Published: May 01, 2018 by 30/04/2018
Authors: Andrea Bernardi

President Trump has raised the intriguing question of bringing the manufacturing of companies like Apple back from China to the U.S. This book, however, argues that in this age of the knowledge-based economy and increased globalization, that value creation and distribution based on knowledge and innovation activities are at the core of economic development.

Published: Mar 14, 2018 by Area Development and Policy
Authors: Seamus Grimes & Chun Yang
Subjects: Geography

China’s integration into the information and communications technology global value chain has taken place as global technology corporations outsourced and offshored an increasing range of functions, including manufacturing, assembly, and to some extent, innovation to more competitive regions within China

Published: Mar 14, 2018 by European Planning Studies
Authors: Seamus Grimes
Subjects: Economics, Finance, Business & Industry

Review of John West: Asian Century … on a knife-edge: a 360 degree analysis of Asia’s recent economic development

Published: Mar 14, 2018 by European Planning Studies
Authors: Seamus Grimes & Marcella Miozzo
Subjects: Geography

China's increasing integration into the global pharmaceutical value chain is occurring at a time when big pharma's traditional R&D model has entered a period of crisis, and when China faces significant challenges in providing healthcare for its huge and rapidly ageing population.

Published: Mar 14, 2018 by European Planning Studies
Authors: Seamus Grimes & Debin Du
Subjects: Geography

This paper examines the contribution of multinational R&D activity in China within an evolving policy environment which increasingly emphasizes indigenous innovation and the reduction of dependence on foreign sources of technology.

Published: Mar 14, 2018 by Technological Forecasting and Social Change
Authors: Yutao Sun & Seamus Grimes
Subjects: Economics, Finance, Business & Industry

This paper investigates the actors- and relations-based mechanisms within the evolutionary process of inter-regional network using a unique database of China's technology transaction between regions.

Published: Mar 14, 2018 by Journal of Geographical Sciences
Authors: De-zhong Duan Debin Du Chengliang Liu Seamus Grimes
Subjects: Geography

In today’s world, the innovation of science and technology has become the key support for improving comprehensive national strength and changing the mode of social production and lifestyle. The country that possesses world-class scientific and technological innovation cities maximizes the attraction of global innovation factors and wins a strategic initiative in international competition

Published: Mar 14, 2018 by Telecommunications Policy
Authors: Yutao Sun Seamus Grimes
Subjects: Geography

This paper synthesises evidence from international trade data of China-based ICT companies in order to map their involvement in the ICT global value chain (GVC). The ICT GVC is divided into three types of companies: Own Brand Manufacturers (OBMs), component companies and Electronic Manufacturers (EMS)/Original Design Manufacturers (ODMs).

Published: Mar 14, 2018 by Scientometrics
Authors: Yutao Sun Seamus Grimes
Subjects: Asian Studies

The state is still the significant unit for innovative studies during the age of R&D globalization and innovation regionalization. Using the bibliometric method, this paper attempts to provide a comprehensive picture of national innovation studies based on data derived from the Web of Knowledge.

Published: Mar 14, 2018 by Area Development and Policy
Authors: Seamus Grimes Yutao Sun
Subjects: Geography

Using Apple’s 2015 published list of supplier companies and their subsidiaries, this paper analyses how one of the world’s most significant lead technology companies and its network of core and non-core suppliers have become increasingly embedded in China’s information and communications technology (ICT) global value chain.

By: Seamus Grimes
Subjects: Geography

Seamus Grimes Debin Du,

China's emerging role in the global semiconductor value chain,

Telecommunications Policy, 2020,

https://doi.org/10.1016/j.telpol.2020.101959

http://www.sciencedirect.com/science/article/pii/S0308596120300513

Abstract: The global model of semiconductor development has resulted in an asymmetric and interdependent relationship between China's critical role in semiconductor production and those regions such as the US which control the key inputs into the value chain. While this unbalanced relationship has facilitated many of the companies involved in the value chain in exploiting the comparative advantage of different locations for different functions and has allowed a complex ecosystem of supplier networks to emerge over time, the increasing influence of geopolitical considerations associated with the growing tensions between the US and China has created considerable uncertainty about the future evolution of this value chain. It is within this uncertain context that China's efforts to achieve greater autonomy in the development of its own semiconductor sector will be examined in this paper.

