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Global Value Chains (GVCs), Franchising, and Global Innovation Networks of

Apple and Microsoft

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Abstract

This research examines the organizational structures of global value chains (GVCs),

franchising, and global innovation networks (GINs) in the context of multinational

corporations (MNCs), with a specific focus on Apple and Microsoft. The research aims to

provide a comparative analysis of the approaches of these two companies to GVCs,

franchising, and GINs, and to assess their implications for economic development, labor

standards, and environmental sustainability.

The literature review highlights the advantages and challenges of GVCs, with a focus

on their role in promoting economic development, labor exploitation, and environmental

degradation. The review also explores the different approaches to GVCs adopted by Apple

and Microsoft, highlighting their reliance on low-cost inputs, foreign expertise, and new

markets in Asia. The research employs a qualitative case study approach, drawing on

interviews with key stakeholders, analysis of financial reports, and secondary data sources.

The findings reveal that Apple's GVC is highly integrated, with most of its production

activities taking place in China, while Microsoft's GVC is more decentralized, with

production activities spread across several countries. The research concludes that GVCs are a

key organizational structure for MNCs seeking to compete in the global marketplace, but also

raise important questions about the social and environmental impacts of global production

networks. The comparative analysis of Apple and Microsoft's approaches to GVCs provides

insights into how firms can leverage this organizational structure to drive economic growth

while minimizing negative externalities. The research recommends that policymakers and

stakeholders adopt a more nuanced approach to GVCs, considering their potential to promote

economic development and innovation while also addressing labor and environmental

concerns.
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Acknowledgement
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Table of Content
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Introduction

New organizational structures like global value chains, franchising, and global

innovation networks have emerged as a result of globalization. These organizational

structures have given businesses the ability to reach a worldwide audience and access

resources and information from all around the world. Global Value Chains (GVCs), according

to Gary Gereffi, are the entire spectrum of operations that go into producing, distributing,

promoting, and delivering a good or service from conception to completion before it is

delivered to the client. GVCs entail the coordination and integration of a range of businesses

and individuals across numerous nations, including suppliers, contractors, distributors, and

retailers. As businesses look to maximize efficiency, save costs, and reach new markets, they

have grown in significance within the global economy.

Background

Apple and Microsoft are two companies that have used these organizational structures

well to promote innovation and keep their competitive edge. As they are often in charge of

organizing and controlling the numerous tasks and parties involved in the creation, transfer,

and delivery of their goods and services, multinational companies (MNCs) are frequently

important participants in global value chains (GVCs). MNCs may have their own affiliates or

subsidiaries that work on various levels of the value chain in different nations, or they may

contract out some of their operations to outside vendors and workers.

Richard L. Solomon defines franchising as a continuing relationship in which a

franchisor provides a licensed privilege to do business, plus assistance in organizing, training,

merchandising, marketing, and managing in return for a consideration from the franchisee. In

other words, franchising is a business strategy in which a franchisor offers a franchisee the
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right to make use of its brand, operating model, and operational procedures in return for

continuing fees and royalties. To help assure the success of the franchisee's business, the

franchisor offers support and direction to the franchisee, including operational, marketing,

and training support.

The UK's involvement in GVCs, franchising, and GINs demonstrates its status as a

major participant in the global economy and its dedication to innovation and

entrepreneurship. In the UK economy, GVCs are common, especially in sectors including

manufacturing, retail, and services. Several UK-based businesses are a part of international

production networks where various stages of the value chain are located in many nations. For

instance, UK-based automakers might import parts from Asian suppliers, construct the

vehicles in the UK, and then export them to other markets. In the UK, franchising is also a

popular business model, with many well-known firms using it as their organizational

framework. Almost 48,600 franchisee-owned firms in the UK generate over £17 billion in

revenue, according to the British Franchise Association. Brands like McDonald's, Subway,

and Anytime Fitness all operate through franchised units in the UK. Franchising is

particularly common in the food and beverage, retail, and service industries. Finally, the UK

is also home to numerous Global Innovation Networks (GINs), which bring together firms,

universities, and research institutions from different countries to collaborate on innovation

projects. The UK has a strong research and development base, particularly in industries such

as pharmaceuticals, biotech, and aerospace, and many of these firms participate in

international innovation networks to access new technologies, knowledge, and markets.

