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Value Capture in the Global Electronics Industry: Empirical Evidence for the “Smiling Curve” Concept

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  • Namchul Shin
  • Kenneth L. Kraemer
  • Jason Dedrick

Abstract

This research asks who captures the greatest value in the global electronics industry by testing the concept of the “smiling curve”, which predicts that the greatest value is captured by upstream and downstream firms, and the lowest value is captured in the middle of the value chain. We test the concept using the Electronic Business 300 data-set for 2000--2005. We find that lead firms and component suppliers earn higher gross margins and net margins compared to contract manufacturers. However, the differences are minimal for return on assets (ROA) and return on equity (ROE). We also find that active component suppliers gain higher profits than passive component suppliers. These findings suggest that the smiling curve is right if value is defined in terms of gross margins, but the cost of sustaining a position on either end of the curve is so high that returns on investment are similar across the curve.

Suggested Citation

  • Namchul Shin & Kenneth L. Kraemer & Jason Dedrick, 2012. "Value Capture in the Global Electronics Industry: Empirical Evidence for the “Smiling Curve” Concept," Industry and Innovation, Taylor & Francis Journals, vol. 19(2), pages 89-107, February.
  • Handle: RePEc:taf:indinn:v:19:y:2012:i:2:p:89-107
    DOI: 10.1080/13662716.2012.650883
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    References listed on IDEAS

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    Cited by:

    1. Sakshi AGGARWAL, 2017. "Smile curve and its linkages with global value chains," Journal of Economics Bibliography, KSP Journals, vol. 4(3), pages 278-286, September.
    2. Sharma, Revti Raman & Nguyen, Thao Kim & Crick, Dave, 2018. "Exploitation Strategy and Performance of Contract Manufacturing Exporters: The Mediating Roles of Exploration Strategy and Marketing Capability," Journal of International Management, Elsevier, vol. 24(3), pages 271-283.
    3. Bo Meng & Ming Ye & Shang‐Jin Wei, 2020. "Measuring Smile Curves in Global Value Chains," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(5), pages 988-1016, October.
    4. Filippo Bontadini & Rinaldo Evangelista & Valentina Meliciani & Maria Savona, 2019. "Integration in Global Value Chains and Employment in Europe," SPRU Working Paper Series 2019-16, SPRU - Science Policy Research Unit, University of Sussex Business School.
    5. Namchul Shin & Kenneth L. Kraemer & Jason Dedrick, 2017. "R&D and firm performance in the semiconductor industry," Industry and Innovation, Taylor & Francis Journals, vol. 24(3), pages 280-297, April.
    6. Ito, Tadashi & Vézina, Pierre-Louis, 2016. "Production fragmentation, upstreamness, and value added: Evidence from Factory Asia 1990–2005," Journal of the Japanese and International Economies, Elsevier, vol. 42(C), pages 1-9.
    7. Zhang, Fang & Gallagher, Kelly Sims, 2016. "Innovation and technology transfer through global value chains: Evidence from China's PV industry," Energy Policy, Elsevier, vol. 94(C), pages 191-203.
    8. Jona-Lasinio, Cecilia & Manzocchi, Stefano & Meliciani, Valentina, 2019. "Knowledge based capital and value creation in global supply chains," Technological Forecasting and Social Change, Elsevier, vol. 148(C).
    9. Wen Chen & Reitze Gouma & Bart Los & Marcel P. Timmer, 2017. "Measuring the income to intangibles in goods production: a global value chain approach," WIPO Economic Research Working Papers 36, World Intellectual Property Organization - Economics and Statistics Division.
    10. Prema-chandra Athukorala & Peter B. Dixon & Maureen T. Rimmer, 2017. "Global Supply Chains: towards a CGE analysis," Centre of Policy Studies/IMPACT Centre Working Papers g-281, Victoria University, Centre of Policy Studies/IMPACT Centre.
    11. ye, ming, 2016. "Trace the goods and value-added route in exports," MPRA Paper 73476, University Library of Munich, Germany.
    12. Sun, Yutao & Grimes, Seamus, 2016. "China’s increasing participation in ICT’s global value chain: A firm level analysis," Telecommunications Policy, Elsevier, vol. 40(2), pages 210-224.
    13. Cecilia Jona-Lasinio & Valentina Meliciana, 2019. "Global Value Chains and Productivity Growth: Does Intangible Capital Matter?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 36, pages 53-78, Spring.
    14. Cecilia Jona Lasinio & Stefano Manzocchi & Valentina Meliciani, 2017. "Knowledge Based Capital and Value Creation in Global Supply Chains," Working Papers LuissLab 17134, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    15. Peter B. Dixon & Maureen Rimmer, 2019. "Integrating a Global Supply Chain Model With a Computable General Equilibrium Model," Centre of Policy Studies/IMPACT Centre Working Papers g-292, Victoria University, Centre of Policy Studies/IMPACT Centre.
    16. Kevin C Cheng & Sidra Rehman & Dulani Seneviratne & Shiny Zhang, 2015. "Reaping the Benefits from Global Value Chains," IMF Working Papers 2015/204, International Monetary Fund.
    17. Liu, Jicheng & Lin, Xiangmin, 2019. "Empirical analysis and strategy suggestions on the value-added capacity of photovoltaic industry value chain in China," Energy, Elsevier, vol. 180(C), pages 356-366.
    18. Huangnan (Jim) Shen, 2020. "Profit Sharing, Industrial Upgrading, and Global Supply Chains: Theory and Evidence," CID Working Papers 123a, Center for International Development at Harvard University.
    19. Emanuela Todeva & Ruslan Rakhmatullin, 2016. "Global Value Chains Mapping: Methodology and Cases for Policy Makers. Thematic Work on Value Chain Mapping in the Context of Smart Specialisation," JRC Working Papers JRC102803, Joint Research Centre (Seville site).
    20. Jim H. Shen & Leilei Shen & Jun Zhang, 2018. "Endowment Structure, Industry dynamics and Vertical Production Structure in China-Theory and Evidence," Working Papers 215, Department of Economics, SOAS, University of London, UK.
    21. Yoshimichi Murakami & Keijiro Otsuka, 2017. "A Review of the Literature on Productivity Impacts of Global Value Chains and Foreign Direct Investment: Towards an Integrated Approach," Discussion Paper Series DP2017-19, Research Institute for Economics & Business Administration, Kobe University, revised Aug 2019.
    22. Simon Bösenberg & Peter H. Egger & Valeria Merlo & Georg Wamser, 2018. "Measuring The Interdependence Of Multinational Firms' Foreign Investments," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1064-1088, April.
    23. Prema‐chandra Athukorala & Peter B. Dixon & Maureen T. Rimmer, 2018. "Global Supply Chains: Towards A Computable General Equilibrium Analysis," Economic Papers, The Economic Society of Australia, vol. 37(3), pages 198-219, September.
    24. Tong Zhao & Zhijie Song & Tianjiao Li, 2018. "Effect of innovation capacity, production capacity and vertical specialization on innovation performance in China's electronic manufacturing: Analysis from the supply and demand sides," PLOS ONE, Public Library of Science, vol. 13(7), pages 1-23, July.

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