4.1. ITServCo’s properties as a medium-sized company, before 2015: plus 5. Contract manufacturer’s properties: Power relations balanced
5.1. ITServCo’s properties as a medium-sized company, before 2015: plus 6. Contract manufacturer’s properties: Asset specificity low
6.1. ITServCo’s properties as a medium-sized company, before 2015: plus; minus (low to medium)
7. Contract manufacturer’s properties: Product innovation dominating 7.1. ITServCo’s properties as a medium-sized company, before 2015: plus 8. Contract manufacturer’s properties: Process, product, and functional upgrading 8.1. ITServCo’s properties as a medium-sized company, before 2015: plus The end of table 2.
Source: own elaboration.
ITServCo’s governance position well matches the characteristics of a model contract producer firm in modular value chains with some component of relational governance.
Alike in the SoftCo’s case, this observation gives a new insight relative to the GVC literature that describes contract producers as predominantly large enterprises (footnote 54
Sturgeon, 2002; 2003; Ivarsson & Alvstam, 2011; Kodama & Shibata, 2013 Yan et al., 2014). Some discrepancies exist as the elements of the former focus of the company who was a third-tier supplier in the captive governance, e.g., low transaction complexity still present in “time and material” method of outsourcing. Other differences stem from the
service-intensive and not product-intensive business model. ITServCo’s model requires less formalised (the presence of high to medium formalisation) and more adaptive (low to medium asset specificity) way of implementing projects. This approach is typical of SME networking that involves interaction and mutual dependence of tangible and intangible resources among partners (footnote 55 Agostino et al., 2015; Aslesen & Harirchi, 2015;
Massini et al., 2010; Alberti et al., 2008; Oviatt & McDougall, 2005 ).
CONCLUSIONS
The paper presented modular value chains as a technological and organisational phenomenon that affects industrial organisation and innovation, and it identified the characteristics and types of SME positions in modular value chains that are associated with innovation development and growth.
The extant literature on global value chains (GVCs) has focused on large firms as major players and sources of product and process innovation in modular value chains (footnote 56
Sturgeon, 2002; 2003; Ivarsson & Alvstam, 2011; Lee & Saxenian, 2008; Kodama &
Shibata, 2013; Simms & Trott, 2014; Yan et al., 2014; Pietrobelli & Rabellotti, 2006 ). The impact of the value chain modularisation on the positions as well as prospects for growth and innovation of SMEs has been unexplored.
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SMEs are predominantly perceived as third-tier suppliers that occupy lower-value positions (footnote 57 Humphrey & Schmitz, 2002; 2004a; Belaya & Hanf, 2014; Lungwitz et al., 2006; Gancarczyk, 2016). However, the international entrepreneurship literature provides an optimistic evidence of innovativeness and growth of small firms (footnote 58 Oviatt &
McDougall, 2005; Coviello & Munro, 1997; Coviello, 2006; Gancarczyk & Gancarczyk, 2017).
Our exploratory study of two growth SMEs operating within modular global governance has contributed by identifying a variety of roles that small and medium-sized enterprises may adopt in MVCs and by describing the governance solutions they apply to accomplish innovation and growth.
SME roles in modular value chains range from lowest-tire subcontractors in captive or market-based governance to major roles typical of large players in modular governance, e.g., quasi-lead firms and quasi-contract manufacturers. These two positions feature innovativeness, upgrading and growth, therefore, we propose an analytical generalisation about their governance arrangements. The analytical generalisation describes the
inter-firm governance, power relations, and institutional arrangements of a quasi-leader and quasi-contract producer as conducive to innovativeness and expansion.
The quasi-lead company’s role is based on inter-firm governance with high transaction complexity, high formalisation that decreases to medium level in the case of long-term customers that require risky innovations, and high technological capability. Power relations are balanced and ensure independence of specific assets, except for long-term customers that need some adjustments to their needs. A quasi-lead firm generates product
innovations that are new at least to its national market and represent its proprietary solutions. These innovations provide for a range of upgrading opportunities, from product and process to functional and value chain upgrading. The work of a quasi-leader is more directed at delivering a proprietary product than on service delivery (more
product-intensive and less service-product-intensive).
The quasi-contract manufacturer (system integrator) features high to medium transaction complexity and formalisation. Power relations stem from tailoring the service-intensive activities to the needs of specific customers. This type of role is less directed at developing proprietary standard products since power relations require some level of asset specificity and adjustments to the technology and licensing policy of branded providers of standards and interfaces. A quasi-system integrator delivers process and product innovations that are new to itself rather than to the market or world. However, it explores some niches where proprietary solutions might be developed that are new to the market. The
opportunities for upgrading include process and product, as well as functional upgrading to provide a full range of production activities, i.e., to be a “turn-key” supplier of production capacity. Finally, the quasi-contract producer’s operations are more service-intensive than product-intensive, therefore, its work needs to be more customer-specific than the work of a quasi-leader.
