Research Summary

Evolution of firm structure in vertical specialized technology supply chains

by Willy C. Shih


The global market in many everyday products has been transformed by the internationalization of production.  In many industries, semiconductors and electronic products in particular, a sequential mode of production has evolved in which goods are produced in a series of stages taking place in different countries by “vertical specialists” who pass work-in-progress across borders to the next firm in the value chain.  This multi-country production sequence has been facilitated by inexpensive and rapid communications and the low cost to transport goods, as well as declines in tariff and non-tariff barriers.  A distinguishing feature of this kind of vertical specialization is that imported inputs are used to produce export goods.  These might be components or partial subassemblies, but frequently a product might transit through dozens of firms and cross multiple frontiers before it makes it to a storefront for sale to the ultimate consumer.  We are interested in the evolution of firm structure as technological shifts drive changes in the vertical boundaries.