Massive Modularity : Understanding Industry Organization in the Digital Age — The Case of Mobile Phone Handsets
It is generally accepted that a “global chain”—orchestrated by a lead firm—is the relevant unit of analysis for research on contemporary global industries. However, our research shows that value chains (GVCs) and supply chains (GSCs) are only segme...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English English |
| Published: |
World Bank, Washington, DC
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099506109062231415/IDU0d48d91a80b1a50484809e1d0ce3d0b9fc07f http://hdl.handle.net/10986/37971 |
| Summary: | It is generally accepted that a
“global chain”—orchestrated by a lead firm—is the relevant
unit of analysis for research on contemporary global
industries. However, our research shows that value chains
(GVCs) and supply chains (GSCs) are only segments of the
massively complex “ecosystem of ecosystems” that produce
mobile phone handsets. To define a broader field for
analysis, we characterize the industry as a massively
modular ecosystem, or MME. The broader analysis presented in
this paper requires a broader set of evidence than is
typically brought to bear in GVC studies. The analysis
presented here is based on a novel longitudinal dataset that
contains bills of material of 456 mobile phone handsets
produced in the period 2008–2019. The dataset provides
information on the identity and location of handset brands
as well as the suppliers of subsystems and complex
components contained in each handset. Since hardware is only
part of the picture, the analysis also relies on a dataset
that tracks individual company contributions to Google’s
Android Open-Source Project (about 10 million since 2008).
Since interoperability standards are key to understanding
the MME, another dataset tracks company contributions across
different generations of mobile telecom standards in the
3GPP standard setting organization (since 2001). Finally, a
variety of published industry statistics, as well as trade
data from UN Comtrade are also added to trace the path of
the industry’s organizational and geographic evolution. The
results highlight two main features of the mobile handset
industry. First, “relational” linkages, where parties
develop and exchange tacit knowledge, are key for innovation
at the cutting edge, while modular linkages, where standard
interfaces for exchanging information and requirements lower
cost of using, reusing and repurposing software,
sub-systems, and components, facilitate imitative innovation
and the participation of many millions “platform
complementors” (e.g., app makers). It is the plethora of
modular linkages, enabled by a multiplicity of shared
standards, that enables the phenomenal increases in scale,
complexity and product functionality that we document in
this industry. The research presented in this paper reveals
three paradoxes in MMEs: 1) they allow for extremely complex
products to be produced at scale, unlike more traditional
industries; 2) they simultaneously feature high levels of
market concentration at the level of complex sub-systems and
components, and market fragmentation at the level of the
industry overall and at the level of complementors; and 3)
they are geographically clustered, but because the MME
integrates work is carried out in many specialized clusters
in many countries, the system as a whole is geographically
dispersed. This leads us to a fourth, policy-related
paradox: MMEs generate pressures for decoupling when placed
under stress, but the same set of circumstances also create
strong strategic and political pressures for maintaining the
business relationships and institutions that have come to
underpin global integration. Because digitization of
business processes is taking place across the broad economy,
the implications drawn from this study may be relevant for
business strategy, as well as for policies related to
industrial development, trade, and innovation across a large
and expanding number of industries. |
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