Gvc in Electronics Industry (Sturgeon - Sep 2010)

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WPS5417 Policy Research Working Paper 5417

Public Disclosure Authorized

Global Value Chains in the Electronics Industry
Was the Crisis a Window of Opportunity for Developing Countries? Timothy J. Sturgeon Momoko Kawakami

Public Disclosure Authorized

Public Disclosure Authorized

The World Bank September 2010

Policy Research Working Paper 5417

Abstract
This paper presents evidence of the importance of electronics global value chains (GVCs) in the global economy, and discusses the effects of the recent economic crisis on the industry. The analysis focuses on how information is exchanged and introduces the concept of “value chain modularity.” The authors identify three key firm level actors—lead firms, contract manufacturers, and platform leaders—and discuss their development, or “coevolution” in the context of global integration. Company, cluster, and country case studies are then presented to illustrate how supplier capabilities in various places have developed in the context of electronics global value chains. The findings identify some of the persistent limits to upgrading experienced by even the most successful firms in the developing world. Four models used by developing country firms to overcome these limitations are presented: (1) global expansion though acquisition of declining brands (emerging multinationals); (2) separation of branded product divisions from contract manufacturing (original design manufacturing (ODM) spinoffs); (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 global value chains for a range of inputs, including production (emerging factory-less start-ups).

This paper—a product of the DFID supported Global Trade and Financial Architecture (GTFA) project—is part of a larger research effort to explore the impact of the crisis on global value chains and developing countries in particular. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at sturgeon@mit.edu and momoko@ide.go.jp.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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Global Value Chains in the Electronics Industry: Was the Crisis a Window of Opportunity for Developing Countries? by Timothy J. Sturgeon MIT Industrial Performance Center sturgeon@mit.edu and Momoko Kawakami Institute of Developing Economies, JETRO momoko@ide.go.jp

Keywords: Global Value Chains, Value Chain Modularity, Electronics Industry, Offshoring, Outsourcing, Globalization, Electronics Manufacturing, China JEL Codes: L63, N65, 014, P3

Global Value Chains in the Electronics Industry

Sturgeon and Kawakami

Introduction The electronics hardware industry is the world’s most important goods-producing sector. Not only does it employ more workers and generate greater revenue than any other sector, its products also enhance productivity in other activities and stimulate innovation across entire economies (Mann and Kirkegaard 2006). It is what Hirschman (1958) calls a “propulsive sector.” Consider the case of the United States, where innovation in electronics hardware, which employed 1,105,900 in 2009, has...
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