The first China International Supply Chain Expo (CISCE) is set to take place from November 28 to December 2, featuring participation from many top-tier companies in both domestic and international supply chains. These industry leaders often excel in fostering innovation and generating value, thanks to their role in creating robust ecosystems within their respective value chains. Their influence extends not just within their own organizations, but also trickles down to benefit upstream and downstream partners, thereby promoting collective growth and prosperity. Recognizing and leveraging the pivotal role these leaders play in the value chain is essential for ensuring the stable development of international supply and industry chains.

Professor Ricardo Hausmann, founder of Harvard University’s Growth Lab, holds a well-known perspective: the secret for middle-income countries to close the gap with developed nations isn’t primarily found in factors like population size, technological advancements, education, healthcare, or urbanization. Instead, it’s about escaping the “middle-income trap”. Economies that successfully bridge the gap with developed countries usually display two distinct characteristics: their export growth significantly outpaces GDP growth, and they diversify their exports by shifting towards more sophisticated goods. Building on Hausmann’s viewpoint, the next phase of China’s quality development will be critically dependent on a large number of leading companies becoming key drivers in emerging industries.

For leading Chinese companies aiming to become global powerhouses in value chains, a critical challenge lies in their ability to forge connections with other businesses in the chain. How can they spearhead innovation in value chains, build soft power, and more effectively engage in international competition? Research by international business professor Liena Kano and her colleagues suggests that companies in a dominant position within the value chain typically need to fulfill four essential roles, all tied to the concept of “connecting the chains”.

First, these companies act as architects of emerging industries, wielding the power to decide which businesses can enter these value chains. By creating industry-specific ecosystems, they play a crucial role in shaping network relationships, business models, supply-demand dynamics, and operating rules. They set critical industry standards and collaboration models between enterprises and identify optimal global locations for various activities within the industry chain.For example, BYD, a global leader in the emerging field of new energy vehicles, negotiated with KG Mobility, the precursor to SsangYong Motor, to establish a joint power battery factory in South Korea when expanding into markets in Southeast Asia, South America, Europe, and the United States, thereby creating a global supplier network.

Second, these companies serve as strategic leaders in emerging industries, overseeing the governance of the entire global value chain network. Take Huawei as an example: even amid challenges in the United States, including disruptions to key chip supplies, the company continues to be a frontrunner in smartphone innovation. Huawei aims to bring together a diverse array of partners to develop technologically advanced, integrated consumer electronics that encompass both hardware and software. By contributing to international patent pools, the company further strengthens its soft power, positioning itself as a strategic leader in the development of future wireless communications technologies, such as the 6G network.

Third, these companies act as gatekeepers in emerging industries, controlling the dissemination of critical knowledge along the value chain. They serve as knowledge hubs that connect various internal and external networks. These companies have the responsibility to anticipate future market shifts and guide upstream firms in updating and renewing their offerings. At the same time, they must also keep downstream enterprises and consumers informed about new manufacturing capabilities and component innovations. This multifaceted role enables them to facilitate, coordinate, and synchronize innovation both upstream and downstream. By quickly disseminatingknowledge about innovation, they help filter out deviationsand informationthat could disrupt industry cooperation, and steer the alignment and coordination of activities throughout the value chain.

Fourth, these companies act as value distributors in emerging industries, orchestrating the distribution of value so that each industry partner gets a fair share. This role helps emerging industries generate greater overall value. To make sure each partner benefitsreasonably andequitably, these leading companies grant smaller and medium-sized collaborators some pricing power, providing them with ample opportunities and instilling the belief that they can earn a fair share of the value. This encourages more active participation in both upstream and downstream cooperation. Huawei’s well-known strategic principle of “maximizing internal potential while sharing benefits with others” was inspired by the water management philosophies of the Dujiangyan Water Conservancy System. The approach involves consistently sharing benefits with partners and users, thereby securing a competitive advantage over global competitors like Ericsson. If such leading companies are reluctant to distribute value across the network and opt to hoard it instead, they might enjoy significant short-term profits but risk being outpaced by international competitors who better redistribute value within the network, ultimately jeopardizing their leadership position.

By understanding the multifaceted roles that leading companies play in the value chain, we can adopt the principle of “shared benefits and losses”, a concept rooted in ancient Chinese philosophy, as a strategic approach to forging stronger connections among leading enterprises. This principle emphasizes the importance of balance, reciprocity, and harmony, discouraging the pursuit of one-sided gains. It proves especially relevant in business and social settings, aiding in the establishment of soft power. This principle is particularly effective in fostering a dual relationship characterized by long-term competition and cooperation within the development of international value chains. By adhering to this concept, companies can reduce conflict and unfair practices, ensuring a more balanced and harmonious industry ecosystem.

Leading enterprises can apply the principle of “shared benefits and losses” when “connecting the chains” in the following ways:

Firstly, they should prioritize the sharing of information and the promotion of transparency. This involves establishing open lines of communication with other enterprises and freely exchanging information and data. Such transparency is essential for both upstream and downstream partners to gain a comprehensive understanding of the innovation and development happening across the entire value chain. This openness allows all parties involved to better coordinate their activities and resources, thereby minimizing unnecessary waste and transaction costs.

Secondly, it is crucial to ensure the equitable distribution of benefits, ensuring that all stakeholders can fairly partake in the value created throughout the value chain. This entails not only safeguarding the interests of the leading enterprise itself but also taking into account the profitability of small and medium-sized suppliers and franchisees. The objective is to empower every participating enterprise to derive benefits from the collaborative effort. Achieving this can be facilitated through reciprocity, such as openly developing new products, sharing market channels, and reducing transaction costs.

Thirdly, it’s imperative to establish effective dispute resolution mechanisms capable of addressing potential disagreements and conflicts. This ensures that any disputes or issues that arise can be swiftly and fairly resolved, while maintaining the cooperative relationship and the integrity of the innovation ecosystem.

Fourthly, there should be a strong emphasis on fostering long-term relationships and making substantial contributions to social value. This involves cultivating enduring partnerships based on mutual benefits, as opposed to engaging in short-lived transactions. Building and nurturing long-term relationships is pivotal for fostering trust and creating more opportunities for interconnected partners to generate value collaboratively. Additionally, placing importance on social and environmental responsibilities and jointly undertaking projects that contribute to society, such as actively participating in efforts to reduce global carbon emissions and ecological footprints, serves to enhance the international reputation and sustainability of the entire value chain.

In conclusion, if Chinese leading enterprises steadfastly embrace the concept of “shared benefits and losses”, they have the potential to foster robust and enduring global business relationships. This entails engaging in business interactions where interests are shared in a mutually advantageous and equitable manner, while adhering to the principles of fairness, transparency, and ethics. Such an approach promises to yield greater value within the value chains they spearhead and nurture an increased soft power, ultimately benefiting all involved parties. As we convene at the inaugural China International Supply Chain Expo, our aspiration is for these leading chain leaders to collaborate closely with their upstream and downstream counterparts, collectively forging new opportunities and leading the charge in value chain innovation.