Keywords: China Semiconductor global value chain asymmetric interdependency

By: Seamus Grimes
Subjects: Asian Studies

CHINA AND GLOBAL VALUE CHAINS: GLOBALIZATION AND THE INFORMATION AND COMMUNICATIONS
TECHNOLOGY SECTOR By Yutao Sun and Seamus Grimes. London, UK: Routledge. 2018. 180
pp. $140.00 (Hardcover). ISBN 9781138289079.

Growth and Change DOI: 10.1111/grow.12246
Vol. 49 No. 2 (June 2018), pp. 394–396

China, as the largest supplier of manufactured goods in the world, is one of the most important
nodes in this network. It provides variety of products to the world with its efficient labor force. In
return it benefits greatly from the technology transfer brought by international companies and investors,
especially in the recent decade’s internet revolution. Now China is the world’s largest supplier of
IT products and is ambitious to transform itself from a product assembler to a designer.
This book, written by Yutao Sun and Seamus Grimes, provides a multiscale perspective on the
structure and function of GVCs and their critical role in the development and transformation of the
economy in China. It focuses on the rapidly growing information and communication technology
(ICT) sector and its soaring importance in the economic transition of China.
The first chapter begins with Trump’s protectionist policies, which present a challenge to China’s
export-oriented economy. By illustrating the Chinese landscape of international trade, foreign direct
investment (FDI), science & technology (S&T) and innovation, it unveils China’s current imbalance
between its significance in the global trade and investment network on the one hand and its relatively
small role in S&T and innovation on the other. It introduces GVCs as a framework to analyze the
Chinese economy’s reliance on low wage, low value-added manufacturing instead of high
value-added S&T innovation and creative industries. Here, the authors emphasize the importance of
value-added in the GVCs and global trade. They indicate a new view of international trade that uses
the value-added standard rather than the pure trade volume to measure the importance of trade more
realistically.
Chapter 2 offers a theoretical framework about GVCs and their relationship to the country’s role
in the world economy. Competitiveness is the most critical determinant of a country’s level in this
hierarchical network. The book offers a multiscale approach to understanding the role of participating
countries in GVCs. At the macro level, foreign investment, and international trade are two key
Growth and Change DOI: 10.1111/grow.12246
Vol. 49 No. 2 (June 2018), pp. 394–396

By: Seamus Grimes
Subjects: Geography

Slowly, cautiously come the innovators

Updated: 2013-07-12 08:43

By Seamus Grimes (China Daily)

By: Seamus Grimes
Subjects: Geography

Criticism of China's role in Africa misguided

Updated: 2014-11-14 10:16

Nation's investment model for continent little different than that coming from other countries

After many decades of grinding poverty, Africa is on the move, with real evidence of considerable progress. Despite widespread pessimism about Africa, a World Bank study shows that 17 of the 50 economies with the greatest economic progress are in Africa with the GDP of sub-Saharan Africa expected to grow by 5.3 percent this year and 5.5 percent in 2015.

An important prerequisite for this progress has been the improvements made in how countries are governed, with the number of functional democracies growing from only three of 53 African nations at the end of the Cold War to the current tally of 25 out of 54 countries. If effective governance becomes more widespread, Africa has real potential for benefiting from the same demographic dividend that has propelled other less developed regions to prosperity. By 2050, it is projected that 2 billion people will live in Africa, accounting for one-quarter of the global labor force.