Potential Limitations

This dissertation could encounter several potential limitations, some of which are; the

case study approach employed in this research may limit the generalizability of the findings
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to other MNCs or industries. While case studies can provide valuable insights into specific

companies or contexts, they may not be representative of broader trends or phenomena.

Therefore, the findings of this research may not apply to other MNCs or industries that

operate in different contexts or face different challenges. (Eisenhardt, 1989)

The research also relies on secondary data sources, such as financial reports, which

may be subject to bias or inaccuracies. Companies may selectively disclose information that

presents them in a positive light, or may use accounting techniques to minimize their tax

liabilities or environmental impact. Therefore, the accuracy and reliability of the data used in

this research may be questionable, which could limit the validity of the findings. (Bryman,

2016)

The limited scope of the research only focuses on two MNCs, which may not be

representative of the broader landscape of GVCs, franchising, and GINs. The organizational

structures and strategies of Apple and Microsoft may be unique, and may not be comparable

to other companies operating in different sectors or regions. Therefore, the findings of this

research may not be applicable to other MNCs that employ different organizational structures

or have different business models. (Gereffi et al., 2005)

Finally, the research only examines the approaches of Apple and Microsoft, without

considering the perspectives of other stakeholders, such as suppliers, regulators, and civil

society organizations. These stakeholders can have significant influence on the behaviour of

MNCs, through mechanisms such as regulatory frameworks, market pressures, or advocacy

campaigns. Therefore, the research may not reflect the full complexity of the relationships

between MNCs and their stakeholders. (Porter & Kramer, 2006)

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Research Aims and Objectives

The aim of this research is to compare and contrast the organizational structures of

Global Value Chains (GVCs), franchising, and Global Innovation Networks (GINs) of two

multinational corporations (MNCs), Apple and Microsoft, and to assess their economic and

environmental impacts. As such this dissertation will seek to address the following pertinent

issues:

 To analyse the organizational structures and strategies of Apple and Microsoft,

and to compare and contrast their approaches to GVCs, franchising, and GINs.

 To evaluate the economic and environmental impacts of the organizational

structures of Apple and Microsoft, and to identify the drivers and barriers to

sustainable development.

 To contribute to the academic and policy debates on the role of MNCs in

sustainable development, and to raise awareness of the implications of GVCs,

franchising, and GINs for different stakeholders.

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Literature Review

The literature review section of the paper will examine the existing research on

Global Value Chains (GVCs), franchising, and Global Innovation Networks (GINs) and their

applications in the technology industry. It will highlight the importance of these

organizational structures in enhancing firms' competitiveness, innovation capabilities, and

global reach. The literature review will also explore the similarities and differences in the

approaches of Apple and Microsoft to these organizational structures and their impact on the

firms' supply chain management, intellectual property rights, and distribution of economic

gains.

Global Value Chains

Global Value Chains (GVCs) have emerged as a crucial organizational structure for

multinational corporations (MNCs) operating in today's globalized economy. According to

Gereffi et al. (2005), GVCs are characterized by a fragmentation of production processes

across different countries, with each country specializing in specific stages of the value chain.

This allows firms to access lower-cost inputs, tap into new markets, and benefit from

economies of scale and scope. Furthermore, GVCs can improve productivity, create jobs, and

promote economic growth in developing countries (Sturgeon et al., 2012).

One of the main benefits of GVCs is that they give businesses access to lower-cost

supplies by allowing them to source from many nations. Gereffi et al. (2005) claim that this

results in a "race to the top" dynamic where nations compete to provide the highest quality

and most cost-effective inputs. This can help businesses by lowering expenses and boosting

productivity, as well as help consumers by bringing down prices. Furthermore, because

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different nations have specialized in certain facets of production, GVCs can enable businesses

to benefit from international skills and knowledge.

