Social Network Construction and Competitiveness in Global Value Chain Network Analysis Perspective on Chinese Aerospace Industry

Social capital represents the impact of reference on individual behavior assessment and acts as ultimate arbiter of competitive success, whose benefits are secured by being a member of certain social network and structures (Burt, 1992, Durlauf, 1999, Manski, 2000, Portes, 1998). As representation of positional advantage in terms of structural dimension of social capital, centrality is specifically focused on this this study. High level of centrality signifies prominent position to influence the others and predict positive economic performance (Freeman, 1978, Wasserman & Faust., 1994).

At local level, how well a node is connected can be interpreted by its degree centrality, that is, the number of direct connections with its neighbourhood (Nieminen, 1974). However, degree centrality cannot measure the “uniqueness” a point is located at the very center of the whole network. Freeman (1978) suggested a nodes’ centrality should be measure by its significance in the overall structure in the whole network, and proposed that a node’s “global centrality” can be measured by the sum of geodesic distances to reach all other nodes (closeness centrality) and the brokerage between other nodes’ geodesics (betweenness centrality). Borgatti (2005) criticized on Freeman’s global centrality measurement presuming flows only take place over shortest paths, since exchanges may re-occur at same nodes and linkages over time. Taking other multiple simultaneously existing paths into account, Katz (1953) and Bonacich (1972) proposed a set of algorithms (eigenvector centrality) to evaluate eigenvector values, that is, a node’s proximity to other well connected nodes. Eigenvector centrality represent the sum of a node’s connections to other nodes weighted by the centrality in terms of both degree and closeness.

In international business networks, eigenvector centrality is embodied in “flagships” that take strategic leadership over key suppliers, key customers, selected competitors and the non-business infrastructure (Rugman & D'Cruz, 1997). These flagships possesses prominence and power gained through individual attributes and central position in order take control over dispersed resources and capabilities as authority and coordinate transactions between other network members as hubs, based on long-term collaborative relationships among major players in a business system (Dhanaraj & Parkhe, 2006, Ernst, 2002) . Eigenvector centrality interprets both local and global connectedness of an MNE, while also imply the cognitive and relational dimensions of social capital in international business network. (Jackson, 2008, Scott, 1991, Wasserman & Faust., 1994). In this regards, eigenvector centrality serves as dependent variable representing the structural position as well as identical and relational coherence of a firm in the business networks in this study. In this research, each business unit’s eigenvector centrality is based on its location in the global network of the industry as well as its impact on other neighbouring units, which represent the competitive advantages in terms of network position allocation.

This study mainly study the relationships between a firm’s specialization in Global Value Chain and the potential network return it can achieve. Porter (1985) categorized value activities into two categories: primary activities that engage physical creation and transfer of products, and support activities that coordinate and sustain primary activities throughout the value chain. These activities are integrated in the value chain through intersecting horizontal and vertical linkages. For horizontal integration, MNEs follow the “host-market production” and determine their production capacity based on size and potential of foreign market. In contrast, for vertical integration, they “seek-for-efficiency” to exploit the competitive advantage of local production factors and maximize the output of them.(Bathelt & Glückler, 2012).

This research mainly focus on the value chain positions of incorporated business units in the form of firms. Based on the industrial categorization of their major business sector and relevance to aerospace industry, they are categorized in following three groups:

(1) Primary Group: Firms that are directly specialized in manufacturing process of aircraft components and systems, raw material supply, and final aircraft assembly. In addition, ultimate customers of value chain such as airlines companies, airports and air-craft leasing companies are also included in this category.

According position in the supply chain, firms that are identified within this group are divided into four sub-groups, that is, up-stream suppliers, down-stream suppliers, Original Equipment Manufacturer (OEM) and customers.

In addition to industrial heterogeneity across multiple value chain phases of aerospace industry, in the context of emerging market, geographic location and institutional constraints of firms, duration of market presence as well as embeddedness in various business networks also play a crucial role determining the network positions of firms. In this research, firm’s geographic affiliation is determined by their location of official registration. Those are registered in mainland China are regarded as domestic firms, while the others are labeled as foreign. Foreign firms that are located in one of the “Advanced Economies” defined by IMF World Economic Outlook (2016) are identified from Developed Economies (DE), others are identified from Other Emerging Economies (EE). As for domestic firms, as geographic proximity and knowledge-spill over contributes to the overall network position, firm’s location within significant aerospace industrial cluster is taken into consideration, based on the calculation outcome of location quotient of employment in aerospace industry provided by Civil Aviation Industrial Yearbook 2014.