Turn-key production networks: Industry organization, economic development, and the globalization of electronics contract manufacturing

American electronics firms are increasingly outsourcing their manufacturing operations to a set of highly functional contract manufacturers which provide global-scale manufacturing, procurement, and logistics services for a large number of customer firms. In this system, which I have termed a “turn-key production network,” industry-wide manufacturing capacity is aggregated separately from firms that define and develop final products. As productive capacity becomes commodified and organizationally separated from product development at the industry level, barriers to entry and exit are lowered for innovating firms because access to manufacturing capacity can be purchased as needed. In volatile sectors such as electronics, Schumpetarian “creative destruction” is mollified because the merchant manufacturing capacity of the turn-key network can, on short notice, be turned toward those firms that gain market share and away from those that lose. In addition, total costs are lower because manufacturing capacity is more intensely utilized and component purchasing scale economies are larger.; Turn-key production networks increase the “geographic flexibility” of an industry by allowing lead firms to globalize their manufacturing without foreign direct investment foreign direct investment. By tapping the resources of large, global-scale turn-key suppliers, brand-name firms can reconfigure the geography of their production on short notice without the costs, risks, and long-term commitments associated with establishing foreign or domestic manufacturing affiliates. Because turn-key suppliers take the responsibility for buying all needed components and materials, and because of the wide range of value added-services offered (e.g., logistics, shipping, design-for-manufacturability), there is a strong tendency for turn-key suppliers to locate in existing specialized industrial clusters to access second-tier suppliers, skilled labor pools, and efficient infrastructure. Thus, the rise of the global supplier provides a mechanism to weaves specialized industrial agglomerations into a global-scale network of clusters.; Because it is likely that turn-key suppliers, not lead firms, will make the bulk of manufacturing investments in the future, there are new imperatives for developing places to connect to global-scale production networks or be left out of the mainstream of industrial development. The policy rubric that responds to this new reality I term “network-led development.” It suggests that economies can develop through the provision of specialized processes and services supplied on a merchant basis to the global-scale network of lead firms and component suppliers.