Source: Adapted from the Stan Shih �Smile Curve� concept.

Commodity Chains and Added Value

The manufacturing function of many corporations has been hollowed out by the process of globalization, in which manufacturing accounts for one of the least added value activity, particularly if it takes place within a subcontracting framework. The massive entry of low cost manufacturers led to a high level of competitiveness in many production sectors, reducing profit margins as well as its overall level of contribution to added value. This led to a growing contribution and importance of the concept and logistics segments. Consequently, in a global production and consumption market R&D, branding and design (creating a product) can be a significant component of the added value function of a commodity chain. On the logistics segment (making a specified product available on markets), distribution, marketing and sales / after sales services (such as customer support) are the activities generating the most added value.