Abstract: The current turmoil in the international situation has led to a sudden increase in the risk of global scientific and technological decoupling, and the substitution of components by localization, as an important means of coping with this risk, has gradually garnered attention from both theoretical and practical perspectives. Although some studies have summarized the experience of localized substitution from the perspective of technological breakthroughs, the dynamic equilibrium of legitimacy and differentiation in the process of localized substitution of components has not been fully discussed. In this study, Wafangdian Bearing Group was selected as the research object, and the exploratory case study method was applied to systematically investigate the optimal differentiation process of localized substitution of components in state-owned enterprises by following the logic of "value triggering-value co-creating-value generating". The study found that, firstly, the substitution of nationalized components is a process in which the value trigger stimulates enterprises to adopt value co-creation centered on identity proposition and value activities, and to realize value generation. Second, as the value trigger evolves from the edge to the core, the identity proposition of the enterprise shows a progression logic from prototype emulation and model-following to the creation of a new model, while the value activity shows a market-responsive, technology-interactive, and industry synergistic deepening progression logic. Third, along with the progression of identity propositions and value activities, the relationship between the two exhibits the dynamic optimal differentiation law from threshold concordance to compensatory concordance to integration concordance, and realizes the value generation from single-point substitution, multi-dimensional substitution to value substitution through the formation of agile, empowering, to open-ended value co-creation. This study will contribute to the dynamic study of value co-creation and localization substitution, and it will also provide useful reference for state-owned enterprises to realize localized substitution of components.

Key words: localized substitution, optimal differentiation, value co-creation, state-owned enterprise, industrial component