While a rapidly expanding middle class is driving much of this economic growth, there are overall improvements in living conditions with child mortality, illiteracy rates and HIV/AIDS infection rates declining and a 10 percent increase in life expectancy. But Africa is a huge continent, with significant variations throughout. On the one hand, there are middle-income countries like South Africa, and there are oil-rich countries like Libya, which is in turmoil. On the other hand, the Central African Republic and South Sudan continue to be ravaged by war. In fact, the majority of the 48 Sub-Saharan countries still fall at the bottom of the list for global prosperity. The biggest threats to recent progress are widespread political corruption, government mismanagement and capital flight.

But the positive news is that foreign investment reached $80 billion in 2014, with the United States, the United Kingdom and France leading the way at a combined share of $178.2 billion. The BRICS bloc collectively invested $67.7 billion, of which $27.7 billion came from China. According to a recent survey of the African Development Bank, the United Nations Development Program and the Organization for Economic Cooperation and Development, the top six recipient countries, representing one-third of the continent's population, received the same amount of foreign investment as the remaining 48 countries combined. The top destinations were South Africa and Nigeria. In 2013, 65 percent of the investment flowed to resource-rich countries. While foreign aid as a proportion of total capital inflows will decline to about 26 percent in 2014, or about $55 billion, the poorest countries will continue to depend heavily on it.

It is within this context of overall progress and considerable variation in development that Chinese investment in Africa should be examined. China's recent period of significant economic expansion has created a huge demand for energy, mineral and food resources and also the need for developing markets for its goods. Africa, with its cheap land and labor, expanding markets, enormous wealth of natural resources and its underdeveloped potential, is significantly compatible with Chinese investment. Together with other less developed parts of the world, parts of Africa have presented Chinese companies such as Huawei Technologies Co Ltd with considerable opportunities to expand their global reach by using their experience in servicing the Chinese market. Although much of the foreign investment in Africa has come from established Western multinational companies, the media have paid particular attention to the more recent growth in Chinese investment in Africa, sometimes questioning the motives for that investment, and in some cases suggesting that China is partly responsible for a new phase of colonialism in Africa.

Much of this coverage, however, does not make a clear distinction between China's attempts to promote its global foreign policy of "soft power" with African nations and the more general thrust of foreign investment that in many cases is little different than the investment coming from other parts of the world. Some argue that, rather than being economically motivated, China is interested in Africa partly to build political support and alliances among less developed countries within international organizations such as the United Nations, particularly in relation to sensitive issues at home.

In many cases, however, investment is focused on natural resources and particularly on oil in China's case. What is somewhat different is that China's growing investment in Africa has been taking place at a time when investment from other major regions has been somewhat lower. In the case of the US, for example, its dependence on African oil imports has been declining as it becomes more oil-independent. China's willingness to secure business deals with African leaders, irrespective of their reputation, does appear to differentiate its approach in relation to foreign policy.

But, much to the dismay of Western leaders, China's reputation among many African leaders appears to be growing. A major reason for this may be related to the fact that the willingness of China to invest in Africa, without too many preconditions, provides African leaders for the first time with a significant alternative to its previous dependence on Western aid, loans and investment, often with harsh conditions imposed by the World Bank and the IMF. It also allows African leaders the opportunity to use this new leverage of potentially competing investors to negotiate more favorable terms.

The Chinese investment model in Africa, however, is by no means without criticism, but such criticism is little different than what has been applied to investment coming from other countries to Africa. For example, the significant Chinese investment in developing the port in Mombasa in Kenya is seen by some as a modern form of barter, by which China is assured of mineral resources over a period in exchange for providing infrastructure. Similar criticism has been leveled against the president of Niger for providing France's nuclear industry with a long-term uranium concession. Some of the criticism of Chinese investment in large projects in Africa is related to the control exercised by Chinese companies, in employing a significant proportion of Chinese labor, and in providing cheap credit. Others argue, however, that these projects are decided in an open tendering competition, and that local companies cannot compete with large Chinese companies.

