What Is a Value Chain?

The concept of value chain was first proposed by Michael E. Porter in 1985. Initially, the value chain that Porter referred to was mainly directed to vertically integrated companies, emphasizing the competitive advantages of individual companies. With the development of international outsourcing business, Porter further proposed the concept of value system in 1998, and extended the research perspective to different companies. There are certain commonalities. Later, Kogut also proposed the concept of a value chain. His point of view better reflects the relationship between the vertical separation of the value chain and the global reallocation of space than Porter's point of view. In 2001, Griffin put forward the concept of a global value chain when analyzing the issue of international division of labor and industrial connections on a global scale. The concept of global value chains provides a web-based analysis method for analyzing the geographical and organizational characteristics of international production, revealing the dynamic characteristics of global industries. ^[1]

Value Chain

To survive and develop, a company must create value for its shareholders and other interest groups, including employees, customers, suppliers, as well as the region and related industries. If the "black box" of the "enterprise" is opened, we can decompose the process of creating value into a series of different but related economic activities, or call it "

The basic view of the "value chain" theory is that not every link creates value in the numerous "value activities" of an enterprise. The value created by the company actually comes from

The value chain is ubiquitous in economic activities. There is an industry value chain between upstream and downstream related companies and enterprises. The connection between the business units within the enterprise constitutes the value chain of the enterprise. Linking value chains. Every value activity in the value chain has an impact on how much value the enterprise can ultimately achieve. The value chain plays a significant role in revenue, international division of labor, and business strategy.

Porter's "value chain" theory reveals that competition between enterprises is not just competition in a certain link, but competition in the entire value chain, and the overall competitiveness of the entire value chain determines the competitiveness of the enterprise. In Porter's words: "The value in the mind of the consumer is composed of a series of material and technical specific activities and profits within the company. When you compete with other companies, it is actually multiple internal activities that are competing, not Competition for an event. "

Microsoft and its Windows operating system are used as personal computer desktops-many commercial software are at the core of this development, and are often seen as typical of companies and products that drive a value chain. When companies buy software for personal computers, they spend far more on additional software than the basic operating system, which is the de facto standard for running these additional software. Other companies must comply with Windows standards, in the sense that Microsoft controls a value chain. According to a study by McKinsey & Company, this unique value chain was worth $ 383 billion in 1998. Microsoft's share in this value chain is only 4%, or $ 15.3 billion.

If a company creates a value chain by developing products or services and providing a platform for other companies, it is more likely to increase its market share than a company trying to provide the entire value chain alone. ^[2]