Analyzing the Value Chains of China’s Knock-off Handset Industry

WU Qiang1,2 and LIU Zhibiao3

1School of Economics of Nanjing University
2Institute of International Economy of Nanjing University

3Jiangsu Provincial Academy of Social Sciences
Abstract:

Establishing a two-sided market (specialized market) is an effective way to build a national value chain (NVC). The Chinese knock-off wireless handset industry has succeeded in building a miniature version of an NVC based on the Huaqiangbei Market, a typical specialized market. This paper begins by analyzing the differences in the industrial chains of knock-off and traditional wireless handsets and concludes that due to lacking after-sales service, the value chain of knock-off wireless handsets is consumer-driven, with a focus on manufacturing and marketing. Analysis of the knock-off wireless handset-based NVC reveals that multi-level demands, a maturing industry and adaptive innovation are three pre-conditions for Chinese manufacturing to build an NVC in a two-sided market. Given the uneven scale and techniques among knock-off handset makers, their addiction to the low-end market and imperfect value chains constructed using the “knockoff pattern,” this paper proposes that China can break these bottlenecks by letting the specialized and unilateral markets develop closer to each other and by providing governmental guidance in the specialized market.

Key words:

national value chain (NVC), global value chain (GVC), knock-off handset, two-sided market, specialized market

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