To some extent, the divisions of opinion about Chinese investment is related to the lack of trust on the part of African electorates in their leaders, who may not always negotiate deals that provide the best outcome for the local population. There are cases where the political elite itself is suspected of being a major beneficiary from large projects. But there is also an appreciation that Chinese investment at least provides African countries with some latitude for negotiating better deals than was previously possible. Perhaps a good part of the frustration felt among people in many African countries is the lack of capacity of both their leaders and their companies to exploit the real opportunities that present themselves. To the extent that political stability and security improves and diffuses throughout the continent, Africans will depend less on outside investors to improve their situation.

The author is emeritus professor with Whitaker Institute for Innovation and Societal Change at the National University of Ireland. The views do not necessarily reflect those of China Daily.

(China Daily Africa Weekly 11/14/2014 page10)

By: Seamus Grimes
Subjects: Geography

Big Pharma looks to long term in China

Updated: 2015-07-03 07:19

By Seamus Grimes and Marcela Miozzo(China Daily Europe)

While r&d potential attractive, climate made tougher by price pressure, regulatory complexities

Despite China's ambitions to promote its pharmaceutical sector, it is likely to continue to depend on significant contributions from foreign companies for some time. While the situation provides opportunities for big pharma companies to expand their markets in China, they are also hoping that offshoring research and development to China may contribute to reconfiguring their R&D models with its weak record of producing new drugs.

Drawing on interviews with pharma R&D centers in Shanghai, patent analyses and industry reports, we conclude that, despite considerable investment by big pharma companies in R&D centers in China, the investment is still in its very early stages, with Big Pharma aware that its success in the Chinese market depends on long-term investment.

By: Seamus Grimes
Subjects: Geography

The global value chain (GVC) of the information and communications technology (ICT) sector has undergone considerable evolution in recent decades, with China’s participation in this chain growing in significance. Although the most innovative aspects associated with shaping the trajectory of internet-related activities continue to be dominated by western technology corporations, the centre of gravity of most of the manufacturing and assembly work of the key products and devices has shifted to Asia, with China playing an increasingly important role in production. China’s role, however, continues to be a relatively subordinate one.

Having failed to achieve significant technology transfer from foreign companies in China through insisting on the establishment of joint ventures with Chinese companies, state policy more recently has focused on the promotion of indigenous innovation, while using its rapidly growing market as a leverage for its relationship with foreign investors. The challenge for Chinese policymakers is to find the right balance between China’s ongoing dependence on foreign technology and the collaborative role it needs to develop with major technology corporations in its deepening involvement in the ICT GVC. In pushing for technical standards based on indigenous innovation China faces demands for compliance with international norms both from abroad and from within the country, while attempting to achieve a certain level of autonomy for the development of Chinese firms.

In a recently published paper with Yutao Sun, our analysis illustrates how western companies, together with companies from Japan, Korea and Taiwan continue to dominate the upper reaches of the ICT value chain, and despite locating much of their production activity in China, have succeeded in avoiding any major leakage of intellectual property to local competitors. Although the technological trajectory of the ICT global value chain continues to be controlled by these companies, the significant shift in ICT production to mainland China raises questions about the future evolution of the value chain, and whether a tipping point has been reached in relation to China’s possible indispensable role in its development. 

Among these implications is the extent to which major global technology corporations can exploit the comparative advantages of China while continuing to ensure its subordinate role in the global value chain. While some commentators on the relationship between the Chinese state and foreign investors tend to emphasise the obvious tensions that can arise in the bargaining process, our data analysis, including company interviews, suggests a more nuanced and complex relationship.

Analysis of trade data relating to the most significant importing and exporting ICT companies in China between 2001 and 2012 provide useful insights into both the evolution of China’s role in the value chain, and the role played by mainland companies. In addition to the significant growth in the volume of ICT activity during this period, there has been an important shift by foreign companies from using China primarily as a low cost export platform to an increased focus on China as a rapidly growing market for ICT products and services. China’s increased role in the ICT value chain has been closely related to the growth in outsourcing and offshoring of ICT production, assembly and testing by major global technology corporations to the Chinese mainland. 

