ABSTRACT
This chapter argues that the global IT industry has become increasingly modularized through the digitization of information and that this modularization manifests itself in the reorganization and relocation of the IT industry. This chapter has three main points. First, digitization combined with competitive pressure derived from utilizing this digitization to enhance the core competence of the firm have driven firms around the globe to re-organize along modular lines in order to survive. Reorganization along modular lines means that vertical specialization (also referred to as de-verticalization or the vertical disintegration or fragmentation of the production chain) is pervasive and that production is conducted through fluid often non-hierarchical networks of firms rather than governed by stable hierarchical networks dominated by single lead firms or global network flagships. Second, modularization also allows for new vertically specialized type of re-location of the IT industry, specifically re-location led by small firms moving functions to or arising in geographic regions formerly on the periphery of the global IT industry. Modularity in conjunction with better communications technology has allowed for spatially dispersed, vertically specialized activities whereas in the past spatially dispersed activities could only be managed by the vertically integrated firm. With the possibility of dispersed and vertically specialized activities, barriers to entry have come down dramatically. New entrants from parts of the world previously neglected by the global IT industry have pushed relocation of certain industry functions. Third, Greater China (defined here as Taiwan and the People’s Republic of China including Hong Kong and Macao) has been the greatest beneficiary of this reorganization-cum-relocation. The innovative electronics firms that have arisen in Greater China have been vertically specialized and constitute a large portion of the technology-intensive electronics firms outside of the triad of North America, Japan and Western Europe.
