Global Value Chains and Production Networks

Case Studies of Siemens and Huawei

Fengru Cui,Guitang Liu

• Publisher: Academic Press
• Year: 2018
• ISBN:
  9780128148488
• Topic: Économie
• Subtopic: Microéconomie

Global Value Chains and Production Networks: Case Studies of Siemens and Huawei presents theories and frameworks that facilitate the evolution of GPN studies, from macro perspectives based on territory and industry to the use of micro (firm-level) data. The book explores these theories and frameworks through detailed case studies of two major corporations, Siemens and Huawei. With the GPN/GVC structure of Chinese firms not well known outside China, despite the growing importance of Chinese firms in the global economy, this guide plays a pivotal role in facilitating the use of data that promise to unlock economic cooperation and value.

• Emphasizes micro-data analytical models and their methodological underpinnings
• Illustrates how these data illuminate the economic structures of two comparable GPNs within highly divergent institutional contexts
• Suggests how companies can cooperate with foreign partners to enhance their global management capacity and reshape their advantages in international competition

Section II

The Siemens and Huawei Cases

Outline

• Chapter 4 A Study of Siemens’s GPN
• Chapter 5 A Study of Huawei’s GPN
• Chapter 6 A Comparison Between GPNs of Huawei and Siemens

Chapter 4

A Study of Siemens’s GPN

Abstract

This chapter begins with examining the global expansion and Transnationality Index of Siemens and presenting an overview of the company’s global production network (GPN) from the perspective of value. Then it analyzes in detail Siemens’s global research and development, manufacturing, supply chain, and marketing service networks in terms of value objectives, global strategy, networks, location selection, and network governance, and assesses the value added of all the networks. The last part explains the GPN of medical devices from the perspective of embeddedness and describes how Siemens Healthineers gets embedded in China on the levels of strategy, region, and dimension. This chapter helps to explain the drivers and benefits of GPNs as well as how multinational corporations (MNCs) operate based on GPNs on a microlevel, and figure out how MNCs get embedded in China and the pattern in the evolution of the process.

Keywords

Siemens; global production network; value; embeddedness; China; case study

Chapter Outline

• 4.1 Overview of Siemens’s Global Production Network 72
  • 4.1.1 About Siemens AG 72
  • 4.1.2 Global Expansion and Transnationality Index 73
  • 4.1.3 Value Objectives and Strategic Framework 74
  • 4.1.4 Networks and Governance Model 76
  • 4.1.5 Global Presence and Performance 79
• 4.2 Siemens’s Global Production Network From the Perspective of Value 81
  • 4.2.1 Siemens’s Global R&D Network 81
  • 4.2.2 Siemens’s Global Supply Chain Network 89
  • 4.2.3 Siemens’s Global Manufacturing Network 96
  • 4.2.4 Siemens’s Global Marketing Service Network 99
  • 4.2.5 Value Added of Siemens’s Global Networks 101
• 4.3 Siemens’s Healthcare Network From the Perspective of Embeddedness 106
  • 4.3.1 Global Production Network of Medical Devices 106
  • 4.3.2 Evolution of Siemens Healthineers’ Embeddedness in China 107
  • 4.3.3 Analysis of Siemens Healthineers’ Embeddedness in China by Dimension 115
• 4.4 Summary 125

The microlevel participants of a global production network (GPN) are multinational corporations (MNCs) and they assume overwhelming dominance in the network. In fact, it is their global expansion that has promoted the formation of GPNs and shaped the new landscape of international trade centering around MNCs, which is a manifestation of economic globalization on the microlevel. International trade research has also gone deeper from the national and industry levels to the corporate level, with new areas of research explored. In contrast, however, existing GPN studies are mostly analyses on the national, regional, and industry levels; very few microlevel studies are carried out and data support on the corporate level is insufficient. Therefore, thorough GPN research is yet to be conducted. Since different industries have different features, there might be sharp differences between the GPNs of the same company in different industries. The research into MNCs’ business performance in specific industries or regions is yet to go deeper. In addition, given the different cultural, political, and institutional environments in different overseas markets, it is necessary to look at how MNCs overcome all the challenges to get “embedded” in local economic systems and grow into global businesses and how they impact local economic and social development.

Within the framework of microcosmic GPN studies proposed in Chapter 3, Analytical Framework of Microcosmic GPN Studies, this chapter examines the global networks of Siemens as well as related strategic framework, location choices, and governance models (Fig. 4.1) from the perspective of value, and discusses how this company builds its global research and development (R&D), manufacturing, supply chain, and marketing service networks centering around its value objectives to configure its business across regions and across industries, and how the company uses the power of networks to integrate value-creating activities, enhances its core competencies, and achieve sustainable revenue growth. Then the embeddedness of Siemens’s healthcare business in China by strategy, dimension, and region (Fig. 4.22) is analyzed in detail to help figure out how MNCs are embedded locally and the pattern in its evolution.

Figure 4.1 Siemens’s GPN framework from the perspective of value. Source: Prepared by the author.

