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Keun Lee

Chapter 12 examines the effects of establishing factories abroad on domestic jobs and the issue of technological hollowing out, using the case of Samsung Electronics’ mobile phone business. It finds that the offshoring of mobile phone assembly to China, India, Brazil, and Vietnam did not result in a reduction of domestic jobs. On the contrary, Samsung’s domestic employment increased from 5,960 persons in 2002 to 20,500 in 2012. This increase mainly reflects a net increase in high-paying jobs (R & D, engineering, design, marketing) while the number of low-paying jobs (assembly) remained stagnant. To cope with possible technological hollowing out, Samsung kept its core engineers/technicians in a special unit, instead of firing them, whenever domestic assembly lines were reduced or foreign lines were established. They were kept inside the so-called “global manufacturing technology center,” with the number of its employees increasing from 80 in 2006 to more than 1,103 in 2011. These employees visit overseas factories to conduct activities such as maintenance, monitoring, re-modeling of assembly lines, and automation. In terms of strategy, Samsung engages in offshoring, but not outsourcing. This is in contrast to Apple which does both offshoring and outsourcing by contracting with Foxconn.
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Keun Lee

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Keun Lee

Chapter 11 explains the success by Korean business groups in the Chinese market, despite their late entry. It uses the concept called “project execution capability” of diversified business groups, which has led to another strategic capability of “vertical integration” (VI) among affiliates. It examines Samsung’s electronics businesses in China as an excellent case of resource sharing and coordination among affiliates in the execution of a project despite late entry into a new market. The chapter finds that the VI network was first created in the early 1970s in Korea and has since been replicated in many parts of the world such as Mexico, Malaysia, and, most recently, China. The VI network has three tiers consisting of Samsung Electronics at the top as the final assembler, Samsung Electro-Mechanics and Samsung SDI in the middle, and finally, Samsung Corning at the bottom. In the rapidly changing display market, Samsung’s stable component sourcing among affiliates has played a critical role in developing new products at lower costs to meet changing market needs. This case shows that business groups can upgrade their capabilities rather than simply lose their advantages with the maturing of market mechanisms.
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Keun Lee

Chapter 14 develops a new sequential internationalization theoretical framework to explain the processes of internationalization by SMEs from a dynamic emerging economy. It is applied to 18 FDI cases of Korean SMEs in China to analyze the changing map of the division of labor between parent firms in Korea and subsidiaries in China. We have found that the internationalization process has been sequential, reflecting the cautious behavior of SMEs with more resource constraints compared to the case of large firms. They proceeded from a product-based division of labor to a value-chain-based one, and finally to a market-based division of labor between the parent firm and its local subsidiaries. In the first stage, Korean SMEs establish production subsidiaries in China to manufacture low-end goods for re-exportation. In the second stage, the subsidiaries expand production scope to high-end goods, while the parent firm administers R & D, marketing, and production of some high-end goods. In the third stage, as the Chinese market grows in importance with local consumers’ increasing purchasing power, the subsidiaries integrate marketing and local-market-specific R & D with the existing value chains.
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Keun Lee

Chapter 10 deals with the question of why making a catch-up is even more difficult in capital goods industries that are usually led by small or middle-sized companies. It relies upon the sectoral systems of innovation as a theoretical framework for analysis. From the findings, the chapter has identified three sources of difficulties in the catch-up of the capital goods industry, particularly in machine tools. First, while small firms in the capital goods industry are usually specialized suppliers to big final goods assembly firms in the consumer goods industry or other industries, and thus the tacit knowledge accumulated from the interface between the producer and the customer firms is very important, a serious difficulty lies in the fact that local client firms are reluctant to use locally made capital goods due to their poor quality and low precision level. Second, while a successful catch-up first requires the ability to produce goods of better quality and lower prices than those produced by incumbent firms from advanced countries, a typical difficulty arises because incumbent foreign firms often react by charging predatory prices upon news of the local development of capital goods by latecomers . Third, if the catch-up firms overcome this barrier, then the next strategy used by incumbent firms is to charge latecomers with legal actions for patent violations. Despite these intrinsic difficulties, the Korean economy has achieved a very slow but gradual catch-up in the capital goods industry. The chapter attributes such achievement to several factors, including the strenuous efforts of the government, niche markets in general-purpose machine tools and emerging economies, and finally, the increasing introduction and adoption of IT or digital technologies in machine tools.
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Yu-li Liu