To some extent, the main beneficiaries of this enormous shift in the centre of gravity of ICT production have been Taiwanese companies, and in particular Foxconn, which by far is the world leader in contract manufacturing on behalf of global technology companies. These Original Design Manufacturing companies, however, operate under a regime of very tight control of their major clients, who also ensure that profit margins are razor thin. Foxconn’s rise during this period has been particularly associated with Apple’s business model of outsourcing 100% of its production to China, while ensuring no leakage of intellectual property through stringently controlling its contract manufacturers and supplier companies.

Because of the importance of intellectual property and innovation in controlling the technological trajectory of the ICT sector, the role played by high value added component companies in areas like semiconductors and hard disk drives, and more recently applications processors for mobile devices is crucial. Our data reveal that, apart from the dominant role of Korean and Taiwanese companies in the Thin-film-transistor liquid-crystal display (TFT-LCD) display area, western companies continue to play an important role as component suppliers, with Samsung being both a significant own brand company as well as a major supplier. 

Apart from Foxconn in the Original Design Manufacturing sector, Samsung, with its rather exceptional in-house production model, is the other company that dominates the trade data across the whole spectrum of activity. The lack of technological progress to date by mainland companies in generating significant inputs from indigenous innovation is obvious, and some commentators claim that policymakers have begun to appreciate the limits of a growth path driven by policy-induced high-tech exports.

Despite a poor performance in achieving any significant control in either ICT assembly or in the supply of key components, a small number of Chinese companies have become highly successful global brands. While questions continue to be raised about the extent of state regulation of China’s domestic market, and bearing in mind their reliance to some extent on the capabilities of foreign suppliers, the significant progress made by these Chinese brands should be acknowledged. 

Our data indicate that over time, these companies have succeeded in dislodging significant western companies that were initially highly successful in China from the lists of top ICT traders in China. The considerable strides made by these companies which is reflected in their ability to compete globally is further attested to by our company management interviews. But rather than falling into a simplistic binary model of foreign and mainland companies, both our data and company interviews suggest a more nuanced picture of significant interconnections between many types of companies through client relationships, joint ventures and mergers and acquisitions.

To some extent the success of Chinese brands is exaggerated by the invisibility of major global brands such as Apple, whose production is masked by Original Design Manufacturing company trade. The success of these Chinese brands, however, raises interesting questions about the ability of indigenous companies in an exceptionally rapidly growing market of enormous scale, to displace formerly successful brands in what is, for them, a very different marketplace. 

With the continuing shifts in the ICT global value chain in an era of mobile devices, cloud computing and expanding ecommerce, the potential for Chinese companies for creating more intense competition for established global corporations is considerable. Whether they can gain greater market penetration globally without the necessary progress in vital areas of intellectual property remains to be seen.

By: Seamus Grimes
Subjects: Geography

A recently published paper by Seamus Grimes, emeritus professor of geography, at the Whitaker Institute for Innovation and Societal Change, National University of Ireland Galway, and Dr Yutao Sun, a member of the Faculty of Management and Economics, Dalian University of Technology, Dalian, China, uses Apple’s 2015 published list of supplier companies and their subsidiaries and analyses how "one of the world’s most significant lead technology companies and its network of core and non-core suppliers have become increasingly embedded in China’s information and communications technology (ICT) global value chain."

China’s evolving role in Apple’s global value chain

Previous research had shown that the net value added in China of each iPhone was in single digit US dollars.

According to the authors, the Apple supply chain comprised 198 global companies with 759 subsidiaries with 336, or 44.2%, of the subsidiaries manufacturing in China; 115 in Taiwan; and 84 in Europe or the US.