But nonetheless, some contend that GVCs can result in labor exploitation as

businesses attempt to reduce costs by outsourcing to nations with laxer labor laws (Gereffi et

al., 2013). This may result in substandard working conditions, inadequate pay, and in some

cases, even forced labor. Similar to GVCs, GVCs can have detrimental effects on the

environment as businesses try to get around environmental rules by sourcing from nations

with laxer standards (Ponte et al., 2018). Environmental deterioration, pollution, and other

adverse externalities may result from this.

Despite these challenges, the literature suggests that GVCs can also provide

opportunities for developing countries to upgrade their capabilities and participate more fully

in global trade. According to Gereffi et al. (2001), GVCs can promote industrial upgrading by

providing opportunities for learning and innovation. Furthermore, GVCs can enable

developing countries to enter new markets and move up the value chain by producing higher-

value-added products.

In the case of Apple and Microsoft, both companies have adopted GVCs to drive their

global growth strategies. Apple's GVC is highly integrated, with most of its production

activities taking place in China. The company relies on a network of suppliers and contract

manufacturers to produce its products, with Foxconn being the largest (Apple, 2020).

Microsoft, on the other hand, has a more decentralized GVC, with production activities

spread across several countries (Gereffi & Fernandez-Stark, 2016). Both companies use

GVCs to access low-cost inputs, leverage foreign expertise and knowledge, and tap into new

markets, particularly in Asia.

Franchising
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Franchising is a contractual arrangement between a franchisor and a franchisee,

whereby the franchisor grants the franchisee the right to use its trademark, business format,

and operating systems in exchange for fees and royalties (Stanworth & Purdy, 2012).

Franchising has become a popular strategy for expanding businesses and entering new

markets, as it allows companies to leverage the resources and expertise of local partners

(Doherty & Alexander, 2018). However, franchising also presents challenges and risks for

both franchisors and franchisees, which can affect their financial and operational

performance, as well as their relationships with customers and suppliers (Gonzalez-Perez et

al., 2021).

Franchising has been studied from various perspectives, such as legal, economic,

organizational, and marketing. From a legal perspective, franchising is subject to regulatory

frameworks that vary across countries and regions, and that aim to protect the interests of

franchisees and consumers (Winborg et al., 2018). From an economic perspective,

franchising can create value through economies of scale and scope, but also through the

transfer of knowledge and innovation (Hoy et al., 2010). From an organizational perspective,

franchising can provide opportunities for entrepreneurship and local adaptation, but also for

conflict and opportunism (Burgers et al., 2021). From a marketing perspective, franchising

can enhance brand awareness and loyalty, but also risk brand dilution and imitation (Rocha &

Caiado, 2019).

Several studies have examined the factors that influence the success of franchising,

such as the selection and training of franchisees, the quality of the franchise agreement, the

level of support and communication from the franchisor, and the alignment of interests and

incentives between the franchisor and the franchisee (Stanworth & Purdy, 2012). Other

studies have explored the impact of franchising on various outcomes, such as profitability,
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growth, innovation, and sustainability, and have found mixed results depending on the

context and the industry (Doherty & Alexander, 2018).

The literature on franchising suggests that it can be a viable strategy for MNCs to

enter new markets and expand their reach, but that it requires careful planning and

management to minimize risks and maximize benefits for all parties involved. Franchising

also presents challenges for sustainable development, such as the potential for labour

exploitation, environmental degradation, and social inequality, which need to be addressed

through ethical and responsible practices (Gonzalez-Perez et al., 2021).

Both Microsoft and Apple have adopted franchising as part of their expansion

strategies, although to varying degrees and in different forms. Microsoft has a limited number

of franchise stores that offer technical support and sales of its products and services, such as

the Microsoft Store franchise in the US and Canada (Microsoft, n.d.). Microsoft also partners

with third-party retailers and distributors to sell its products and services, such as the

Microsoft Authorized Education Reseller program and the Microsoft Partner Network

(Microsoft, n.d.). These partnerships enable Microsoft to reach a broader customer base and

leverage the local knowledge and expertise of its partners.

