Turnkey Production Networks: The Organizational Delinking of Production from Innovation

Evidence from the electronics industry suggests that a new American model of industry organization is emerging in the 1990s. American electronics firms are outsourcing an increasing share of their production. As this practice grows, manufacturing capacity is building up in turnkey production networks that consist of specialized and highly capable merchant suppliers that provide the industry with a functionally coherent set of commodified production services. When firms that supply external productive capacity develop a merchant character, as they have in the American-led electronics industry, manufacturing capacity is essentially shared by the industry as a whole, reducing costs and spreading risks in an increasingly volatile world market. As such merchant external economies develop, the link between innovative capacity and market share, on one hand, and firm size and scope, on the other, begins to break down. This link was the cornerstone of Schumpeter’s conception of industry structure and his explanation for the rise of the large, vertically integrated industrial firm in the early part of the twentieth century.