Thi Song Hanh Pham, Bent Petersen, 2013. "Functional upgrading, Bargaining Power
and Value Appropriation of Emerging Economy Producers"
|In order to accrue economic rent a firm not only has to create value for its customers, it must also be
capable of appropriating this value. Without possessing value appropriation capabilities the firm is at
risk of passing on the created value to its suppliers, customers or competitors. There is ample
evidence that emerging economy firms inserted in global value chains generally have difficulties in
appropriating the added value they create - either due to a very competitive industry structure with low
entry barriers and numerous suppliers, or because buyers are controlling critical resources, such as
strategic information about, and access to, end-users. This study explores two basic initiatives
emerging economy firm may take to achieve higher value appropriation. One initiative is to appropriate
more value from existing activities - typically assembly manufacturing - by acquiring more market
knowledge and better negotiation skills. In this way bargaining power improves vis-a-vis buyers and
emerging economy firms achieve more equal gains from the global value chain. Another initiative of
emerging economy firms is to embark on functional upgrading, i.e. engage in new business activities
that are less exposed to fierce price competition and therefore more lucrative. We test to what extent
the two basic value appropriation initiatives have a positive effect on export performance of
Vietnamese wood furniture manufacturers inserted in global value chains. 302 manufacturing
companies were asked about functional upgrading in terms of the extent to which they had engaged in
export-related down-stream activities (i.e. export marketing and sales) and export market intelligence.
The companies also reported their negotiation skills (self-assessment) and export performance. The
results of a path analysis (AMOS, SPSS) suggest that both of the two value appropriation initiatives
have positive pay-offs in as much as they improve export performance significantly, though with
bargaining power improving measures as the more rewarding initiative. Furthermore, the two initiatives
are to some extent mutual supportive in achieving higher value appropriation.