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Who Profits from Innovation in Global Value Chains? A Study of the iPod and Notebook PCs

Dedrick, Jason and Kraemer, Kenneth L. and Linden, Greg (2008) Who Profits from Innovation in Global Value Chains? A Study of the iPod and Notebook PCs. [Industry Studies Working Paper:2008-15]



In an era when new ideas are brought to the market by global value networks of specialists rather than by one company, a key question is who captures the most value from innovation in such a structure, and why? This paper addresses the question of who benefits from innovation in global value chains by looking at specific computer and electronics products. We apply a novel industry studies methodology for measuring the distribution of financial value across the supply chains for two models from Apple’s iPod family and notebook PC models from Lenovo and Hewlett-Packard (HP). These are all examples of globally innovated products, combining technologies from the U.S., Japan, and other countries, and assembled in China. Our analysis shows that the gross margins of Apple for its high-end iPod products are generally higher than those earned by HP and Lenovo for notebook PCs, although not so high as to be considered “supernormal.” A key reason for the difference is that Apple’s control of the core software, proprietary standards and complementary infrastructure of the iPod enables it to retain greater profits, whereas a large share of the PC industry profits are siphoned off to Microsoft and Intel who control key technical standards. Consistent with Teece (1986), our results confirm the importance of stages of technical evolution, appropriability regimes and complementary assets as determinants of profiting from innovation. On the other hand we find that manufacturing has become commoditized and is no longer a key to profiting from innovation in final electronic products. Also, contrary to recent suggestions in the literature, we find no evidence of a causal link between product and industry architectures. Instead, there is a vast electronics “industry architecture” that can easily support product-level value chain configurations ranging from modular to integrated.

Industry Studies Series #:2008-15
Item Type:Industry Studies Working Paper
Uncontrolled Keywords:industry studies, industry studies working paper, industry studies association, industry studies research
ID Code:97
Deposited By:Mr Robin Peterson
Deposited On:23 Feb 2010 14:46
Last Modified:07 Jun 2010 10:44

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