Several Modes of Digitalisation of Value Chains and Their Effects on Firm Behaviour and Performance: Case Studies of Apparel and Video Game Industries

ABSTRACT

This paper analyses the digitalisation of the global value chain (GVC) in the apparel and video game industries and its effects on firm behaviour and performance. It elaborates on several modes of digitalisation, namely, thin digitalisation, platform digitalisation and full-range digitalisation. Digitalisation contributes to the expansion of the volume of sales and profits while reducing labour costs. However, its impacts on profitability remain uncertain, with the benefits and costs offsetting each other. GVC digitalisation benefits startups by lowering entry costs and facilitating upgrading, whereas it may be detrimental to incumbent companies since it can enable platform providers to transform into competitors.

KEYWORDS:

• Digital platform
• global value chain
• platform provider fee
• apparel
• video game

Acknowledgements

The authors would like to thank two anonymous referees who provided useful comments for the revision. The second author acknowledges the financial support from the National Research Foundation of South Africa (Grant Number: 118873) via the DSI/NRF/Newton Fund Trilateral Chair in Transformative Innovation, the 4IR, and Sustainable Development.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 Internal platforms (also known as product platforms or company platforms) are characterized as a collection of assets grouped in a common framework that enables companies to develop and manufacture derivative products effectively (Gawer and Cusumano 2014). Meanwhile, external platforms (or industry platforms) are technologies, products, or services that serve as the framework for outside innovators to create their own technologies, products, or services.

2 Network effect can be considered as a form of ‘strategic complementaries’, which occurs when an agent’s optimal strategy depends positively on other agents’ strategies (Cooper and John 1988).

3 Facebook’s announcement. Information retrieved on 15 December 2021 at https://s21.q4cdn.com/399680738/files/doc_news/Facebook-Reports-Third-Quarter-2021-Results-2021.pdf.

4 Apple’s announcement. Information retrieved on December 15, 2021 at https://www.cnbc.com/2021/06/07/apple-wwdc-live-updates-ios-15.html.

5 10 countries are United Kingdom, Denmark, Australia, Germany, Luxemburg, Sweden, Norway, United States, Netherland, and New Zealand.

6 Announced by the company. Accessed 20 July 2019 at https://www.vogue.com/article/calvin-klein-amazon-fashion-pop-up-shop

7 Announced by the company. Accessed 20 July 2019 at https://www.inditex.com/about-us/our-story

8 Company’ announcement. Information retrieved on 05 January 2022 at https://risnews.com/nike-ending-partnership-amazon.

9 As mentioned earlier, this theoretical model comes with some technical assumptions. Some key assumptions include, for instance, the assumption that platform P cannot imitate the seller S' innovation and the assumption that when including the convenience benefit of purchasing on the marketplace, the product offered by platform P is better than that provided by fringe sellers. For details, see Hagiu, Teh, and Wright (2022).

10 Data from the U.S. Bureau of Economic Analysis. Available at https://www.bea.gov/data/special-topics/digital-economy (accessed May 07, 2023).

11 For details on each type of industrial upgrading, see Frederick and Gereffi (2011).

12 Announced by the company at https://ir.jd.com/node/6711/pdf. Accessed July 27, 2019.

13 Coupang recognized the company’s achievements, featuring it as a success story on its official website at https://www.aboutcoupang.com/English/news/news-details/2022/After-two-decades-of-making-clothes-for-other-companies-business-owner-finally-launches-own-fashion-brand-thanks-to-Coupang/default.aspx. Accessed Oct 13, 2023.

14 Statistics are from Coupang. Available at https://www.aboutcoupang.com/English/news/news-details/2022/Coupang-helps-fashion-enthusiast-fulfill-a-20-year-long-dream/default.aspx. Accessed Oct 13, 2023.

15 Generally, in the digitalized value chain, besides the platform fee, companies may need to pay other costs such as marketing or promotion fees. However, these fees may vary substantially across firms depending on their business strategies. In contrast, the platform fee is mandatory, non-negotiable, and independent to firms’ business strategies in most cases. Companies are required to pay this fee if they want to list their products on online platforms, making it a key and crucial component in digitalized value chains. We thank an anonymous reviewer for bringing this point to our attention.

16 From Tmall service agreement. An earlier version is available at https://www.sec.gov/Archives/edgar/data/1747624/000121390018016014/filename3.htm (accessed June 05 2023)

17 Tmall Global, Lazada, and Rakunten Japan generally collects 1%, 2%, and 4% payment processing fee.

18 Company’s accouncement at https://ir.netease.com/news-releases/news-release-details/netease-explores-innovative-model-chinas-e-commerce. Accessed 20 July 2021.

19 Congressional hearing on Online platform and Market power. Available at https://docs.house.gov/meetings/JU/JU05/20190716/109793/HHRG-116-JU05-20190716-SD038.pdf (accessed 20 May 2022).

20 Available at https://www.ecomcrew.com/amazons-private-label-brands (accessed 20 May 2022)

21 We thank an anonymous reviewer for pointing this out.

22 Information retrieved mainly from the company website at https://www.imangistudios.com/ on June 10th, 2019. The estimated annual revenue is from Crunchbase.

23 Information retrieved mainly from the official website of Subway Surfers at https://subwaysurfers.com on June 10th, 2019. The estimated revenue on iOS is from Sensor Tower.

24 EA disclosed the fee in the last three quarters in 2018, all quarters in 2019, and the first quarter in 2020. We estimated the fee in remaining quarters in 2018 and 2020 based on the average actual rates paid by EA in Table 4.

25 NCSoft reported mobile game revenue for the first time in the second quarter of 2016. The company also disclosed the distribution fee from Q2 2016 to Q1 2020. According to the company, this distribution fee was “related to mobile game sales.” Consequently, we estimated the platform fee based on this distribution fee. We calculated the fee for the last three quarters of 2020 using the average rate from the 2017–2019 period.

26 The figures for the 2013–2016 period are based on actual mobile revenue. The company completely transitioned to mobile gaming in 2017; thus, the numbers for the 2017–2020 period are based on total revenues.

27 Supercell is a pure mobile game company, so we estimated platform fee based on total revenues.

28 Mobile revenue is reported under a gross basis because the mobile platform fee is included in the ‘PG fee’ item.

Additional information

Funding

This work was supported by National Research Foundation of South Africa: [Grant Number Grant No 118873].