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The governance and evolution of local production networks in a cluster: the case of Taiwan’s machine tool industry

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Abstract

The competitive advantages of spatially concentrated and networked production systems, in terms of flexibility and adaptivity, have been well documented. This paper contributes to this literature by improving our understanding regarding the underlying mechanisms behind the governance and evolution of such a production system. By using the case of Taiwan’s machine tool (MT) industry, this paper demonstrates how lead firms depend on their relational capabilities or relation-building skills, nurtured greatly by cluster embeddedness, to effectively govern their suppliers in the production networks. While the production systems constantly evolve, this paper also discusses the ongoing reconfiguration of Taiwan’s MT production networks stimulated by lead firms’ efforts to tackle the cluster’s emerging diseconomies so as to sustain their competitiveness. This paper concludes that a cure to deal with the cluster’s diseconomies would be the reinforcement of industrial clustering.

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Notes

  1. Governance can refer to “any mode of coordination of interdependent activities” (Jessop 1998:29). In this paper, I focus mainly on activities related to production.

  2. Other studies concerning the typology of clusters’ governance structures include Grandori (1997), Markusen (1997) and Guerrieri and Pietrobelli (2004), etc.

  3. See, for example, MacKinnon et al. (2002) and Wolfe and Gertler (2004) for the discussions of the strengths of qualitative research methods on understanding the key process and dynamics that underpin a cluster’s development.

  4. Given the fact that firms willing to accept my interviews mostly are those current prosperous players, and the fact that many failed firms were already out of business and therefore not approachable, my sample was biased toward the more successful firms in Taiwan’s MT industry. One might notice that such a sampling method might tend to give researchers, if anything, an overly optimistic view of their research targets (Breznitz 2005).

  5. Author’s calculation based on published data from various sources.

  6. In the 1970s, Taiwan’s leading MT firms produced roughly 90% of their parts by themselves (Amsden 1977).

  7. From the 1960s to the 1990s, central Taiwan was the major production site of sewing machines, where manufacturing plants of leading foreign sewing machine firms, such as Singer from the US, and their suppliers were agglomerated. Since the manufacture of sewing machines was based on excessive subcontracting, i.e., where sewing machine firms focused on assembly and subcontracted all their production to specialized suppliers, these manufacturers helped cultivate and train a great deal of the metalworking labor force in central Taiwan, which was later utilized by nearby MT firms as subcontractors.

  8. By employing subcontracting fully in the production of standardized CNC machine tools, Leadwell devised a mass production system of standardized NC machines, especially the machining centers, by further exploiting the capability of the local production system, in which subcontracting-based production networks for the manufacture of conventional milling machines, a product whose parts could also be used for machining centers, were already well-established (Sonobe et al. 2003).

  9. This theory depicts spinoffs as the result of strategic disagreements within firms. If an employee’s is not adopted by his employer, then the employee is likely to leave and create where his(her) idea can be implemented.

  10. Being influenced by Chinese entrepreneurial culture, in Taiwan many people’s ultimate career goal appears to be entrepreneurship and becoming their own bosses. Taiwan was once labeled as “Boss Island”, and is a particularly fertile ground in which dense subcontracting networks can take root (Shieh 1992).

  11. The support might range from providing loans of money and machinery for starting up and placing stable orders, to referring them to other prospective clients through personal connections.

  12. For instance, if the tasks MT firms are subcontracting are small batches and require distinct and complicated manufacturing procedures to complete, suppliers might be reluctant to take such orders since they are not short of orders from other clients which are easier to deal with.

  13. This example is provided by a MT firm during the author’s interview.

  14. In Taiwan, people in the machinery industry refer to themselves as “black-hands”.

  15. Almost all interviewees of MT firms stressed in my interviews that their firms have to some extent started engaging in the projects of product differentiation. While in this section I focus on their efforts in improving the products, I was also informed that MT firms would manage to differentiate their products from others through improved services.

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  1. Graduate Institute of Building and Planning, National Taiwan University, 1, Sec. 4, Roosevelt Rd., Taipei, 106, Taiwan

    Liang-Chih Chen

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Chen, LC. The governance and evolution of local production networks in a cluster: the case of Taiwan’s machine tool industry. GeoJournal 76, 605–622 (2011). https://doi.org/10.1007/s10708-009-9317-2

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