Escape from MidWay: The dead-end at being at the bottom of the Smile Curve

Absztrakt (kivonat)

The thesis Escape from MidWay – The dead-end at the bottom of the Smile Curve aims to determine how selected central European countries can maintain an economically suitable life in the future given the current changes and trends of the present and the future (perceived). It emphasizes the improvements in countries' position as part of the smile curve concept in the long run. The selected countries are Czechia, Hungary, and Poland. Several types of methodology were used during the thesis. Based on the distribution of the country's total value-added activities, the percentage composition of bottom, middle, and top activities could be determined. Data was gathered based on which the ranks of the states compared to each other would be specified. The total value added was divided into three categories based on the United Nations Statistical Division's International Standard Industrial Classification of All Economic Activities (ISIC) Revision 4 activities. Case studies were also used to identify the advantages or disadvantages of moving upper the smile curve. As well as empirical studies and articles about current trends and changes were used to predict future trends and their consequences to the smile curve. The paper starts with the summarization of all the theories, definitions, concepts, trends, and other facts needed to elaborate on the topic and to implement the research, such as value chain, GVCs, upgrading, smile curve, robotization, etc. Then it presents the mythology that was used throughout the research. It follows with problem analysis. With the help of three sub-questions, a detailed research was conducted which is needed to determine the results. First, the current position of selected countries alongside the smile curve was determined. All the countries found out to be close to the bottom part of the curve, as their industries are characterized mainly by low value-added activities. Then, it was argued, whether it is beneficial to locate at a higher position on the smile curve or not. Through a comparison with case studies, it found out, that being upper the curve, the advantages are greater. Close to the top of the curve, the activities are connected with more valueadded, so with more profit for the entities. Moreover, the governance is also higher, so a bigger influence of the whole chain is ensured. The changing environment and its effects were also analyzed. A prediction of the future consequences of being at different positions on the smile curve was made. The lower portion of the curve is associated with bigger risk, due to robotization and the workforce’s increasing needs. Finally, the upgrading possibilities were analyzed, which could be the way out for the selected countries. The findings and the conclusion were summarized at the end of the paper. Based on the analysis conducted in the thesis, the following statements could be concluded. Czechia, Hungary, and Poland have a bigger portion of bottom activities in their industries compared to France, Germany, Sweden, and the United States of America. For that reason, they have a lower value-added than others and have a lower position on the smile curve. Having a lower position is disadvantageous for a country in the long run. The higher the country is on the smile curve, the more benefits it gets. For that reason, every country has the motive to improve the position, so use upgrading practices. As technology advances and the human workforce's needs increase, countries at the bottom of the smile curve will face more problems with countries at the upper part. It would be beneficial and even necessary for every country to upgrade to maintain an economically sustainable position. Countries at the bottom need to upgrade. Process and chain upgrading are not suitable for these three countries. The first one needs a vast amount of capital, which the states did not possess. For the second one, a development level is required. None of the three countries stands at that level. However, product and functional upgrading are the right choices for Czechia, Hungary, and Poland. Both of them are changing the current portfolio. They could be achieved in several ways, but the best is to change the support system to prefer those entities that are such: either has their own products or does higher valueadded activities. With product and functional upgradings, the countries can improve their position alongside the smile curve and climb upper. Doing so, they will gain more effective governance over the chain, have more value-added and more profits, and will become less dependent on other players.