Profiting from Product Innovation: A Product Life Analysis of the Economic Geography of Value Added

Abstract

This paper explores the role of product innovation in creating and capturing value added throughout the manufacturing and service life of a product. We explore the empirical roots of the concept of profiting from product innovation in the industrial and commercial machinery and equipment industry, offer a global value chain analysis of how an EU-27 headquartered firm has employed an effective business model for capturing value added from product innovation. In essence, we analyze how organizational and financial architectures reflect the realization of economic value in product innovations in the context of contemporary globalization. We present two different value creation and capture patterns for the same product innovation; one process describes the case of manufacturing, and one describes the case of services. We then show how these two different patterns of value creation and capture are reflected in different supply chain participants and national geographies. The key insights of this paper are twofold. First, we find that the concept of profiting from product innovation is significant at both the firm and nationwide levels. Second, we observe the disaggregation of the value chain of product innovation into two separate value chains: manufacturing and servitization. This observation provides novel insights into the governance of global value chains.