From Silicon Valley to Singapore: Location and Competitive Advantage in the Hard Disk Drive Industry. . - book review

Administrative Science Quarterly, Dec, 2001 by Henrich R. Greve

David G. McKendrick, Richard F. Doner, and Stephan Haggard. Stanford, CA: Stanford University Press, 2000. 352 pp. $49.50, cloth; $22.95, paper.

Based on an analysis of the disk drive industry's movement into Southeast Asia during the 1980s and 1990s, the authors of this book pursue two questions. First, they ask what factors turned Southeast Asia into a global center for hard disk manufacturing and determined the regional division of labor between the central states--Singapore, Thailand, and Malaysia--and other states. Second, they ask why a set of small (at the time) U.S. disk drive manufacturers developed the strategy of research and development in the U.S. and manufacturing in Southeast Asia and why the larger U.S. and Japanese computer firms failed to follow this strategy. The disk drive industry is a good case for testing a theory of agglomeration economies and competitive strategy, as it has experienced rapid change of location and competitive strength of its participants, and the authors argue that location strategies have been a crucial component of firm competitiveness.

The book is divided into four parts. Part 1 briefly introduces the theoretical issues and outlines the history of the industry and the product characteristics and manufacturing process. Part 2 contains the main theoretical argument and supporting case material. Here, the authors review economic theories of how firms benefit by locating near firms in the same industry, leading to spatially concentrated manufacturing and supply networks. They also introduce a distinction between technological clusters, with innovation spillovers, and operational clusters, with short supply lines and high-quality labor pools, and use this distinction to explain the split of development and manufacturing capabilities between California and Southeast Asia. Both centers benefit from the concentration of one type of activity and are not appreciably harmed by the distance between them. They next show that the most effective location strategy was initially chosen only by a subset of the industry participants, the smaller U.S. disk mak ers, and argue that imitation within groups of socially similar firms was the reason that these firms followed each other to Southeast Asia while the Japanese manufacturers and the large U.S. manufacturers stayed in place. They raise industry cycles and differences in industrial organization in the U.S. and Japan as alternative explanations and effectively use the case material to refute them.

Part 3 contains case studies of the three central nations and gives detailed comparative descriptions of their general economic and sector-specific policies, entry patterns of foreign manufacturers and subsequent development of local capabilities, and discussion of how firms chose locations. These chapters have a level of detail that requires some persistence, but they give rich case material on the problems of location choice and manufacturing in developing economies. My preference would be for case chapters with more references to theory, but there are also benefits to the authors' less rhetorical style. Part 4 draws conclusions for host countries and multinational corporations, emphasizing the distinction between generic and industry-specific comparative advantages and analyzing the industrial conditions that favor agglomeration or dispersion of activities.

The disk drive industry is a fascinating story of industrial evolution, and the authors use it effectively to support their theory. The book puts meat on the usual story of geographical agglomeration and adds an evolutionary aspect by documenting that agglomeration advantages can shift over time. It is a useful companion to Saxenian's (1994) theory of regional advantage and Harrison's (1994) analysis of multinational corporations. The evidence bolsters Saxenian's claim that firm behavior determines whether agglomeration advantages will result, as it seems that the ability of some Japanese firms to internalize learning reduced the advantages of locating near them. Contrary to Harrison's (1994) suggestion that multinationals can disrupt local industrial clusters, the authors show that the disk drive manufacturers developed local clusters. Here, a direct comparison of the arguments and evidence would have been useful, as these books share concerns with international production structures and their effects on loc ales. The case evidence suggests that the flexibility of international production structures can change and potentially disrupt local industry, as Harrison argues, but high-tech manufacturers in developing nations have incentives to develop local firms that also serve goals of economic development.

This work is a good illustration of the rewards of book-length treatments in making comparative studies of industrial evolution. The two narrative dimensions of nation and time, the multiple theories of spatial evolution, and the rich case material call for a comprehensive and well-ordered treatment. The authors have organized their material well and have presented both the theory and case evidence effectively. The book is a rich source of ideas and evidence in a growing area of organizational research.