global value chains and local outcomes -...

GlobalValueChainsandLocalOutcomes

RamMudambiFrankM.SpeakmanProfessorofStrategy

FoxSchoolofBusinessTempleUniversity,Philadelphia,USARotaryClubofBlueBellMeeHng

Mudambi,BlueBellRotaryMeeHng,2015 1

Thethreemegatrends•  TheshiMfrom“trade-in-goods”to“trade-in-acHviHes”–  Fine-slicingofglobalvaluechains(GVCs)

•  RapidmigraHonofvaluefromtangiblestoknowledge-intensiveintangibles–  Specialized,non-repeHHveprocesses–  AchangeinthenatureofinnovaHon

•  Fromlab-based“highscience”tosoMer,design-driveninnovaHon

•  Theriseofemergingmarkets,China,India– NewmarketscapableofsupporHngglobalfirms

3© Mudambi, 2015 Mudambi,BlueBellRotaryMeeHng,2015 3

FirmsandlocaHons–Yesterday•  FirmsandlocaHonsusedtobeHghtlyinter-connected–  Pi[sburgh–steel;Detroit–automobiles;Hollywood–movies;London–banking;Milan–fashion

•  LocaHonsidenHfiedwiththeir“driver”industries–  Firmsemployedthefullrangeoflocallabor–  Freeridingoflowskilllaboronhighskilllabor

•  EnHrevaluechainwasanchoredingeographicspace–  TradebetweenlocaHons(countries)arelargelyingoods.

•  “What’sgoodforGMisgoodforAmerica”(CharlesErwinWilson,GMpresident,1953)


GlobalValueChains•  Today,theacHviHesassociatedwitheventhesimplestproductslikeT-shirtsspanalargenumberofcountries.

•  GVCsareubiquitouswithinindustriesrangingfromapparelandshoes,toelectronics,pharmaceuHcalsandcommercialaircraM.GVCsaremadeupofmobilefactors(firms–MNEs)andimmobilefactors(locaHons)

•  ThedisaggregaHonofGVCsacrossgeographicspace–istherootdriverofoffshoring


Firmsvs.locaHons–today•  GVCsconsistoftwocomponents–firmsandlocaHons

•  Firms(MNEs)aremobileandflexible–  ImprovingtechnologyincreasesthemobilityANDflexibilityoffirms

–  DisaggregaHonofthevaluechainintoevermorespecializedacHviHes–“fineslicing” (Mudambi,2008)

–  TradeinacHviHesor“tasks”ratherthangoods•  LocaHonsareimmobile

–  FirmsusehighskilllaborinhighwagelocaHonsandlowskilllaborinlowskilllocaHons

6Mudambi,BlueBellRotaryMeeHng,2015


ValuechaindisaggregaHon–theBoeing787program

8

Basic and applied R&D, Design,

Commercialization

Marketing, Advertising and brand management, Specialized logistics, After-sales services

Inputs Markets

Value Added

R&D Knowledge

Marketing Knowledge

VALUE CHAIN DISAGGREGATION

Location 1 Location 4 Location 5

ThesmileofvaluecreaHon

Location 2

Manufacturing, Standardized

services

Location 3


IntangiblesSpecialized(non-repe66ve)

TangiblesStandardized(repe66ve)

TheversionfromtheOECD


VALUE CHAIN DISAGGREGATION

R&D Knowledge

Marketing Knowledge

APPLE (US) Marketing,

Brand management After-sales services

APPLE (US) Basic and applied

R&D, Product Design, Commercialization

Inputs Markets

Value Added

Location 1

Location 5

Location 1

ThesmileofvaluecreaHoniPhone

Location 3

Assembly - standardized Foxconn (Taiwan)

Hon Hai Precision Industry (Taiwan)

Location 4

Parts – touchscreen Balda (Germany)

Advertising TBWA/Chiat/Day (US) Parts - chips

Samsung (Korea) NXP Semiconductor (The Netherlands)

Chip Design ARM Holdings (The UK)

Location 2

Mudambi,BlueBellRotaryMeeHng,2015

3%

36-55%36-55%

35%

24%

28%

*FromMudambi,JrlEconGeog,2008

10

1

Twotypesofmobilefirms•  TwotypesoffirmscapturethebulkofallvaluecreatedinGVCs

•  Orchestrators,e.g.,Apple,Boeing– configuretheGVC:(a)theydecidewhatacHviHesareundertaken,bywhom,andwhere;(b)capturethegreatestshareofGVC-createdvalue.

