Moving Upward in Global Value Chains : The Innovations of Mobile Phone Developers in China

Purpose - The purpose of this paper is to integrate the global value chain (GVC) perspective with firms' innovation in emerging economies (EE) and explain why EE firms can improve their innovation capabilities more from their domestic markets by focusing on R&D and marketing than from original equipment manufacturer/original design manufacturer (OEM/ODM) modes in the GVC and how they contribute to the national innovation system (NIS).Design/approach - We first review the literature on GVC and then develop several propositions using the example of the underground mobile phone developers in China by integrating the GVC perspective. Findings - We propose that EE firms, especially firms that have a large underdeveloped domestic market such as China, should focus on R&D and marketing instead of on OEM/ODM in GVC to increase their competitiveness and strengthen their NIS. We also draw implications from their success in the underground markets to advance our knowledge on NIS.Originality/value - EE firms can build and strengthen their innovation capabilities through intense interaction and learning in domestic markets, which, subsequently, moves them upwards in their GVC, although they are accused as counterfeit and copyright infringement ("Shanzhai" in Chinese or “bandit”) in their early years of development. Industrial policy needs to change in order to facilitate such technological entrepreneurship in NIS, regardless whether it is informal or underground