Convergence has been identified since the 1970s as a force that would reshape media and telecommunications industries. The notion is often used in ambiguous ways, confounding technological, economic, social, cultural, and global aspects. Moreover, the focus is often on the homogenizing and integrative aspects whereas the equally present diversifying and differentiating aspects are often overlooked. A main effect in the media industries is the blurring of lines between formerly separate media platforms such as over-the-air broadcasting, cable TV, and streamed media. Consequently, content that previously was only available on television can be delivered seamlessly to consumers via personal computers, smartphones, tablets and other mobile devices. Moreover, content that was once delivered via different, specialized technologies (e.g., broadcasting, cable TV) can now be distributed through multiple platforms, allowing easier viewer access independently of time and space. Convergence also provides consumers with new means of accessing entertainment and audiovisual content. Many converged video services such as Internet Protocol TV (IPTV) and mobile TV have appeared in the market. This chapter analyzes business strategies for converged video services, with a focus on IPTV, mobile TV, and OTT video services.

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Justus Haucap and Torben Stühmeier

The rapid rise, enduring growth and success of Internet markets and e-commerce platforms have spurred a lively and sometimes heated debate among academics and policy-makers: do Internet markets foster competition or are they prone to concentration, possibly to the point of monopolization? Competition economists and lawyers vigorously discuss the peculiarities of these markets and whether traditional rules and interpretations of competition law are sufficient to deal with potential new competition problems. The cases against search engine Google have received most public and academic attention, closely followed by the e-book case against Apple. In addition, numerous cases concerning vertical restraints in online sales have recently been brought before European courts. These vertical restraints include across-platform parity agreements (APPAs), which are a special form of a most-favored customer clause, general bans on online sales or bans on particular platforms, dual pricing systems, and selective and exclusive distribution systems. This chapter starts with a brief discussion of the peculiarities of online markets and then discusses recent antitrust cases related to the Internet.

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Christian Handke, Paul Stepan and Ruth Towse

Cultural economics is concerned with the supply, demand and markets for creative goods and services. As suppliers of information goods and services, the arts, heritage organizations and cultural industries are greatly involved in the changes accompanying the diffusion of ever-new Internet-based services and digitization. Much Internet traffic consists of reproducible cultural works, such as music recordings and movies. Moreover, the Internet has had an impact on cultural services that require ‘live’ participation. Accordingly, this chapter addresses changes in the production, consumption and distribution of the output of the cultural sector due to the Internet.

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Michael Latzer, Katharina Hollnbuchner, Natascha Just and Florian Saurwein

Algorithms have come to shape our daily lives and realities. They change the perception of the world, affect our behavior by influencing our choices, and are an important source of social order. Algorithms on the Internet have significant economic implications in newly emerging markets and for existing markets in various sectors. A wide range of our daily activities in general and our media consumption in particular are increasingly shaped by algorithms operating behind the scenes. This chapter offers a typology of applications based on algorithmic selection and provides a basic input-throughput-output model in order to show the functioning and economic purposes of the different types of algorithmic selection. It explains theoretical perspectives applied for its analysis and presents results from market analyses. Different phases of the markets for applications using algorithmic selection are shown, their structures and concentration tendencies explored. After a discussion of business models of algorithmic selection with an emphasis on value proposition, value creation and revenue stream the chapter examines selected implications of algorithmic selection for traditional media markets and the incumbents’ profitability. An identification of risks, such as possible violations of basic rights, is complemented by a discussion of regulatory challenges and available governance options.

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Claudio Feijóo, José-Luis Gómez-Barroso and Shivom Aggarwal

Although there is no widely consented definition, big data can be characterized by specific properties or ‘dimensions’, most importantly volume, variety, velocity, and veracity and/or validity. Other concepts such as data science, data mining and data visualization have arisen around the term big data. It has also been heralded as contributing to a major transformation in the methodology of scientific work and it is linked to the Internet of Things (IoT) and the notion of open data. Given the emergent nature of the big data domain, it is no wonder that from an economic perspective it is still a field with more questions than answers. Main topics that slowly start to appear in the scientific literature and the research roadmaps are, among others, issues related to the economic value of data12 and their impact on growth, jobs and the quality of life, the analysis of the structure of this emerging industry and its implications for innovation and competition, and the application of new and existing economic theories to explain its dynamic behavior. This chapter explores the emerging domain of big data economics. It describes the features of the big data ecosystem, the main players, and their relationships. From there different economic approaches are used to explore the big data market, its dynamics and the value of data within it. Opportunities and challenges for both researchers and marketers are explored. The chapter concludes with a few reflections on policy issues.