•  Specializers,e.g.,Eaton,TRW– firmswithintheinnovaHvenetworkoftheorchestratorcancapturevaluebasedontheimportanceoftheiracHvityrelaHvetotherelevantGVC


The‘flowersandbees’model

•  OrchestraHngMNEs(bees)chooselocaHons.•  LocaHonsmustofferresourcespools,asenhancedbypolicyiniHaHves,determinesthea[racHvenessoflocaHons(flowers).

•  ButlocaHonsmustbeconnectedtoglobalnetworks,otherwisetheywillbeflowersthat“blushunseen,Andwaste(their)sweetnessonthedesertair”(Grey,1751).


FlowersandbeesCo-dependence,co-evolu6on


Loca6onscompetewithoneanothertoa=ractMNEs

LOCTATIONS MNEFIRMS

MNEscompetewithoneanothertoobtain

resourcesandmarkets

GloballydispersedR&D*


*Hannigan&Mudambi,HarvardBusinessReview,2015

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SanJose LosAngeles SanFrancisco BostonNewYork Chicago Philadelphia MinneapolisDetroit Sea[le Houston SanDiegoDallas AusHn Washington

ConnecHvitytrends%InternaHonallyConnectedPatents


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SanJose LosAngeles SanFrancisco BostonNewYork Chicago Philadelphia MinneapolisDetroit Sea[le Houston SanDiegoDallas AusHn Washington

ConnecHvitytrendsCountryDispersionIndex


Why?

•  ThedisaggregaHonofglobalvaluechains(GVCs)overgeographicspace– HighknowledgeacHviHesinhighskilllocaHons– LowknowledgeacHviHesinlowwagelocaHons

•  ReducedimportanceofagglomeraHon–itisnolongerimportanttobebig(abigcity,abigcountry)

•  GreaterimportanceofconnecHvity

FallingspaHaltransacHoncosts

©Mudambi,Temple,2015

17 17Mudambi,BlueBellRotaryMeeHng,2015

Thechangingnatureofcommercialknowledge

•  Lab-basedR&DsupportedthecreaHonofcommercialknowledgefromthelate19thcenturytothemid-20thcentury

•  Fromthelate1960sonwards,therewasagradualriseofnewsuperstructureontopofscience-basedknowledgeknowledge

•  ThiswasthedesignrevoluHon


ThedesignrevoluHon

•  Amassiveconvergenceofdifferentdesigndomainsincluding–  industrialdesign–  fashion– userexperience(UX)– differentdomainsofengineeringincludingmechanical,material,electrical,andsoMware

toformanewfoundaHonofnewproductdevelopment.


DesigninnovaHon

•  DesignisoneoftheupstreamendoftheinnovaHonvaluechain(Mudambi,2008).

•  IncompeHHveglobalmarket,asahighestlevelofinnovaHon,designcompetencebecomesmuchmoreimportantthanever.

•  Weobserveanincreasingshareofdesignpatentsproducedbyfirmsinallindustries.


Thevalueofdesign*


4

DMI/Motiv Strategies What is the Real Value of Design?

© 2014 The Design Management Institute and Motiv Strategies

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

S&P

DESIGN INDEX

Dec 1

3Jun

13De

c 12

Jun 12

Dec 1

1Jun

11De

c 10

Jun 10

Dec 0

9Jun

09De

c 08

Jun 08

Dec 0

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07De

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Dec 0

3Jun

03

$39,922

$17,522

+228%

Figure 2

A $10,000 investment in our index of diverse design-centric companies would have yielded returns 228% greater than the same investment in the S&P over the same period of time.

that in many cases had not previously even met. This is a critical byproduct of the top design-driven companies and a key value-added secret that best-practice companies in the Design Value Index share.

