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

The GVC governance dynamics of the Chinese mobile phone handset case are quite clear: competitive outcomes in the Chinese industry shifted as the GVC governance variable of complexity went up (see Gereffi, Humphrey, and Sturgeon (2005) for a discussion of key GVC governance variables, complexity, codifiability, and supplier competence). Rising complexity altered where the codified links in the chain had to be positioned. Local firms were forced to bundle new technologies in larger, more integrated platforms, which raised the competence level required to deliver handset design services. This was something that local design houses could not do, and Mediatek stepped into the breach with their own integrated platform. The competitive problem this posed for local handset makers was that the larger, more integrated platforms could not be as easily customized to create the differentiation on which the local handset firms based their competitive positioning. The local Chinese handset industry has been caught in a classic modularity trap.

## **Overcoming the Limits to Industrial Upgrading in Electronics GVCs**

Such examples as the Chinese mobile phone handset industry reveal the opportunities, but also the challenges and limits to industrial upgrading in electronics GVCs. On the other hand, there are a growing number of important exceptions that suggest that new models of learning through close engagement in GVCs could be emerging, with broader lessons for developing countries (see Yeung 2009). As mentioned at the start, there are four identifiable models electronics companies from the developing world are using to escape these limitations: (1) global expansion though acquisition of declining brands (Emerging Multinationals), (2) separation of branded product divisions from contract manufacturing (ODM Spin-offs), (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 (Emerging Factory-less Start-ups). The analysis in this final section is derived from the authors’ ongoing research and secondary sources covering very recent events and nascent trends. As such, it is more speculative and forwardlooking and less certain.

## **_Emerging Multinationals: Exceptions or the New Rule?_**

The case of Lenovo, a partially state-owned Chinese PC company, shows one way in which lead firms from developing countries have been able to overcome traditional barriers to upgrading their positions in GVCs.<sup>20</sup> In the mid-1990s Lenovo, benefiting from a protected market, emerged as the largest domestic producer of PCs in China. As import restrictions were lifted, however, Lenovo struggled to remain competitive, as have most developing country national champions in technology-intensive sectors. After the technology bubble burst in 2001, persistent low profitability in the global PC industry, for the reasons described earlier, led some of the largest multinational producers to exit the industry, precipitating a wave of acquisitions, most notably Lenovo’s purchase of IBM’s huge PC division in 2004.

The IBM purchase gave Lenovo a new headquarters in the United States with a large R&D center in North Carolina; an advanced notebook computer development facility in Japan;

> 20 This section draws from Whittaker et al. (forthcoming).

37