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

any in-house production capacity, such as EMC, Sun Microsystems, Cisco, and Silicon Graphics, also demanded that suppliers provide global support. And, in some key locations, lead firms did not necessarily have plants to sell or spin off, especially in newer locations like China and Eastern Europe. As a result, a great deal of the global expansion of suppliers in the 1990s was either “organic” in character, involving the enlargement of existing facilities and the establishment of new “greenfield” plants,<sup>10</sup> or achieved through the acquisition of regional suppliers, in what some industry participants refer to as the “rolling up” of regional supply bases to create a global footprint.

Global coverage allows the largest EMS contract manufacturers to produce high-volume, price-sensitive products for global markets from plants in China, and higher value, mediumvolume products in regional production facilities such as Mexico and Eastern Europe. It also enables them to produce a variety of products locally for regions containing large developing countries such as India, Brazil, and China, and to work closely on lowest volume, highest value products with customers in industrialized counties, in places like Silicon Valley.

However, expansion in the 1990s was so rapid that the largest EMS companies quickly became overextended. Integrating diverse plants acquired from customers and competitors left these firms with excess capacity, facilities with incompatible factory and information systems, and too many plants in high-wage locations. Efforts at consolidation are ongoing, but overexpansion and poor management left certain companies, especially Solectron and SCI, with too much inventory in the system and in very weak financial position, making them ripe for acquisition. After the 2001 technology bubble burst, contractors made a strong push to increase capacity in low-cost geographic areas, especially China, and, as shown in the next section, to transform regional production hubs in Mexico and Eastern Europe to produce higher value, lower volume products previously manufactured in the United States and Western Europe.

# **_Guadalajara, Mexico_**

Economic downturns can have obvious negative effects on workers, companies, industrial clusters, industries, and entire national and regional economies.<sup>11</sup> But they can also provide an impetus for positive change, adaptation, better prospects for sustainable development for the long term, and an improved ability to weather future downturns. One example is the electronics cluster in Guadalajara, the capital of Jalisco State in southwest Mexico. The 2001 technology bubble bursting in 2001 was felt acutely across electronics GVCs, and the Guadalajara electronics cluster was no exception. Companies and facilities there went through a wrenching and rapid decline, but recovered through a remarkable process of industrial upgrading. This involved a move to new products and processes, as well as changes in work organization and training as high-volume production lines were transformed into high-mix production cells to accommodate a greater variety of higher value products.

> 10 At Celestica, for example, 40 percent of global capacity expansion was “organic” in nature **.** 11 This section draws from Sturgeon and Dussel-Peters (2006)

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