Disney is one company that has built a successful business ecosystem around delighting customers. In particular, its park and resorts unit—which includes iconic attractions Disneyland and Disney World—has gained attention by pioneering the field of experience design. Disney’s Imagineers, the creative force responsible for creating and developing its entertainment venues, include illustrators,

architects, engineers, choreographers, lighting designers, show writers, graphic designers, and many more who are tasked with “making the magic.” Every aspect of a customer’s visit is thoughtfully designed to delight. Cast members (employees) are even trained on how to treat guests (customers) to the smallest details—for example, how to smile and wave. The intangible elements of the experience haven’t been

ignored, either: the ambient sounds along walking paths and the scent of cookies that wafts through the park help immerse visitors in a fantasyland determined to deliver on its promise of being “the happiest place on earth.”

Its investments seem to be paying off. The park and resorts division has posted the fastest revenue growth of any of the company’s five business units in the past year.5

5. RETHINKING STRATEGYRecently, design thinking has become popular with organizations that face murky, complex issues that are hard to solve using traditional business best practices. By employing such design tools as empathy, creativity, and rationality, organizations are able to reframe problems in ways that forge new pathways toward innovative solutions. In other words, designers don’t create solutions until they have determined the root issue, and even then, they pause first to consider the whole range of potential solutions.

IBM is working design thinking into its practices to build a new way of creating solutions for its customers. In addition to heavily recruiting designers and design experts, the technology giant recently launched an initiative to send product teams to Designcamp, a one-week design-thinking training camp at a brand-new studio in Austin, Texas, that was built for this purpose. Product managers, developers, and

Great design helps make products and services more aesthetically pleasing, more compelling to use, and more relevant in a world that seems to change at an ever-increasing pace.

*Rae, Design Mgmt Rev., 24(4), 2014

The15companiesintheDesignIndex:Apple,Coca-Cola,Ford,Herman-Miller,IBM,Intuit,Newell-Rubbermaid,Nike,Procter&Gamble,Starbucks,Starwood,Steelcase,Target,WaltDisney,andWhirlpool.

21

ConHnuedgrowthindesignpatentsacrosscountries

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1986 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

#ofpaten

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ApplicaHonYear

Australia Brazil CanadaSwitzerland China GermanyDenmark France UnitedKingdomHongKong India JapanKorea Turkey TaiwanUnitedStatesofAmerica


TheU.S.

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#ofdesignpatents

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ConHnuedgrowthindesignpatentsinALLU.S.states

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1986 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

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CALIFORNIA DISTRICT_OF_COLUMBIA FLORIDAGEORGIA ILLINOIS INDIANAKANSAS MASSACHUSETTS MARYLAND


Pennsylvania

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Takeaways

•  Knowledge-intensiveacHviHes,mainlyinnovaHon,isthekeytolocalvaluecreaHon

•  TheseacHviHesareincreasinglybasedonconnecHvitytootherglobalcentersofexcellence

•  ThenatureofcommercialknowledgeischangingtowardssoMer,design-drivenprocesses


The roots of New Eartha

•  WomennowearnthemajorityofallcollegedegreesintheWest–  Surpassedmeninbachelors’degrees(1996)andmasters’degrees(2011)

–  Recessionsinthe21stcenturyhavebeencalled“male-cessions”-mostjoblossesare‘strongback’malejobs

•  Modernscienceandknowledgeworkisincreasinglyfeminized–  Itemphasizes“female”qualiHesofcooperaHonratherthan“male”qualiHesofcompeHHon


Number of women per 100 men U.S. data

100

110

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170

Associate's Bachelor's Master's Doctoral

2023

2013


Imagineering The Zon Sisterhood

•  IfpresenttrendsconHnue,injustacenturywomenwillbecomedominant

•  Imaginethat22ndcenturysociety,aMerstrugglingwithsocializingundereducated,violentmales,eventuallydecidesthatmalesareunnecessary– AspredictedbyBryanSykesofOxfordUniversity

•  ThisistheZonSisterhood–thesubjectofmynovel,underthepennameRMBurgess.


©RamMudambi,2013

“A tale of epic fantasy that is rooted in

timeless conflicts.”Fantasy.com

Available in print as well as e-book format from Amazon

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- Matthew Keith Reviews

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ART: BORIS VALLEJO AKHILA KRISHNAN

Philadelphia Author

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