Who Captures Value in Global Supply Chains? Case Nokia N95 Smartphone

Topics: Symbian OS, Nokia, Nokia Nseries Pages: 25 (7780 words) Published: September 17, 2013
J Ind Compet Trade (2011) 11:263–278 DOI 10.1007/s10842-011-0107-4

Who Captures Value in Global Supply Chains? Case Nokia N95 Smartphone Jyrki Ali-Yrkkö & Petri Rouvinen & Timo Seppälä & Pekka Ylä-Anttila

Received: 5 September 2010 / Revised: 13 January 2011 Accepted: 29 April 2011 / Published online: 31 May 2011 # The Author(s) 2011. This article is published with open access at Springerlink.com

Abstract Available statistics reveal little about the economic consequences of the increasing global dispersion of production processes. To investigate the issue, we perform grass-roots investigative work to uncover the geography of the value added for a Nokia N95 smartphone circa 2007. The phone was assembled in Finland and China. When the device was assembled and sold in Europe, the value-added share of Europe (EU-27) rose to 68%. Even when it was assembled in China and sold in the United States, Europe captured as much as 51% of the value added, despite of the fact that it played little role in supplying the physical components. Our analysis illustrates that international trade statistics can be misleading; the capture of value added is largely detached from the flow of physical goods. Instead, services and other intangible aspects of the supply chain dominate. While final assembly—commanding 2% of the value added in our case—has increasingly moved offshore, the developed countries continue to capture most of the value added generated by global supply chains. Keywords global supply chains . international trade . value capture . Nokia . mobile phones JEL Classification F 14 . F 23 . L 22 . L 23

J. Ali-Yrkkö : P. Rouvinen (*) : T. Seppälä : P. Ylä-Anttila ETLA, The Research Institute of the Finnish Economy, Lönnrotinkatu 4 B, 00120 Helsinki, Finland e-mail: pro@etla.fi J. Ali-Yrkkö e-mail: jay@etla.fi T. Seppälä e-mail: tse@etla.fi P. Ylä-Anttila e-mail: pya@etla.fi

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1 Introduction In high-income countries, decision-makers and experts alike express their concern regarding production moving to lower-cost locations. Our illustration in this paper suggests that commonly employed measures exaggerate the issue to the extent that some aspects may even be illusory. We agree with the theoretical argument of Grossman and Rossi-Hansberg (2008, p. 1978) that “Revolutionary advances in transportation and communications technology have weakened the link between labor specialization and geographic concentration, making it increasingly viable to separate tasks in time and space… The result has been a boom in “offshoring” of both manufacturing tasks and other business functions.” We demonstrate, however, that value capture—the ultimate variable of interest for both businesses and countries—is considerably less dispersed than tasks within a supply chain. Due to limitations regarding the available statistics, we resorted to grass-roots investigative work to uncover the geography of value added for the Nokia N95 smartphone circa 2007. We find that value capture is increasingly detached from the flows of physical intermediate and final goods. Instead, in-house and market services and various forms of intangible assets command the lion’s share of value added (and thus income and profits earned). Even if final assembly has largely moved offshore, the developed countries continue to capture most of the value added generated globally: even for a “made in China” smartphone exported for sale in the US, we find that Europe (EU-27) still captures half of the value added. Linden et al. (2009), who study the supply chain of Apple’s iPod digital music player in 2005, is the most relevant predecessor of our work. They conclude that even though the iPod was assembled in Asia, Apple’s American workers and shareholders predominantly reaped the benefits. They also emphasize that innovation matters; the greatest value tends is owned by companies and locations providing critical differentiated inputs....

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