The role of tier, ownership and size of companies in value creation and capture

ABSTRACT

This article aims to address two research questions. First, what is the relationship between the basic characteristics of companies engaged in global and regional production networks (such as their tier, ownership, size) and their economic performance. In doing so, we scrutinize the empirical basis for frequent calls to ‘climb the ladder’. Second, we investigate the extent to which the economic performance of companies is related to their differing intensity of engagement into production networks, something largely disregarded in existing studies. The study uses economic indicators derived from a database covering the evolution of 55 Czech aerospace companies over a 14-year period. The methodology is based on descriptive statistics as well as on canonical correlation that helps to investigate multidimensional conditioning of economic performance of companies. The results show not only large variations in the economic performance of companies, but also several counter-intuitive trends. Our analysis consistently yielded the statistically significant finding that lead firms and first-tier suppliers are able to sacrifice short-term profitability and level of value added in order to reach a higher level of value capture. Therefore, the difference between value creation and value capture require careful consideration by researchers as well as by policymakers when comprehending the costs and benefits of functional upgrading.

KEYWORDS:

• Global production networks
• value creation
• value capture
• functional upgrading
• tier
• aircraft industry

Acknowledgements

The authors greatly appreciate feedback received during the review process and insights provided by Štěpánka Brabcová during her work on early phases of this study.

Disclosure statement

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

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1 Producing fuselage, wings, engines, landing gears, hydraulics, avionics devices, electrical power supply and interior systems, and so on.

2 Typically manufacturing electronic, mechanical, aluminium and composite components, or focused on wiring, machining, tooling, finishing and so on.

3 For example, in the early 1990s, Aero sold about 200 jet trainers to new markets such as Tunisia and Thailand. Moreover, with the help of shareholder Boeing, it gained a new assembly line for Sikorsky helicopters.

4 See www.czechinvest.org/en/key-sectors/aerospace.

5 Association of the Czech AeroSpace Industry (ALV): http://www.alv-cr.cz; Confederation of the Czech Aviation Industry (CCAI): http://www.sclp.cz/en/; Moravian Aerospace Cluster: http://www.aero-cluster.cz/.

6 As this division is inevitably arbitrary, several variants with different breakpoints were employed as robustness checks. The results, however, remained unaltered to any significant degree.

7 For further details, see for instance Sharma (1996).

Additional information

Funding

Financial support of Grant Agency of The Czech Republic [grant number 19-03754S] and of Charles University Centre of Excellence [grant number UNCE/HUM/018] is greatly acknowledged.