**_Global Value Chains in the Electronics Industry                       Sturgeon and Kawakami_**

# **Introduction**

The electronics hardware industry is the world’s most important goods-producing sector. Not only does it employ more workers and generate greater revenue than any other sector, its products also enhance productivity in other activities and stimulate innovation across entire economies (Mann and Kirkegaard 2006). It is what Hirschman (1958) calls a “propulsive sector.” Consider the case of the United States, where innovation in electronics hardware, which employed 1,105,900 in 2009, has helped spawn a host of downstream service industries, including the computer systems design services, telecommunications, as well as data processing, hosting, and related information services, which together employed 2,697,200.<sup>1</sup> The heavy use of computers and information technology in other sectors, including retail and wholesale trade, transportation, finance, real estate, education, professional services, and industrial production, make it clear how pervasive the changes made by electronic hardware have been.

The goal of this paper is to delineate the central characteristics of global value chains (GVCs) in the electronics hardware sector, describe how they have evolved to incorporate newly developed and developing countries, and discuss how they have been affected by the 2008–09 economic crisis. As is common GVC analysis, we focus on the key actors in the chain of valueadded activities, where various activities are located geographically, and how information and knowledge flow within the chain.

This paper first presents evidence for the importance of electronics GVCs in the global economy, then discusses the effects of the recent economic crisis on the industry. The third section focuses on how information is exchanged in electronics GVCs, introducing the concept of “value chain modularity.” The next section identifies three key firm-level actors: lead firms, contract manufacturers, and platform leaders, and discuss their development, or “co-evolution.” A series of company, cluster, and country case studies are then presented to illustrate how supplier capabilities in various places have developed in the context of electronics GVCs. The sixth section identifies some of the persistent limits to upgrading experienced by even the most successful firms in the developing world. Four models used by developing country firms to overcome these limitations are then presented: (1) global expansion though acquisition of declining brands (Emerging Multinationals), (2) separation of branded product divisions from contract manufacturing (ODM Spinoffs), (3) successful mixing of contract manufacturing and branded products (platform brands) for contractors with customers not in the electronic hardware business, and (4) the founding of factory-less product firms that rely on GVCs for a range of inputs, including production.

Some of the cases presented here suggest that the 2008–09 economic crisis presented a window of opportunity, in particular, for firms based in Taiwan (China), which represent a key point of transformation in the industry and appear to be gaining more leverage in the industry in

> 1 U.S. Bureau of Labor Statistics Current Employment Statistics program, <u>http://www.bls.gov/data/#employment,</u> accessed Janurary 15, 2010.

2