Stacey Frederick, Penny Bamber and Jaehan Cho
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Stacey Frederick, Penny Bamber and Jaehan Cho © Duke GVCC, December 2018 This report was prepared by the Duke University Global Value Chains Center (Duke GVCC) as part of a collaborative project with the Korea Institute for Industrial Economics & Trade (KIET). Authors Stacey Frederick, Managing Director and Research Scientist, Duke GVCC Penny Bamber, Senior Research Analyst, Duke GVCC Jaehan Cho, Research Fellow, KIET Acknowledgements The authors would like to recognize the support of the project team including Gary Gereffi and Jack Daly from Duke GVCC and Inchul Kim, Sunin Jung, Hanhin Kim from KIET. The Duke University Global Value Chains Center undertakes client-sponsored research that addresses economic and social development issues for governments, foundations and international organizations. We do this principally by utilizing the global value chain (GVC) framework, created by Founding Director Gary Gereffi, and supplemented by other analytical tools. As a university-based research center, we address clients’ real-world questions with transparency and rigor. For more information on Duke GVCC, please visit our website: www.gvcc.duke.edu. Contents Executive Summary ........................................................................................................................ 1 1. Introduction ............................................................................................................................. 3 2. Definitions and Methodology ................................................................................................. 4 3. The Digital Economy and Global Value Chains ..................................................................... 6 3.1. Mapping the Digital Economy Global Value Chain ........................................................ 8 3.1.1. Software (Traditional; Transition Firms) ................................................................ 11 3.1.2. IT Services (Traditional to Digital) ......................................................................... 12 3.1.3. Platforms; Internet Software & Services (New) ..................................................... 14 3.2. Digital Transformation in the Industrial Equipment Market ......................................... 16 3.2.1. Key Players ............................................................................................................. 17 3.2.2. Emergence of New Digital Services for Industrial Equipment .............................. 19 4. Lead Firms and Company Case Studies ............................................................................... 25 4.1. Internal Workforce Development and R&D Spending .................................................. 25 4.2. Mergers and Acquisitions ............................................................................................... 30 4.3. Start-ups, Venture Capital and Investments ................................................................... 31 4.4. Collaborations ................................................................................................................ 35 4.5. Collaboration for Interoperability and Conflicts of Interest ........................................... 38 4.6. Entry and Upgrading in the Digital Economy ................................................................ 40 5. Human Capital and Workforce Development ....................................................................... 42 5.1. Workforce Gap ............................................................................................................... 46 5.2. Certifications .................................................................................................................. 46 6. Geographic Analysis: Country Findings ............................................................................... 47 6.1. National Policies ............................................................................................................ 47 6.2. Singapore ........................................................................................................................ 54 6.3. India ................................................................................................................................ 55 6.4. China .............................................................................................................................. 56 6.5. Korea: Key Takeaways .................................................................................................. 57 7. Recommendations ................................................................................................................. 63 8. Appendix ............................................................................................................................... 68 References ..................................................................................................................................... 78 Tables Table 3-1. Digital Economy Market Segments/Final Products, Values, 2017-18 .......................... 8 Table 3-2. Digital Economy Infrastructure (Telecommunications, ISPs) .................................... 10 Table 3-3. Software Segment Definitions and Market Estimates ................................................. 11 Table 3-4. IT Services Segments, Companies and Market Values ............................................... 13 Table 3-5. Internet Software & Services (Platform, Search Engines, Cloud, e-Commerce) ........ 14 Table 3-6. Select Analytics Start-Ups ........................................................................................... 19 Table 3-7. Technology Layers in the Industrial Internet of Things .............................................. 21 Table 3-8. Capital Equipment GVCs Enhanced by Digital Business Models .............................. 23 Table 4-1. Characteristics of Lead Firms in the Digital Economy ............................................... 25 Table 4-2. Digital Firms and Industrials, R&D Expenses and Locations, 2017 ........................... 26 Table 4-3. Total, Digital Economy and Industrial Revenue and R&D, 2012 and 2017 ............... 29 Table 4-4. Digital Firm & Industrials Acquisitions, Count and Value ......................................... 30 Table 4-5. Digital and Industrial Firm Investments, Count and Value ......................................... 32 Table 4-6. IIoT Start-Up Investment Activity, by Country, 2009-2018 ....................................... 35 Table 4-7. Digital Firm and Industrials Collaborations and Events ............................................. 36 Table 4-8. Digital Economy Strategies, Company Case Studies .................................................. 41 Table 5-1. Skills/Technical Focus Areas ...................................................................................... 43 Table 5-2. Employee Profile, Digital Economy GVC, 2017 ........................................................ 44 Table 5-3. Non-Computer Occupations in the Digital Economy Industries, 2017 ....................... 45 Table 6-1. Select Policies in Countries Leading Industry 4.0 ....................................................... 49 Table 6-2. Company Cases: Digital Activities, by Geography ..................................................... 51 Table 6-4. Key Findings for Korea ............................................................................................... 57 Table 6-3. Leading Industrial Robot Suppliers ............................................................................. 58 Table 6-5. Top 25 Digital Companies in Korea (based on 5-year average sales) ........................ 59 Table A-8-1. Digital MNE GVC Companies ............................................................................... 68 Table A-8-2. Industrial Equipment GVC Companies ................................................................... 70 Table A-8-3. WIR: Digital MNEs and ICT MNEs (other classifications, SIC, PwC, CBI, S&P) 71 Table A-8-4. Industry Segments by Industrial Classifications: ISIC4, KSIC-07, NAICS ........... 73 Table A-8-5. Types of Software (IBIS, CFRA, CBI) ................................................................... 75 Table A-8-6. Key Institutional Stakeholders in the Digital Economy GVC ................................ 77 Figures Figure 3-1. Digital Economy Segments, Products and Firms ......................................................... 9 Figure 3-2. Digital Transformation of the Capital Equipment GVC ............................................ 24 Figure 4-1. R&D Intensity (R&D Spending/Total Revenue), Select Firms, 2011-17 .................. 28 Figure 4-4. Key Actors & Relationships in the IIoT Space .......................................................... 39 Boxes Box 3-1. Infrastructure Services (Telecommunications, ISPs) ..................................................... 10 Box 3-2. Industrial Internet of Things Creates Opportunities for Analytics Start-Ups ................ 19 Box 3-3. Technology Layers in IIoT ............................................................................................ 21 Box 4-1. GE’s Digital Transformation: A New Approach to Human Capital Recruitment ......... 27 Box 6-1. Smart Factory: Automation and Robotics ...................................................................... 58 Box 7-1. Profile Google Campus Program ................................................................................... 63 Box 7-2. Government Support for Software & Service Development in India and Mexico