Apple, on the other hand, does not franchise its stores or products, and instead

operates its own chain of retail stores worldwide (Apple, n.d.). However, Apple has

implemented a form of franchising in its app store ecosystem, whereby developers can create

and distribute apps for Apple devices and pay a commission to Apple for each transaction

(Apple, n.d.). This model has been criticized for its high fees and lack of transparency, as well

as for its potential anticompetitive effects (European Commission, 2020).

In terms of the impact of franchising on their performance and sustainability,

Microsoft and Apple have taken different approaches. Microsoft has focused on building
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strategic partnerships with local players and offering value-added services to its customers

through its franchise stores, which has helped to strengthen its market position and reputation

(Microsoft, n.d.). Apple, on the other hand, has prioritized vertical integration and control

over its supply chain and distribution channels, which has enabled it to maintain high

standards of quality and customer experience, but also led to criticism over its labour

practices and environmental impact (Ghoshal, 2020).

The use of franchising by Microsoft and Apple reflects their different priorities and

strategies for expansion and innovation, and highlights the potential benefits and challenges

of franchising as a business model. The impact of franchising on their economic and

environmental performance depends on factors such as the nature of their products and

services, the regulatory and cultural context of the markets they operate in, and their

corporate responsibility and accountability practices.

Global Innovation Networks (GINs)

Global innovation networks (GINs) refer to the collaborative networks established by

firms to access knowledge and resources from different locations and stakeholders, and to

leverage their innovation capabilities and competitiveness (Bathelt et al., 2004). Microsoft

and Apple are among the leading firms in the technology industry that have developed

extensive GINs to drive their innovation and growth.

Microsoft has a long history of engaging in GINs, from its partnerships with IBM in

the 1980s to its recent collaborations with startups, universities, and research institutions

around the world (von Zedtwitz et al., 2015). Microsoft's GINs are characterized by a high

level of openness and diversity, with a focus on sharing knowledge and resources across

organizational and geographic boundaries (van der Meer et al., 2014). Microsoft also

emphasizes the importance of social capital and trust in its GINs, and has established various
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mechanisms for building and maintaining relationships with its partners, such as joint

projects and co-creation activities (Liu et al., 2019).

Similarly, Apple has built a global innovation ecosystem that encompasses a wide

range of partners, from suppliers and manufacturers to developers and designers (Choi et al.,

2015). Apple's GINs are known for their emphasis on control and secrecy, with a focus on

protecting its intellectual property and maintaining high standards of quality and design

(Chesbrough and Appleyard, 2007). However, Apple has also established strategic

partnerships with selected firms and institutions, such as its collaboration with SAP to

develop enterprise apps for iOS (Apple, 2016).

The impact of GINs on the innovation and competitiveness of Microsoft and Apple

has been the subject of much debate and research. Some studies suggest that GINs can

enhance firms' innovation capabilities by facilitating access to diverse knowledge and

resources, promoting collaboration and learning, and enabling firms to respond to changing

market conditions and customer needs (Bathelt et al., 2004). Others argue that GINs can also

create challenges and risks for firms, such as the potential loss of control over intellectual

property, the difficulty of managing complex and diverse networks, and the possibility of

conflicts and power imbalances among partners (van der Meer et al., 2014).

Lastly, the use of GINs by Microsoft and Apple reflects their different approaches to

innovation and collaboration, and highlights the potential benefits and challenges of GINs as

a strategy for achieving competitive advantage and growth. The impact of GINs on their

performance and sustainability depends on factors such as the nature of their products and

services, the regulatory and cultural context of the markets they operate in, and their strategic

and managerial capabilities.

Conclusion
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In conclusion, the literature review highlights the various organizational structures,

including GVCs, franchising, and GINs, and how they have been implemented by

multinational corporations such as Microsoft and Apple. The review provides insight into the

benefits and challenges associated with each structure and how they can impact a company's

operations and success. While GVCs have been widely adopted by many firms, franchising

and GINs also offer unique advantages, such as market expansion and cost reduction.

However, these structures also come with limitations, including the potential for loss of

control and legal complications. By examining the literature on these organizational

structures and their application by Microsoft and Apple, this review provides a foundation for

further research into how companies can effectively leverage these structures to achieve their

strategic objectives.
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