Several Modes of Digitalization of Value Chains and Implications for Entrepreneurship: The Case of the Apparel Industry

In this paper, we examine how digitalization affects global value chain. By using empirical evidence at firm level, the paper analyzes the process of the value chain digitalization in the apparel industry. We find that the digitalization of value chains usually originates in downstream stages where platforms emerge and disrupt traditional retailers. Traditional distributional channels such as department stores and mass merchandise stores are replaced by online marketplaces and E-commerce platforms. This type of value chain digitalization, or E-commerce, may be called platform digitalization. In this mode, manufacturers still own design and make production decisions, but the products are digitally distributed through E-commerce platforms, thus bypassing traditional methods of distribution such as department stores and mass merchandise stores. In other words, the value chain is flattened, allowing customers to purchase apparel products at their homes with a few clicks. This transformation of GVC digitalization may have opposite implications for the SMEs and startup manufacturers. On the positive side, the platforms lower customer acquisition cost and results in a higher level of labor productivity. On the negative side, firms have to pay a significant amount of platform provider fees to platform owners. Further, there could be asymmetric impacts on SMEs/startups and old/incumbent firms since the latter face a trade-off between revenue/customer growth and profitability. Alternatively, a full range mode of digitalization is also possible and observed. This mode involves the rise of platform owners who are also brand managers and designers. Here platforms are trying to go beyond the primary role of a two-sided marketplace to penetrate deeper into higher value-added stages of designs and/or brands. The consequent emergence of new hybrid firms has sizable economic consequences.