An analysis of the ownership of the subsidiaries operating China showed that only 3.95% were Chinese. Just 2.2% of the core component suppliers were Chinese while the biggest proportion, 32.7%, were Japanese; 28.5% American; 19.0%; and 6.5% were European.

Foxconn, the Taiwan-owned assembler of Apple's products in China, is developing robots while Prof Wadhwa notes in the Post that "robots cost less than $40,000 to purchase and as little as a dollar per hour to operate. And unlike human workers, they will work 24-hour shifts without complaining."

Apple could shift production from China but it is unlikely to kowtow to a President Trump.

US employment in manufacturing was at 18m in 1990, 17m in 2000, and just over 12m in April 2016.

By: Seamus Grimes
Subjects: Geography

But researchers peeking into the globe-spanning supply chain have come to something of a different conclusion about Apple’s relationship with China. Most of the phones are assembled there, but according to their 2015 examination of Apple’s supplier networks, the bulk of the iPhone’s critical components are made by non-Chinese companies.

“The findings show that to date, Apple has been reluctant to involve many Chinese companies in its supply chain, with the majority of suppliers, even many of those located in China itself, being foreign companies,” write the authors, Seamus Grimes, an economic geographer at the National University of Ireland, and Yutao Sun, an economist at Dalian University of Technology.

By: Seamus Grimes
Subjects: Geography

Interview with 

Séamus GRIMES 
Emeritus Professor, NUI Galway, Ireland 

Conducted by Yves GASSOT CEO, IDATE DigiWorld Institute

Introduction to Apple's global value chains

DW Economic Journal: Could you summarize your research area and your interest for Apple's global value chain (GVC)? 

Prof. Séamus GRIMES: About seven years ago I began to realise that if I was to say anything meaningful about multinational technology companies in regions like Europe, I would need to gain some insight into how these companies had shifted much of their production and assembly activities to China. The other important aspect of this study was to understand how emerging regions like China have become increasingly integrated into global value chains, which can present both opportunities and challenges. 

Examining the global value chains of technology companies like Apple presents an opportunity to delve beneath the aggregate trade data which frequently hide quite complex interrelationships between global companies and their many suppliers across national boundaries. Much of China's trade in the ICT sector is of intermediate goods or components which are imported from elsewhere and assembled in China as final products before being exported to other countries or sold in China. Apple is one of many companies that have little choice but to exploit the extensive range of suppliers and contract manufacturers that constitute China's rich ICT ecosystem. 

Despite what some have suggested about attracting the manufacturing of Apple products back to the US, what Apple is doing in China would be very difficult to replicate in other regions. Part of the reason is the scale of operations of Apple's main contract manufacturer Foxconn, and also the availability and flexibility of both unskilled and engineering workforces, and the relatively lower cost of operations, particularly as production has moved further inland. Apple is a particularly good example of this phenomenon because despite outsourcing almost all its production to contract manufacturers, it controls its complex supply chain by having its own engineers monitoring each stage of product development. Analysing Apple's supply chain in China also provides an opportunity to evaluate the extent to which China has benefitted from Apple's activities in the country, and how China's own role in the global ICT value chain is evolving.

Extracting benefits from Apple's GVCs

You said in the introduction of your article (China's evolving role in Apple's GVC) that there are a priori 2 positions regarding the participation of emerging regions in the supply chain: one with a positive view and another one which sees a subservient relationship…, what is your final analysis? What is specific when we are talking about continental China? And what is specific when we are talking about Apple's policy? 

The relationship between Apple and China provides us with a microcosm of a fascinating evolution in what could be called a "cat and mouse game" between western technology companies seeking to benefit both from the comparative advantage that China offers as a location for ICT production and testing, and gradually also for innovation, and how Chinese policymakers have been adapting their policies over time to try to ensure that China benefits from this relationship. In addition, while Greater China accounted for almost 25% of Apple's revenue in 2015, the company is becoming concerned about the growing capabilities of local companies like Huawei and Xiaomi and Oppo to displace it in the smartphone market. 

