modularization and industrial competitiveness: modularity, technological learning and innovation v g...
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MODULARIZATION AND INDUSTRIAL COMPETITIVENESS:
Modularity, Technological Learning and Innovation
V G R Chandran Govindaraju Department of Economics
University of MalayaPhD Candidate
Supervisor:Prof. Dr. Rajah Rasiah
BACKGROUNDTechnological progress and innovation is key to growth (Schumpeter, 1911; Solow, 1957; Denison, 1962)Due to latecomers properties - in developing countries, economists – attention was on the mechanisms of technological progress (Kim, 1997; Lall, 2000; Rajah, 2004, 2005 )This study will take the same path – analyzing the source of technological advancement at firm level in Malaysia
BACKGROUND
Malaysia – FDI is the source of tech transfer; learning; innovation –unlike NIEs – licensing, importsparticularly important to Malaysia is the industrial fragmentation – also known as segmentation, production sharing, outward processing, vertical specializationIncreasing presents of Modular Production Networks [MPN] (Sturgeon T., 2002) – East Asia – distinct breaks in the value chainMPN is seen as the major source contributing to the export competitiveness in the sub-sector of E&E in Malaysia
BACKGROUND
this has turn my attention to investigate the possible contribution of MPN via the concept of modularization (product and process) to the industrial upgrading e.g. the technological learning and innovation activities the idea in this study was established by integrating the literatures on modularization, technological learning (knowledge, absorptive capability, technological capability) and innovation
MODULARIZATION
Application of standardization or substitution principles to create modular components and processes that can be configured into a wide range of end products (Ulrich, 1995) – idea taken from modular product design (Ulrich, 1995; Sanchez & Mahoney, 1996; Schilling, 2000)
Today – modularization reached beyond its traditional meaning – from design rule to a new form of supply chain relationship including new form of manufacturing practices
The existence of modularity and components standardization led to loosely coupled and decentralized structure
Process modularization: decompositions of the company’s key activities into specific routine and interfaces that allow frequent reconfiguration of processes
Firms boundary is extended outside the firm
MODULARIZATION
It is increasingly adopted by firms as a strategic advantage Economies of scale and substitution accelerate rate of technological change cut development cost reduce uncertainty and complexity
Modularization is important in particular for Malaysia due to the industrial fragmentationUntil now, little is know how modularity is related to technological learning and innovation
Research questions
Thus, we have some major interpretative questions to answer
What are the potential implications of modularization on the rate of technological learning/capabilities?Is there any significant differences in technological learning/capabilities between the more and the less modular firms How does modularization influence the innovation activities in local suppliers? Does the modularization offer any benefits to the module producers?
Research objectives
to identify whether there is any significant differences in technological learning between the modular and integrated firmsto examine the significance influence of the level of modularity on technological learning (while controlling for other variables)
To understand the linkages between product modularization and product technology learning
To understand the linkages between process modularization and process technology learning
to examine the association between modularization and innovative activitiesto examine the association between technological learning and innovation activities within the manufacturing firms
Significance of the study Previous studies - try to explain the source of
divergence in technological advancement by analyzing
Firms characteristics – ownership, export intensity, size etc Other environmental variables: trust, relationship, network etc This study looks at a different dimension called modularity –
contributing to the literature of technological advancement in developing countries
The finding can lead to several important policy implication Industrial Policy Innovation Policy Outsourcing practices etc
Study Boundaries
Focus - firms (manufacturing – sub sector of E&E- Why?
reasonable degree of modularization Production fragmentation – FDIDeveloped higher export capabilities
Conceptual framework
Developed by integrating past scholarly literatures on modularity, organization learning, technological capabilities, innovation, technology management etc. Theories – trade theories,, learning, technological taxonomies, trajectories, path dependent, evolutionary
The Basic framework
Degree of Modularization
(Product & Process)
Technological learning
Innovation
(product and process)
Control Variables
Focus of this study
Selected literatures linking modularity, technological learning and innovation
Modularization increase the opportunity to improve knowledge and learning at component level (Sanchez & Mahoney, 2000)Greater locality-wide sharing of production capacity leads to greater opportunity for learning and technology transfer (Sturgeon, 2000)Module producers work can together with many customers and develop better knowledge (Magnusson, 2001)Modularity allow parallel and distributed business processes, increase incremental innovation by separating component level and learning processes (Garud & Kumaraswamy, 1995)Standardization generates informational structure that allows “embedded coordination” (Sanchez & Mahoney, 1996)Modularity allows decentralized networks – intensifying division of labour – thus allowing detailed design and manufacturing know how to be transferred (Langlois & Robertson, 1992)
Proposition DevelopmentP1: Firms in a more modularized production are more
likely to develop technological learning capabilities
P2: Firms with a higher product modularity is associated with higher product technological learning
P3: Firms with a higher process modularity is associated with higher process technological learning
P4: Modularization is positively associated with innovative capabilities
Proposition DevelopmentP5:Product modularization is associated with
product innovation
P6: Process modularization is associated with process innovation
P7: Firms with better technological learning develops a better innovative capabilities
P8: Other control variables (firms specific variables) are highly associated with technological learning
Research Methodology
sampling – stratified – based on sub- sectors of E&E - location – Klang Valley, Penang list to be obtained from MIDA Officers from MIDA,, and FMM – agreed to provide some inputs - EPU – Knowledge Content Survey data collection: questionnaires validation – based on R&D manager and production engineers feedback (Intel, Freescale, NEC, Ford, Samsung)
Measurement: ModularityModularity:Is the application of unit standardized or substitution principles to create modular components and processes that can be configured into a wide range of end products
Measurement are based on two dimensions
* Product Modularity: practice of using standardized product modules so they can be easily reassembled/rearranged into different functional forms, or shared across different product lines
Likert scale; 8 items* Process Modularity: practice of standardizing manufacturing process modules so that they can be resequenced easily or new modules can be added quickly in response to changing requirements
Likert scale; 11 items
Attempts to measure modularity was based on the literature of modularity; Past studies measuring modularity includes Worren et al, 2002; Tu et al, 2004;Parente, 2003; Miltenburg, 2003)
Measurement: Technological Learning
Technological Learning: process of acquiring tacit & codified
knowledgeCan be viewed in two ways
Various process by which knowledge is acquired and converted into organizational learning Knowledge acquisition, knowledge socialization and
knowledge codification The trajectory or path along which the accumulation of
technology capabilities proceedsSince the end results of technological learning is technological capabilities [ is about learning capabilities - assessing, embracing and utilizing new knowledge] – I use the latter then the former in measuring tech. learningTech learning – is about acquiring the technological capabilities
Measurement: Technological Learning
I make use of Lall’s – technology capabilities taxonomy various aspects of technological capabilities will be looked at namely; Process capabilities Product capabilities Production capabilities Investment capabilities
Measurement: Innovation
Innovation- guided by the Oslo Manual – also used in NIS (Malaysia)Combines both the product and process innovationProduct Innovation:
good or service which is either new or significantly improved in terms of fundamental characteristics, technical specifications, incorporated software or other immaterial components, intended uses or user friendliness.
Process Innovation: new or significantly improved production technology,
method of delivering products. Outcome should be significant with respect to level of output, quality of products or cost of production and distribution
Conclusion
Modularization may offer some insights in understanding technological learning and innovation in Malaysia