How Globalization Drives Institutional Diversity: The Japanese Electronics Industry's Response to Value Chain Modularity

Abstract

The failure of Japanese electronics firms to participate fully in the Internet-fueled growth of the global electronics industry during the late 1990s triggered a period of questioning among top executives. This article examines Japanese managerial responses to the organizational model “value chain modularity,” which was deployed by the US electronics firms driving the creation of the Internet. While there were partial but significant steps taken in the direction of this new US model—increased specialization, outsourcing of low-end products, and shared factory investments in Japan—wholesale restructuring was resisted. This evidence is consistent with larger patterns of gradual institutional change in Japan. I argue that the result of this process will likely be increased, not diminished, institutional diversity over time. While globalization has accelerated the pace of change by opening new avenues for organizational experimentation and institutional layering, the drag on organizational change exerted by existing institutions slows the process enough to allow institutional and organizational innovations to develop into coherent systems with distinct characteristics. The result, inevitably, will be a uniquely Japanese approach to the challenges posed by globalization.