The impacts of value chain digitalization on firm performance in the video game and apparel industry

Abstract

The research examines how digitalization affects the global value chain (GVC). By using firm-level empirical evidence, the study elaborates on the value chain digitalization process in the video game and apparel industries. In both sectors, it is found that the digitalization of value chain is usually originated in downstream stages where platforms emerge, disrupt and replace traditional retailers (platform digitalization). At this level, regarding manufacturers positions, two opposite impacts are identified. On the positive side, the platforms incorporation lowers customer acquisition costs and enhances firms productivity. On the negative side, firms have to pay a significant amount of money to platform owners through platform provider fees. Intriguingly, as is being revealed in the video game industry, there are asymmetric impacts of GVC digitalization on small and medium-sized enterprises (SMEs) and incumbent firms. Regarding SMEs, the GVC digitalization is generally beneficial as it lowers entry barriers and facilitates upgrading, especially end market upgrading. Meanwhile, it is more likely that incumbent firms have to trade-off between revenue (and customer) growth and profitability. A higher sophisticated level of value chain digitalization with the involvement of platforms and the emergence of data-driven characteristics is also identified in the apparel industry (full digitalization). At this level, apparel platforms are trying to go beyond the primary role of a two-sided marketplace to penetrate deeper into higher value-added stages. These efforts lead to the emergence of new original design manufacturers (ODMs), specifically in the Individual ODM and Platform ODM classes which have profound economic consequences.