No. 37




The Investment Patterns and Role of Companies in Global Value Creation

04 June 2018


RiTo No. 37, 2018

  • Kadri Männasoo

    Professor of School of Business and Governance, Department of Economics and Finance, Tallinn University of Technology

  • Mait Rungi

    Mait Rungi

    Professor, School of Business and Governance, Department of Business Administration, Tallinn University of Technology

  • Heili Hein

    Heili Hein

    Early Stage Researcher, PhD student, Tallinn University of Technology

  • Helery Tasane

    Tallinn University of Technology, Department of Economics and Finance, PhD student and Junior Researcher

In developed countries, productivity growth to a considerable extent depends on the export capabilities and investment patterns of companies.

There is a need for a concept that would explain a company’s development process towards higher value creation through smart investments and international integration, the key drivers of value formation. Several value chain or life cycle based models of company development have previously been discussed in literature, but they are characterised by limited applicability due to their superficiality. The authors of the article present a value chain based concept of company development that reflects the investment needs and scope of value creation in an international context. The concept can be used both from the perspective of industries or entire countries, and from the viewpoint of a single company, describing the process of moving from one stage of development to the next. In addition to relying on acclaimed theoretical and empirical literature on the factors of value creation growth, the authors propose their innovative concept by scrutinising secondary data on productivity, investment and exporting in European countries. The original model of company development consists of six stages. A company can move from one stage to the next via “quality leaps” which are induced by certain activities. Each consecutive step is characterised by a stronger focus on intangible rather than tangible assets, a global rather than a local outlook, and most importantly, higher value creation. In the first stage, that of the “price-competing subcontractor”, the competitiveness of the company mainly arises from the low price of its products. In order to move to the next stage of “renowned supplier”, the company has to improve product quality, invest in modern technologies, implement automation and carry out process innovation. Renowned supplier has moved on from simple price competition, and is delivering reliability and quality to its clients. The second quality leap consists of investing in design and product development, and undertaking product innovation. After making this leap, the company has entered the “innovator” stage: it provides quality innovative products and competes by originality and uniqueness. The next quality leap entails investing in research and development, and creating and monetising intellectual property, thereby coming up with ground-breaking innovations and becoming a “market inventor”. The next stage of development is “global brand”. To reach a global brand status, the company has to have achieved excellence in what it does and become the primary provider of the type of products it creates. The final stage of development, obtainable only to a few, is “ecosystem leader”. Examples of that include companies like Microsoft, Apple or Google, which have created an ecosystem of products and processes to which other companies conform.