4.1 Overview of Siemens’s Global Production Network

4.1.1 About Siemens AG

Siemens AG is one of the world’s largest electronics and electrical engineering companies headquartered in Berlin and Munich and with a history of more than 160 years. It works to develop and manufacture products, design and install complex systems and projects, and tailor a wide range of solutions for individual customer requirements, as a market and technology leader in Energy, Healthcare, Industry, and Infrastructure & Cities. In fiscal year 2014, which ended on September 30, 2014,¹ Siemens generated revenue from continuing operations² of EUR 71.9 billion and net income of EUR 5.5 billion (Siemens AG, 2014). The company has around 360,000 active employees in more than 200 countries, about 160 R&D centers in about 30 countries/regions, over 285 manufacturing plants across the globe, as well as office buildings, warehouses, R&D facilities or sales offices in almost every country/region. Siemens has around 680,000 shareholders in more than 100 countries, making it one of the world’s largest listed companies. About 60% of the company’s stock is held outside Germany. Siemens began to list its shares on the New York Stock Exchange (NYSE) in March 2001, making it a company listed on both the Frankfurt Stock Exchange and the NYSE.

4.1.2 Global Expansion and Transnationality Index

Founded by Werner von Siemens in Berlin in 1847, Siemens has experienced eight stages of development, namely founding and initial expansion (1847–65), triumph of international projects (1865–90), growth through consolidation and partnerships (1890–1918), returning to the global market (1918–33), National Socialism and the war economy (1933–45), rebuilding and rise to a worldwide corporation (1945–66), new markets and business lines (1966–89), and globalization (1989–). It has witnessed the first wave of globalization from the mid-19th century to the 1920s, interruptions to globalization from World War I to the Cold War, and the progressing of the second wave of globalization since the 1990s.

Siemens began to pursue international operations even in its early years. Before World War I, the company had established institutions in Russia, Britain, Austria, France, Belgium, Spain, China, and Brazil. In fiscal year 1914, it had 82,000 employees, about one-fourth of whom were from foreign countries. After the two world wars, the company began to gradually resume overseas business in the mid-1950s, and its exports exceeded DM 1 billion for the first time in 1961. In the 1970s, the company’s overseas operations were mainly in Western Europe and North America, and a few were in Japan, Latin America, India, South Africa, the Middle East, and some island countries in the South Pacific Ocean. In 1985, Japan, France, Finland, Mexico, Brazil, Singapore, and Malaysia gained higher positions in Siemens’ global system. Siemens launched its global strategy in 1989. By 2000, the company’s global expansion had become more scattered, with more operations introduced in countries where it had already had presence and more countries like China, Australia, and South Korea included in its global system. In fiscal year 2014, Siemens was divided into three regions and 14 regional clusters on a geographic basis, covering a total of 94 countries and regions.

The United Nations Conference on Trade and Development (UNCTAD) publishes the World Investment Report annually, in which it ranks nonfinancial MNCs by foreign assets and estimates their Transnationality Index (TNI). TNI is calculated as the arithmetic mean of the following three ratios: the ratio of foreign assets to total assets, the ratio of foreign sales to total sales, and the ratio of foreign employment to total employment. Siemens had a TNI of 32.5% and 77.8% in 1993 and 2013, ranking 73rd and 25th, respectively. Fig. 4.2³ shows Siemens’s TNI from 1993 to 2013. Apparently, the company’s TNI was on the rise from 1993 to 1999, fell in 2000 due to the global economic recession, exceeded the 1999 level in 2002, kept increasing after that and reached the peak level of 80.1% in 2010, and stayed around 77% in the following 3 years. It suggests that Siemens’s global networks have been expanding since its global strategy was adopted.

Figure 4.2 Siemens’s TNI, 1993–2013. Source: Prepared by the author according to the World Investment Report published by the UNCTAD and related data provided in Siemens’s annual reports.

4.1.3 Value Objectives and Strategic Framework

Since the 1990s, in response to the new challenges and pressure from shareholders, Siemens has gradually become a competitor in the global market based on its strategic pillars of productivity, innovation, and growth, which necessitate the company’s formulating a corresponding global strategy and business sectors. In brief, the global strategy is intended to create value and global networks are built to enhance the company’s core competencies and help it gain and maintain the market and technology leadership in all sectors and establish sustainable competitive edges in a global sense so as to achieve sustainable, profitable growth and continually increase company value. One Siemens is the company’s the global strategy framework for turning its vision into reality and reaching its goals (Fig. 4.3). Since Siemens’ business covers multiple sectors and many regions/countries, it is necessary to formulate corresponding strategies on sector, regional/national, and division levels within the One Siemens framework to support the company’s overall global strategy.

Figure 4.3 Siemens’s global strategy framework. Source: Siemens, Siemens Annual Report 2011.

Siemens’s vision is to be a pioneer in energy efficiency, industrial productivity, affordable and personalized healthcare, and intelligent infrastructure solutions. The vision is reflected in its company strategy, which guides the company in turning its vision into reality ...