Authors: X Liu, Y Xie, M Wu - Innovation, 2015
How local latecomer firms catch-up on technological innovation has been an important and well-researched topic. Inspired by the success of China's Shanzhai mobile phone business, we propose a new path for latecomers to such strategic catch-up. Initially, technological development and profit seeking lead to technology modularization and value chain evolution. Specifically, some firms in possession of better technologies refocus their business on the design and production of chipsets and software, while others with other advantages such as market information reallocate their effort in cosmetic design, differentiation, or marketing. These local firms that used to be electronics suppliers to major original equipment manufacturers (OEMs) gradually transform themselves into module designers and producers, causing the value chain to evolve from a vertical and OEM-centric system to a horizontal, project-oriented and loosely cooperative network. Modularization and the evolution of value chain significantly lower the technological threshold of entering the mobile phone business, promote disruptive innovations, and accelerate latecomers' accumulation of knowledge and technology.