ABSTRACT
An important gap in the literature on global value chains (GVCs) and bottom-of-the-pyramid markets concerns how GVCs develop to serve frontier markets and what role multinational and local firms play in that process. This paper takes a first step in filling this gap by studying the evolution of Africa’s mobile telecommunications industry. Applying a historical analysis, we find that the emergence of GVCs for African frontier markets followed a three-step process: initially, multinational corporations (MNCs) linked host countries to the MNCs’ existing value chains; subsequently, local MNC spin-offs experimented in altering key downstream value chains to mitigate the frontier markets’ demand- and supply-side challenges, and replicated those value chains in multiple African countries; and finally, other incumbents reoriented their downstream value chains for frontier markets, aided by the development of experienced local labor markets and specialized contractors. A key implication of our findings is the need for sufficient competitive incentives and industry knowledge to stimulate firms to invest in transforming existing GVCs for frontier markets. This process is highly uncertain; however, successful GVC transformation can lead firms to expand in multiple frontier markets, thereby propelling a growth phase across an entire developing region.
Disclosure Statement
No potential conflict of interest was reported by the authors.
Notes
1 For other studies featuring cases on developing frontier markets, refer to Chesbrough et al. (Citation2006), Garrette and Karnani (Citation2010), London and Hart (Citation2004), Prahalad (Citation2004) and Prahalad and Hart (Citation1999).
2 Notable cases included the bribery scandal in Benin surrounding the role of the US-based MNC Titan Corporation, in making financial contributions to the election campaign of the country’s incumbent president during 1999–2001; the government of Côte d’Ivoire’s expropriation of properties of US-based mobile operator Western Wireless in 2003; and the contractual fallout on sharing ownership of state-run mobile operator between the Ghanaian government and Telenor in 2006.
3 Our study also suggests that MNC’s wait-and-see approach has an opportunity cost. If modern industry knowledge spills into developing economies, regional start-ups can potentially gain a competitive advantage by transforming value chains and redeploying them in multiple markets. For local entrepreneurs, access to foundational knowledge about modern industries is critical to transforming value chains for frontier markets, and the transfer of this knowledge through partnerships with MNCs is more effective than piecemeal access through markets (Mowery et al., Citation1996). Additionally, innovations can spill into the industry in the later stages of the industry’s evolution. Given such implications, future studies could explore whether and how MNCs and local entrepreneurs can partner early so that the partnerships have the autonomy to invest in transforming value chains for frontier markets that leverage the local partners’ competitive incentives, the MNCs top up the local partners’ technical knowledge gap, and both partners share the fruits of the resulting innovations. Parallel lessons may be drawn from the life-sciences industry, where MNC pharmaceutical firms seek out partnerships with biotech start-up companies for developing treatments for diseases that are highly uncertain and may not align with the MNCs’ core priorities.
Additional information
Notes on contributors
Mohammad Jahanbakht
Mohammad Jahanbakht is Assistant Professor in the Department of Industrial, Manufacturing, and Systems Engineering at the University of Texas at Arlington. His primary areas of interest are in technology and innovation management and policies that impact innovation and entrepreneurship.
Romel Mostafa
Romel Mostafa is an Assistant Professor of Business, Economics and Public Policy at the Ivey Business School and Director of the Ivey's Lawrence National Center for Policy & Management. Romel's areas of research and expertise include strategy and capability development in new firms, innovation and competitive dynamics, industrial evolution and policy, as well as behavioral decision-making.