Business strategy: The determinants and effects of vertical integration in the electronics manufacturing services industry (EMSI), 1995--2000

This research investigates the vertical integration paradigm shift by Contract Electronics Manufacturers (CEMs) within the Electronics Manufacturing Services Industry (EMSI) during the years of 1995 through 2000. The goal of the research was to identify success factors relative to this paradigm shift and offer them as recommendations to CEMs allowing them to increase their returns.;CEMs averaged low single digit margins during the research period even while the EMSI grew at a compound rate of over 20%. CEMs first utilized a consignment model, but under pressure from their OEMs vertically integrated their service offerings through adoption of the turnkey model. OEMs drove this paradigm shift because of competitive pressure to constantly reduce costs, achieve faster time to market and compete in a global electronics market. To do so OEMs determined that manufacturing was no longer a core competency and conducted a decade's long outsourcing initiative.;Data for this research was gathered from a wide variety of publicly available secondary sources. The results were based upon an analysis of resulting variables of vertical integration, market structure, firm sales portfolio, growth rate, and ROA. The results indicated that integration actions by CEMs were not strong predictors of success. The results also led support to the belief that OEMs optimized their returns and global investment capabilities by shifting their manufacturing risk to CEMs through outsourcing to GEMS under the classical conditions of a captive supplier market. CEMs were and continue to be unable to break this dependency cycle because of their narrow focus, limited range of core competencies and asset specificity.