As we saw in Chapter 1, one of the great drivers of economic globalization is information and communication technology (ICT). At the center of ICT, in turn, we find the semiconductor. Semiconductors are the various devices and integrated circuits made using silicon that control the flow of electrical signals. These devices are included in personal computers, communications equipment including mobile phones, audiovisual equipment, automobiles, and many other types of modern machinery. The manufacturing of semiconductors is a global industry, but one broken up into discrete tasks connected together by a number of possible organizational forms, including foreign direct investment (FDI) and intra-firm trade, the subjects of this chapter.

In this chapter, we introduce the basic frameworks of the value chain and the global production network (GPN). We will use these frameworks to understand key concepts related to the FDI process, namely firm-specific assets and internalization. These will help us to understand FDI and intra-firm trade. We will relate the internalization process to the standard cost analysis of microeconomics. Finally, we also introduce the well-known approach to the study of multinational enterprises (MNE) known as the OLI (Ownership, Location, Internalization) Framework. An appendix to the chapter briefly describes the gravity model of trade and FDI used for empirical research.