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

how these capabilities emerged, including several firm-level examples, a cluster-level example from a regional production hub in Mexico, and a summary of the trajectory of contract manufacturers from the United States and Taiwan as they have developed and set up international operations. These cases show how supplier capabilities have co-evolved with lead firm outsourcing strategies in the electronics industry to help create the extensive GVCs seen today.

# **_Singapore and Southeast Asia_**

In the early 1970s, American semiconductor firms located “back-end” (post-production) semiconductor assembly, which was very labor-intensive at the time, in East and Southeast Asia, and Japanese companies located low-cost transistor radio production in Taiwan and Hong Kong (Grunwald and Flamm 1985; Sayer 1986).<sup>8</sup> Over time, semiconductor assembly was automated, with the Philippines becoming a favored location; more labor-intensive processes, including circuit board and final product assembly, were shifted to developing East Asia as well. At first, most of these capabilities were contained within the affiliates of multinational firms, but local capabilities gradually developed. This was especially true for suppliers serving the affiliates of American multinationals, which have proven to be more willing to encourage local suppliers to take on additional responsibilities than their Japanese counterparts (Borrus, Ernst, and Haggard 2000). Singapore was a favored location for multinational firms in the disk-drive industry (McKendrik, Doner, and Haggard 2000), but production and subassembly work gradually spread to local firms that soon outgrew the small land and labor markets in Singapore and set up operations throughout Southeast Asia (Deitrick 1990; Vind and Fold 2007). Because rates of unionization were very low in the U.S. electronics industry, and because modularity allowed design and innovation functions to remain at home, these moves were not strongly resisted by politicians or the general public.

The important role of multinational affiliates in driving supplier upgrading in Southeast Asia is illustrated in the case of Beyonics, an EMS contract manufacturer based in Singapore. In 1981, two Singaporean engineers decided to start their own company after they were laid off from the Singaporean subsidiary of the German camera manufacturer Rollei. Seeing that the local tooland-die business in Singapore was underdeveloped—because most foreign firms tended to bring in their own tooling—the two set up their own tool-and-die shop on a chicken farm owned by one of the founder’s parents. From their experience at Rollei they knew that advanced lathes for precision metal cutting could be stopped quickly to make rapid set up changes. The two retrofitted some inexpensive lathes with motorcycle brakes to achieve the same effect. The company, which was initially called Uraco, generated $700,000 in revenues during its first year of operation, mostly by supplying precision metal parts to American disk drive producers, which were investing heavily in manufacturing in Singapore and Malaysia at the time ( _Business Times_ 1995).

As Uraco grew, it began to supply a wider range of products to the disk drive industry, including precision metal stampings and assembled electronic circuit boards. Most of the company’s business was with Seagate, the leading American disk drive manufacturer at the time,

> 8 This section draws from Sturgeon, Humphrey, and Gereffi (forthcoming).

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