The above characteristics raise also a question for further research. This is the question whether the roles identified in the case studies can be treated as SME-specific models of participation in modular value chains, or they are only development stages of growth SMEs towards the roles of large firms – major players in modular chains, i.e. ‘full’ leader firms and ‘full’ contract manufacturers (system integrators). The current findings do not allow for determining the nature of these roles and this can be treated a limitation of our study. This limitation is also closely linked to qualitative and analytical generalisation instead of statistical one, as acknowledged earlier in the methodological section.
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However, we propose that our study establishes a basis for research hypotheses in further, quantitative research. The quantitative research directed at statistical
generalization should ultimately resolve the interpretation problem we faced. At this stage, we can propose that both possibilities are feasible. Considering growth aspirations of the entrepreneurs interviewed, they seek to pursue growth and strengthen their positions towards these of market leaders globally or regionally at least. On the other hand, it is also possible that they continue as national market leaders, filling the niches where more adjustments of products and processes to customer needs are relevant. In this vein, they would be providers of products and services that rely on external standards and represent their adjustments to the business systems of customers.
Finally, the paper enables some recommendations as to the role of public policy and spatial, geographic context regarding how to facilitate SME integration into MVCs with a focus on innovativeness and growth. Both firms benefitted from public support in the area of grants and lowering risks by establishing new ventures in business incubators and technology parks. Acting in the global competitive environment provides both opportunities to exploit creativity and cost advantages internationally. On the other hand, it also
demands building credibility and recognition through networking and embedding in high-quality business relationships. Such a requirement was especially evident for SoftCo, which acquired recognition and collaboration opportunities by establishing a subsidiary in a technology incubator in the UK. This evidence proves that public policy for technology firms and their international expansion is well targeted and gives prospects for the return from public investment in the form of firm growth and international competitiveness.
Specifically, promoting the international networking among local and international institutions, such as science and technology parks, business incubators and innovation relay centres, needs to be emphasised.
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Authors
The contribution share of authors is equal each of them.
Marta Gancarczyk
Associate Professor at the Institute of Economics, Finance and Management, Jagiellonian University in Kraków, Poland. Her research, publication and consulting activities focus on entrepreneurship, firm growth, technology management and commercialization, industrial clusters, and public policy for small and medium-sized enterprises. She is Associate Editor of the international scientific journal ‘Journal of Entrepreneurship, Management and
Innovation’.
Correspondence to: Dr hab. Marta Gancarczyk, Institute of Economics, Finance and Management, Jagiellonian University in Kraków, ul. prof. S. Łojasiewicza 4, 30-348 Kraków, Poland, e-mail: marta.gancarczyk@uj.edu.pl
Jacek Gancarczyk
Associate Professor in the Department of Entrepreneurship and Innovation, Jagiellonian University in Kraków, Poland. His research and publication activities are focused on tourism and sport industries, innovation in small and medium-sized tourism enterprises, regional policy for tourism and sport, including clustering in those industries. His is a member of the European Council for Small Business and Entrepreneurship (ECSB).
Correspondence to: Dr. Jacek Gancarczyk, Institute of Entrepreneurship, Jagiellonian University in Kraków, ul. prof. S. Łojasiewicza 4, 30-348 Kraków, Poland, e-mail:
jacek.gancarczyk@uj.edu.pl
Joanna Bohatkiewicz
PhD student of economics at Jagiellonian University, Financial Director, EKKOM Sp. z o.o.
Her research interests include Knowledge-Intensive Business Services, clusters, modularisation, global value chains, crisis management, controlling and liquidity management.
Correspondence to: Joanna Bohatkiewicz, M.A., Institute of Economics, Finance and Management, Jagiellonian University in Kraków, ul. prof. S. Łojasiewicza 4, 30-348 Kraków, Poland, e-mail joanna.bohatkiewicz@gmail.com
Acknowledgements and Financial Disclosure
The empirical research presented in this article is a result of the project financed by Polish
National Science Centre (Narodowe Centrum Nauki) – Decision no.
DEC-2013/09/B/HS4/01938. The draft version of the paper was presented at the conference
“Entrepreneurship in Modern Economy", March 16-17, 2017, Gdańsk Technical University, based on the funds from Polish Ministry of Science and Higher Education supporting statutory activities of the Faculty of Management and Social Communication, Jagiellonian University, Kraków, Poland.
The authors would like to thank the anonymous referees for their useful comments, which allowed to increase the value of this article.
Copyright and License
This article is published under the terms of the Creative Commons Attribution – NoDerivs (CC BY- ND 4.0) License http://creativecommons.org/licenses/by-nd/4.0/
Published by the Centre for Strategic and International Entrepreneurship – Kraków, Poland
Footnotes (Harvard)
Footnote 1. Baldwin, C.Y., & Clark, K.B. (2000). Design rules: The power of modularity (Vol. 1). Cambridge MA, London: MIT Press; Sanchez, R., & Mahoney, J.T. (1996).
Modularity, flexibility, and knowledge management in product and organisation design.
Strategic Management Journal, 17(S2), 63-76; Lau, A.K. (2011). Critical success factors in
Strategic Management Journal, 17(S2), 63-76; Lau, A.K. (2011). Critical success factors in