SME Roles in Modular Value Chains: Perspectives for Growth and Innovativeness

Abstract

Objective: The aim of the paper is to present modular value chains (MVCs) as a technological and organisational phenomenon that affects industrial organisation and innovation, and to identify the characteristics and types of SME positions (roles) in modular value chains that are associated with innovation development and growth.

Research Design & Methods: The study employs two methods, which are literature review and a multiple-case study approach based on two SMEs in the IT industry of which one acts as an independent innovator generating proprietary solutions and the other one is a supplier of production capacity in the area of lower to medium value-adding solutions.

Findings: 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. The latter two roles are associated with innovation and high growth.

Implications & Recommendations: The recommendations as to the role of public policy and geographical context are provided regarding how to facilitate SMEs’ integration into MVCs with a focus on innovativeness and expansion. The question for further research is whether the roles identified in the case studies can be treated as SME-specific models of participation in modular value chains, or are they only development stages of growth SMEs towards the roles of large firms – leader firms and contract manufacturers (system integrators).

Contribution & Value Added: The paper contributes by identifying the roles that SMEs can play in modular value chains and by identifying governance arrangements that SMEs apply to accomplish innovation and high growth.

Keywords

modularization, growth, innovativeness, SMEs, global value chains

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