Our analysis of Apple's supply chain in China, however, reveals that few Chinese companies are involved with most of the high value components coming from non-Chinese companies and often from suppliers in the US, Europe, Japan, Korea and Taiwan. This is also true of most Chinese smartphone companies, whose revenues are significantly reduced by high royalty payments to these core component suppliers. China's main role, therefore, within the East Asian value chain is that of assembly which is mainly carried out by Taiwanese companies such as Foxconn. 

The predominantly low value-added functions carried out in China present a major challenge for policymakers since China's traditional export-oriented model is increasingly under pressure from falling competitiveness. Despite their determination to move China's economy up the value chain, the ongoing dependence on core technologies such as semiconductors from other countries makes this major shift very challenging. 

So, while China benefits in many respects from Apple's significant presence, the Beijing government is clearly not happy with the balance in the relationship. Apple brings much of its needed intellectual property from outside China, has the opportunity to exploit China's comparative advantage in assembling its products there, and continues to benefit from a growing market for its products. The Chinese policy approach, however, seeks to ensure that the country continues to benefit from the significant economic activity generated by the company, while giving Apple and other foreign technology companies clear signals that their days of growth in the Chinese market are numbered. 

In particular, almost no foreign companies have succeeded in China in the internet sector and many suggest that the main reason is a lack of understanding of the peculiarities of the local market. But, while this sector experiences intense competition, the competition is primarily between Chinese companies as the regulatory environment makes it very difficult for foreign companies to grow in this market. The banning of Apple's iBooks Store and iTunes Movies service in 2016 is an example of how China exerts its influence in this market. 

Part of the difficulty faced by foreign internet companies in China is the local requirement to provide government access to user data and the need to control any material that might be politically sensitive. It should also be acknowledged, however, that Chinese regulators are equally tough in controlling the content provided by Chinese internet companies. Thus, despite the wide appreciation in China of the excellence of Apple's products, the potential for Apple to grow its services revenue in the country may be quite restricted. Apple has responded to these setbacks by making a $1 billion VC investment in China's rise-hailing service Didi Chuxing, and also announcing its plans to establish two new R&D centres.

China's improving capabilities

Did you have the opportunity to analyse the modifications of the Apple supply chain between the first iPhones in 2007/2008 and the latest models? 

Not really. This is an important question because it touches on the direction in which the value chain is evolving over time. From the many company interviews I have conducted in China in recent years I can say that local companies are improving their capabilities across the board, despite the continued major gaps in core technology areas. From the analysis which my co-author Yutao SUN and I did, it would appear that many foreign supplier companies found it necessary to have a presence in China, although this varied between companies from different countries. Japanese companies seemed to be somewhat more reluctant to locate their supplier subsidiaries in China. 

Over, time, however, with such a high volume of ICT production taking place in China, it is inevitable that functions such as R&D will also follow. Many foreign technology companies already have large R&D centres in China to support their growing business in the country. I think it is inevitable, that despite the current situation, with so few Chinese companies directly supplying Apple in China, over time this will change and local companies will acquire the necessary capabilities. It may take a longer period for this to happen in relation to core technology areas such as semiconductors.

GVC value-added by country?

Did you have the opportunity to analyse the modifications of the Apple supply chain between the first iPhones in 2007/2008 and the latest models? 

Not really. This is an important question because it touches on the direction in which the value chain is evolving over time. From the many company interviews I have conducted in China in recent years I can say that local companies are improving their capabilities across the board, despite the continued major gaps in core technology areas. From the analysis which my co-author Yutao SUN and I did, it would appear that many foreign supplier companies found it necessary to have a presence in China, although this varied between companies from different countries. Japanese companies seemed to be somewhat more reluctant to locate their supplier subsidiaries in China. 

