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

“intangible” aspects of GVCs with any degree of specificity, the scale and rapid growth of intermediate goods trade in the electronics industry is certainly indicative of its importance and dynamism in GVC formation.

## **Effects of the Economic Crisis on Electronics Industry GVCs**

As with almost all other sectors, the electronics industry was deeply affected by the economic crisis of 2008–09. The scale of the crisis in trade is reflected in figures on overall ocean transport traffic, which carried all but the most lightweight and expensive electronics shipped over long distances. The combined results of the 16 largest ocean container carriers publishing quarterly figures—including Maersk Line, Hapag-Lloyd, China Shipping, “K” Line, and NYK Line—showed revenue declines of 40 percent for the first nine months of 2009, $56 billion, in comparison to figures from a year earlier, $94 billion (Barnard 2009).

Aggregate international trade statistics for 2008 and 2009 are still being finalized at this time, and preliminary estimates are unreliable. Nevertheless, past patterns are a reasonable indicator of recent and future patterns. Figure 1 shows world export growth from 1962 to 2006 in terms of intermediate, capital, and consumption goods, as well as capital and consumption goods combined into a “final goods” category. As the figure indicates, trade in intermediate goods appears to be much more volatile than trade in capital or consumption goods. This supports the notion of “bullwhip” effects of recessions and business cycles, where slowdowns and downturns affect part and component shipments more than final goods shipments because final goods producers tend to draw down parts inventories and delay reordering during periods of uncertainty (Escaith, Lindenberg, and Miroudot 2010). In addition, intermediate goods trade usually grows notably after recessions, especially U.S. recessions—U.S. company outsourcing has been one of the most important drivers of GVC expansion—but also following sectoral bubbles (for example, the 1985 PC bubble and the 2001 dot.com bubble), regional crises (the East Asian financial crisis), and worldwide slowdowns (the oil shocks of 1972 and 1979).

It is well documented that companies tend to be reluctant to hire new workers after the trough of recessions until demand improvements are sustained, making employment a lagging indicator of recovery. Related to this, however, and less well-documented, is a reluctance to invest in new production capacity and a carryover from efforts during recession to cut costs, leading to more aggressive implementation of outsourcing and off-shoring strategies. This pattern is in line with the findings of qualitative research (Sturgeon 2003) that lead firms in the electronics industry increase outsourcing and off-shoring following recessions because demand uncertainty makes investments in internal capacity seem more risky. Then, as the cycle continues, Design features are most often dictated by global buyers and change constantly as fashions and seasons vary, and deliveries are very timely, coordinated with the needs of retailers. In some cases, store pricing and barcode labels are attached to garments in the factory prior to direct delivery to retail stores. This type of explicit coordination is an important driver of industrial upgrading in developing countries, as suppliers expand their capabilities to meet the demands of global buyers, and is an important determinant for where value is captured in the industry: largely by the brand-carrying firms and large retailers based in industrialized countries.

7