Int. J. Production Economics 107 (2007) 1–19 The growth and capability development of electronics manufacturing service (EMS) companies Endong Zhai à , Yongjiang Shi, Mike Gregory Centre of International Manufacturing, Institute for Manufacturing, Department of Engineering, University of Cambridge, Mill Lane CB2 1RX, UK Received 29 July 2005; accepted 31 March 2006 Available online 2 January 2007 Abstract This paper describes the firm growth model in electronics manufacturing service (EMS) companies and its link with their internal capability developments. This research work, based on multiple in-depth case studies of EMS companies during the last 3 years, explores the EMS business and its capability growth processes in a supply network environment. It demonstrates that EMS companies usually start by selectively penetrating and positioning themselves along the supply chain. Business growth takes place along three intertwined dimensions: production, supply chain and capability development. The paper proposes the growth model of EMS companies from a capability perspective, which itself can be broken down into four stages of resource and capability development: penetration, accumulation, evolution and adaptation. r 2006 Elsevier B.V. All rights reserved. Keywords: Electronic manufacturing service (EMS); Firm growth; Capability approach 1. Introduction Throughout the last two decades, global compa- nies have been driven by new competitive demands, and have constantly been adding and discarding businesses in order to sharpen their strategic focus (Lei and Hitt, 1995; Nadler and Tushman, 1999). By strategically outsourcing and emphasizing a com- pany’s core competencies, a manager is able to leverage his company’s skills and resources and thus achieve improved competitiveness (Quinn and Hilmer, 1994). The traditional vertical integrated business models have been replaced by collaborative virtual networks, which consist of companies whose focus is on diverse supply-chain functions (Chien and Shi, 2004). Understanding the sources of sustained competitive advantage achieved by firms has become a major area of research in the strategic management field (Rumelt, 1984; Porter, 1985; Prahalad and Hamel, 1990; Barney, 1991). In terms of outsourcing, the emphasis is shifting rapidly from the outsourcing of parts and compo- nents to that of ideas (Quinn, 2000) and activities (Halvey and Melby, 1999; Quinn 1999). This outsourcing trend in the electronics sector has helped the growth of the subcontracting sector; in particular, modular production in the electronics industry has boosted the growth of the electronics ARTICLE IN PRESS www.elsevier.com/locate/ijpe 0925-5273/$ - see front matter r 2006 Elsevier B.V. All rights reserved. doi:10.1016/j.ijpe.2006.03.009 à Corresponding author. Tel.: +44 1223 338086; fax: +44 1223 338076. E-mail address: e.zhai.02@cantab.net (E. Zhai).