The hollowing-out of Hong Kong electronics: Organizational inertia and industrial restructuring in the 1990s

This paper aims to enrich the literature on East Asian development by focusing on one critical difference between Hong Kong and the other NIEs - Hong Kong's rapid deindustrialization since the mid-1980s. We shall argue that while global restructuring gives rise to upgrading opportunities for various localities, it is the process of capability formation associated with the local business model that determines whether or not a locality is likely to benefit from these opportunities. We focus on the electronics industry as a crucial case and based on archival data and case interviews. We show that a strategic inertia associated with the "subcontractor model" locks Hong Kong firms in the OEM role within the buyer-driven global chain. Analyzing the evolution of local firms clearly illustrates the "imprinting" effect of the start-up environment on internal organizational structure and subsequent strategic choice. We conclude from this restructuring experience that sustainability of a locality's industrial cluster depends on the consistent alignment between "local capability" and "global positioning." Copyright © 2004 Koninklijke Brill NV, Leiden.