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Monday, February 28, 2011

Mobile communications trends: The emergence of global value chain networks (GVCN)

The mobile communications industry has expanded from serving performance orientated business users to serving a price-sensitive and functionality-orientated mass market. The industry value chain has evolved from a simple linear system dominated by a small number of highly integrated and independent big companies as shown in the illustration below;

A GVCN represents an emerging manufacturing system which is much more complex than a linear value chain. It is a relationship-based value network including product level development and design, sector level standardization, individual firm level business model innovation, and wider ecosystem development for OI. The main building blocks of a GVCN include products/services, standardization, business models, and collaboration/ coevolution.

Products or services in the mobile communications sector have unique characteristics. For example, mobile terminals are physical products that integrate complex technology inside with personal preference outside; the usage of the mobile phone depends on not only the terminals but also the service providers’ offers and their further networks. These combinations lead to unpredictable product changes. From a production and supply network perspective, product platforms and modularity are critical as mechanisms to cope with volatile changes and demand for production efficiency. Standardization in the mobile communications industry has two types of implications. At the physical system level, standardization derives from the tradition of the electronics industry to adopt standards and protocols in a wider range of components and systems. This benefits product development and system integration, especially in the case of radical and fragmented changes. At the technology generation level, the industry has developed different generations of telecommunications protocol standards in order to provide a special way to “integrate” radical innovations and exploit both technology and market developments. Successive generations of standards of telecommunications (i.e. 1G, 2G, and 3G) have very successfully underpinned spectacular industry growth.

Standards at both the physical systems level and the technological level have thus played a key role in the success of this industry. As well as product and process innovations, companies in the mobile communications industry have widely adopted business model innovation throughout the evolution of the industry. Mobile communication companies have had to position or reposition their core business and capabilities within collaborative inter-firm networks, and to learn to coordinate their activities along the whole value chain. There has been a significant trend towards more mobile communication companies adopting inter-firm collaborative models rather than classical vertically integrated models to achieve their strategic goal and growth.

The mobile communications industry value chain has become increasingly complex
since the 1990s. There has been a significant trend for the specialization, modularization,
and segmentation of handset manufacturing. Many companies have successfully entered the industry by focusing on a small section of the value chain/value network, and reinforced their leading position by extending their businesses up-stream and/or down-stream. Vertically integrated manufacturing systems are not the only choice for handset manufacturers. They can simply collaborate with a set of suppliers to develop and produce their mobile phones. Innovative business models have also emerged by combining the value chain segments in different ways. For example, a service provider may work with some specialized suppliers of software platforms and mobile phone components to develop a new model, and engage a contract manufacturer to produce that model with their own brand.

The value chain in the mobile communications industry now consists of a broad range of interrelated value-adding activities from idea generation and research towards design, development, component fabrication, system assembly, testing, marketing, distribution, and service. Evolving with the environment, the value chain has migrated to a global value creation network (GVCN) as illustrated below;

to a complex network consisting of numerous specialized and interdependent companies of different sizes as illustrated below;

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