Value Creation in an SME from a Traditional Industry: It All Adds Up

Abstract

Value creation in small- and medium-sized firms (Moore and Manring 2009) is often associated with their operations in global value chains or global production networks (Chetty and Holm 2000). In this process, companies exchange inputs and/or outputs with domestic and foreign firms in dyadic transactions while value is sequentially added in a way that is not clearly identified, just as when more sophisticated activities are performed transactional value is added until the final customer is reached (Ritchie and Brindley 2000; Kumaraswamy et al. 2012). Nevertheless, there is little discussion of how value is created or derived throughout these transactions. Instead, in line with neoclassical economics, it is generally assumed that value is created through firms’ participation in value chains and, ultimately, ‘consumed’ by individual customers. The marketing literature has been exploring value creation as a process creating value for the customer to use or co-created with the customer based on his/her preferences. Moreover, research by Vargo and Lusch (2011) and Akaka et al. (2013) has prominently developed a service-ecosystems perspective that places centrality to context in value creation, developing the ideas of service exchange, integration of resources, value co-creation, and value-in-context (Akaka et al. 2013). The concept of value creation has also been embraced and made central in the understanding of the nature of marketing by the American Marketing Association (AMA) so that the product is no longer the object of exchange between a firm and its customer, but it is an offering, a bundle that creates value for the immediate customer, various parties that make the bundle happen, and the society at large. The AMA definition of marketing adopted in 2013 is: ‘Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large’ (AMA 2013). Business model researchers place value at the focus of a firm’s business model (Zott et al. 2011) and as such value transcends inputs, outputs, partners (suppliers and buyers), and determines the company’s costs and revenue, thus making value the backbone of each business organization. Strategic management literature also adopts the concept of value in accordance to Porter’s Value Chain of a firm, which looks at all primary and support activities that through sequence and interplay create the margins for the firm and enable it to function and grow (Rindova et al. 2010). Meanwhile, innovation research claims that firms create value by increased and more effective research and development (R&D) (Sirmon et al. 2007), through explorative and exploitive innovation (Gupta et al. 2006), therefore, emphasizing a specific activity and a company or even a national platform that enables firms to create value. Consequently, academic literature, in spite of its specific perspective, shows an evident consensus in developing the notion that value is central to the purpose of any business and is essential to the business, its business network of suppliers, customers and stakeholders, and to satisfying the customer needs and wants (Payne et al. 2008).