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

The case of the transformation of the Guadalajara electronics cluster provides some lessons for the concept of GVC upgrading and for the prospects for economic transformation in locations where modular GVCs touch down. First, any neat partition between product, process, and functional upgrading as specified by Humphrey and Schmitz (2002) seems problematic because of the powerful complementarities that flow from product upgrading. The shift to higher value, lower volume products, in this case, _required_ firms to upgrade processes to accommodate rapid changeover and to add new functions to control a much more complex inventory basket and to develop new engineering inputs to support changes. Second, rapid upgrading was possible in part because the skills to do so had been developed within the larger global structure that the facilities in Guadalajara are part of. Finally, the authors’ research found that local firms have not been able to adapt to the new requirements of the cluster, in part because the resources and knowledge to transform their plants is not available locally. Nevertheless, the upgrading achieved after the technology bubble burst in 2001 may have provided the Guadalajara electronics cluster with some protection during the current economic crisis.

## **_Taiwan (China)_**

Taiwan-based ODM contract manufacturers have come to dominate world production of PCs, but have historically had difficulty selling their own branded products to consumers.<sup>13</sup> However, the recent economic crisis may have created new opportunities for Taiwan-based firms to overcome these barriers, as will be discussed in this section on the evolution of electronics hardware production in Taiwan.

While there are significant PC components, subsystems, and peripheral devices in which Taiwan-based firms are not active—namely software, printers, hard disk drives, and higher-value semiconductors such as microprocessors and memory—Taiwan has developed what is arguably the world’s most capable and agile supply-base for the design, manufacture, and delivery of PCs and related products, especially notebook computers (Dedrick and Kraemer 1998). Initially working in close geographic proximity, mostly along the Taipei-Hsinchu corridor in Taiwan, this supply base grew to constitute an extremely efficient system that could respond rapidly to orders from lead firms. Notebook computers, which generally have a high enough value-to-weight ratio to make air shipment viable, can be shipped from Taiwan (or now from mainland China plants owned by Taiwan-based contractors) to end users in the United States and Europe within two to three days of incoming orders.

This powerful productive engine has developed, almost in its entirety, in response to orders from lead firms based in the United States, and more recently, Japan (Sturgeon 2007). At the same time, the development of contract manufacturing in Taiwan and elsewhere has provided lead firms with an increasing range of sourcing options. This process of co-evolution means that Taiwan’s electronics industry has been able to develop without a significant cadre of local lead firms. From the late 1970s to the present day, sourcing from Taiwan has expanded from computer monitors, to various components and subsystems, to complete desktop and notebook PC systems.

> 13 This section draws on Sturgeon and Lee (2005) and Kawakami (forthcoming).

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