Firms that are exporters from the time they are created have significantly higher productivity than firms that only become exporters later, and they also differ systematically in the training of their workforces, the vintage of their capital equipment, the use of outside auditors and other aspects of their production processes and operations. They interpret this finding as evidence that the decision to export encourages firms to undertake productivity enhancing improvements, including, no doubt, in the technologies applied. Hallward-Driemer et al point out that the gap in productivity between firms that began as exporters and others is largest and most significant in lower income economies like Indonesia, Philippines and Thailand, less so in Malaysia and essentially zero in the most developed economy, Korea. They conclude that “to those concerned with policy...the message would be that it is the least developed economies that have the most to gain from measures that would broaden the markets they face”.

Nevertheless, while developing country firms may have most to gain from taking on the challenges of exporting, they may also be the least well equipped to do so. Nabeshima (2004) observes that to be selected as an OEM supplier firms already need to possess production and technological capabilities that allows them to meet demanding quality, cost and delivery requirements. The requirements for attempting the transition to Original Design or Original Brand manufacturing are even greater, helping explain why firms like Samsung are among only very few developing country firms to have made the transition to primary reliance on internal R&D and its own global brands.

Drawing on interviews with lead firms and suppliers in the electronics and auto parts industries, Sturgeon and Lester (2004) suggest that recent trends are raising the economies of scale and technological competencies required for participation in the global production

|**Table 3**<br>**Top 5 Electronic Contract Manufacturers**<br>**1994 and 2004.(Revenues in$Mill.)**|
|---|
|1994<br>2004|
|Company<br>Revenue<br>Company<br>Revenue|
|Sanmina<sup>(1)</sup><br>2363<br>Flextronics<sup>(3)</sup><br>15355|
|Celestica<sup>(2)</sup><br>1989<br>Hon Hai<sup>(4)</sup><br>13190|
|Solectron<sup>(1)</sup><br>1642<br>Sanmina<sup>(1)</sup><br>12205<br><br>|
|Jabil<sup>(1)</sup><br>404<br>Solectron<sup>(1)</sup><br>11638|
|Flextronics <sup>(3)</sup><br>211<br>Celestica <sup>(2)</sup><br>8840|
|(1)USA.(2)Canada.(3)Incorporated in Singapore; managed<br>|
|from USA.<sup>(4)</sup>Taiwan (China). Sources: Sturgeon and<br>Lester(2004);Electronic Business September 2005.|

networks of multinational companies, putting in question the usefulness of the supplier oriented model for many developing economies. With excellent manufacturing performance and low costs being viewed as widely available and commodified, potential suppliers now also need to provide the lead firm with value-adding capabilities in product and component design, component sourcing, inventory management, testing, packaging and logistics. Increasingly, suppliers also need to be global in scope, able to support their lead firms all over the world. Lead firms are also less inclined to establish long term relationships with suppliers who threaten to turn into competitors, preferring to do business with ‘pure play’ OEM-ODM suppliers.

Reflecting these trends, since the early 1990s lead firms in the electronics industry have outsourced a larger share of their supplier business to a small group of contract manufacturers which operate extensive global production networks to support the worldwide operations of their clients, including both high production volume sites in East Asia, Central and Eastern Europe and Mexico, as well as more specialized sites close to clients in developed economies. (Ernst, 2004). As Table 3 indicates, most of the top contract manufacturers are firms from advanced 12