•The Electronics Industries

• springboard: transistor 1948• significance: provider of

components

•Electronic Production System

Dicken’s focus

Global trendsActive components

• production was initially dominated by USA

• 1980s: Japan overtook USA• 1990s: U.S. producers have

rebounded

World production of active components, 1996

26% 11%37%

9%

Trade balances in active components, 1994,

$billionsRegion Exports Imports balance

USA 18 27 -9

Japan 25 7 +18

W. Europe 19 29 -10

S. Korea 11 3 +8

Asian NIEs* 37 32 +5*Hong Kong, Taiwan, Thailand, Malaysia, Philippines, Singapore

World production of consumer electronics

• more dispersed • role of East and SE Asian NIEs is

more pronounced

World productionConsumer electronics

Trade balances in consumer electronics,

$billionsCountry Exports Imports Balance

USA 4 19 -15

Japan 17 3 +14

Asian NIEs 32 15 +17

The demand factor-semiconductors

• Demand is derived. Depends on demand growth for products in which they are embedded

• spectacular demand growth. Significance of personal computer

• role of spectacular price decline

• subject to fluctuation---> supply gluts and shortages

• segmentation of demand

The demand factor--consumer electronics

• Final demand products for which demand is income-elastic

• demand depends on life-cycle stage

Role of governments--semiconductors

• Rationale for intervention???

• How to gain access?– Build indigenous production capacity

– attract foreign firms

– buy on open market and concentrate on developing end uses

• U.S. – initially used defense/aerospace demand to

develop indigenous production– more recently has shifted to reducing Japanese

dumping

• Japan– encourage growth of industrial & consumer

applications– protect domestic industry– coordinate collaborative efforts

• Europe--collaborative efforts

Role of governments--consumer electronics

• Primarily defensive in response to import penetration

Production Costs, Technological Change &

Corporate Strategies--semiconductors--

I. Industrial concentration trends

• Initially fragmented. Entry was relatively easy

• Steep recent increases in cost of entry due to pressures to:– pack more circuits on a single chip

– improve yields

• result is industrial concentration

II. Trends in producer types

• Vertically integrated captive producers- manufacture for in-house use. IBM, GM

• merchant producers. For sale to other firms. Intel, Motorola

• hybrids. Most Japanese and European producers

• trend is toward greater vertical integration

III. Mergers and acquisitions

• 1970s and 1980s

• followed by international strategic alliances

• Why? Rapid pace of technological change & high costs of installing new capacity.

IV. Multiple stages to production process

Design of semiconductors

Prod’n of silicon crystal

Wafer fabrication

Testing

Assembly & packaging

Final testing & shipping

Requirements for

scientific, technical &

engineering personnel

Requirements for

cheap, low-skilled labor

Result: Offshore production

• Which stages? those most attracted by cheap labor.

• American firms pioneered. Hong Kong 1962.

• Japanese firms accelerate offshoring in 1980s. Why? Appreciation of value of yen.

Changing structure of East and SE Asian production

Semiconductor Imports into the U.S.

1. Geographic changes

Factors

• Labor cost increases in South Korea, Taiwan, Hong Kong, Singapore

• Gov’t policy changes in Malaysia and Philippines

2. Emergence of higher skill stages of production--factors

• Hong Kong--wafer fabrication with Chinese support

• Korea--backward integration of consumer electronics producers

• Taiwan--gov’t sponsored research organization

• U.S. plants add functions like testing with more local sales

Result--hierarchical organization within the region