Over, time, however, with such a high volume of ICT production taking place in China, it is inevitable that functions such as R&D will also follow. Many foreign technology companies already have large R&D centres in China to support their growing business in the country. I think it is inevitable, that despite the current situation, with so few Chinese companies directly supplying Apple in China, over time this will change and local companies will acquire the necessary capabilities. It may take a longer period for this to happen in relation to core technology areas such as semiconductors.

Intellectual property and GVCs

In addition to the digital goods there are all the less visible values like the patents and the licences agreements (cf. Apple which asked its suppliers to not pay Qualcomm…). How do you see the trend, which would give more and more importance to business models based on the control of the intellectual property? What are the issues for the global trade or for the commercial trade agreements between Europe and the other regions? 

I think there is a lot of shifting ground in this area. The major global technology companies have had huge control over the trajectory of technology development mainly because of their ownership of core technology and patents. This obviously creates enormous barriers to entry for companies in countries like China. But the ground is definitely shifting in many respects. The traditional model was for these global companies to invest hugely in R&D to preserve their dominant position in the market and when necessary acquire innovative competitors. 

Qualcomm is a fascinating example in China where it gains more than half its revenue and much of that comes from license fees. But the recent fine of $1bn against Qualcomm for exploiting its monopolistic position in China has been followed by additional severe fines in other countries. Even Apple is currently refusing to pay Qualcomm the high fees demanded. Latecomer countries like China have faced major disadvantages in the race to catch up with IP-rich regions of the world and to some extent they are demanding a rewrite of the rules which preserve the advantages of those countries. China, because of its huge market, may well be the first country in a position to insist on a more balanced approach to intellectual property, which does not continue to Interview with Séamus GRIMES, NUI Galway 171 create obstacles for greater levels of innovation in emerging regions. The quid pro quo of an attractive market may well help to bring about this balance. This is evident in the recent joint ventures established in China between Qualcomm and Intel with local Chinese companies.

International trade and digital goods

What are the other trends you see in the relationship between International trade and the digital goods? 

The future as we know is not in the physical devices, but in the potential revenues which services can generate. And alongside these services one can observe in China how the mobile phone is transforming daily life. The WeChat phenomenon in China in many respects points to the future and despite China's many challenges in catching up with developed regions it is a major leader in technology applications. 

Some argue that the Chinese government has been very clever in creating a protective market in which its own internet companies can first thrive at home and then move internationally. I'm not convinced that this model will prove to be the most effective in the long run, but China is perhaps the first country that has had the political wherewithal to shape its future global integration. The convergence of these new internet services with China's rapid recent growth creates a dynamic for future change that is difficult to predict. There is little doubt, however, that the current culture of technology entrepreneurship in China which feeds off a huge consumer market impatient for the latest tweak in services will definitely bring about major changes in how we conduct our daily lives. 

Whether this ecommerce dynamic which is evolving in China will result in Chinese internet companies like Alibaba and Tencent becoming global companies remains to be seen. For a variety of reasons, the western internet giants have not been successful in China, but it should not be overlooked that China's most successful internet companies have benefitted from considerable foreign investment. It is quite paradoxical that the internet sector, which should, in theory, be the one leading to significant global transactions is one of the most regulated areas of China's economy, resulting in a very controlled form of global integration. And this is happening at a time when there is growing networking between entrepreneurs in Silicon Valley and in China.

A new publication on China and Global Value Chains

In 2018, Routledge will publish China and Global Value Chains - Globalization and the information and communications technology sector by Yutao SUN and Seamus GRIMES, which elaborates China's evolving role in the ICT global value chain. http://208.254.74.112/books/details/9781138289079/

Acknowledgements

This article was originally published as: Grimes, S. (2017) 'Interview with Séamus Grimes, Emeritus Professor, NUI Galway, Ireland'. DigiWorld Economic Journal, 107 (3rd Q), p. 167.

By: Seamus Grimes
Subjects: Geography