook 2009 and World Fact Book - CIA, 2010 and 2011.The domestic market is important for China’s value chain upgrade in two respects. First,it can provide the proving ground for Chinese firms who wish to move up the global valuechain. The home market constitutes a familiar landscape free of the challenges associatedwith operating in a distant foreign market. Firms can develop their products and competitivenessin a more familiar environment at home before venturing abroad. Indeed, the homemarket can become a friendly battleground for Chinese firms to begin their challenge toforeign competitors. If they cannot compete with foreign companies at home, what are theirchances of success abroad? While this question is not merely rhetorical, the author recognizesthat consumer markets might be segmented in a way that Chinese consumers of Westerngoods may not be attracted to Chinese products in the near future due to the status thatGCG GEORGETOWN UNIVERSITY - UNIVERSIA ENERO-ABRIL 2012 VOL. 6 NUM. 1 ISSN: 1988-7116pp: 136-155
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CARTA DEL EDITOR IN CHIEFEditor in
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StaffDe la Torre, José, Dean, Chap
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Staff2. MULTINACIONALES, INVERSIÓN
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SELECCIÓN PROCEDURE PROCEDIMENTOIN
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Instrucciones para Autores y Proced
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INDEXACIÓN INDEXING INDEXAÇÃOInd
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Economic Relationships between Lati
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561. IntroductionClusters and indus
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Entrepreneurial Clusters in China a
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Page 154: Edy WongReferences155Child, J.; Rod
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