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Firm Partial Modularity and Performance in the Electronic Manufacturing Services Industry

2009; Taylor & Francis; Volume: 16; Issue: 6 Linguagem: Inglês

10.1080/13662710903371074

1469-8390

Richard J. Gentry, Heather Elms,

Digital Platforms and Economics

Abstract Firms continue to develop new ways to decentralize non-core activities to outside parties. Scholars have approached this issue with modularity theory, suggesting a continuum of arrangements ranging from hierarchy to market. Hierarchy relies on fiat, while partially modular forms, those forms between hierarchy and market, require greater coordination, communication and relationships between firms than do fully modular (or market) forms. While modularity theory identifies this continuum, the associated empirical literature tends to dichotomize modularity: firms are either modular or they are not. Nor does the empirical literature examine the performance outcomes of modular arrangements within this continuum. By examining firms that vary between full integration and partial modularity with a continuous modularity measure, this paper empirically examines the performance outcomes associated with a range of modularity levels. We derive this measure from a peculiar inventory option available within the electronic manufacturing services (EMS) industry. Our data include observations on 260 firms over five years. We find that more firms rely on partially modular arrangements, the lower their performance. We suggest explanations for this result, and areas of future research meant to pursue it. Keywords: Modularityvertical integrationcontract manufacturinginventory Notes 2 The six largest EMS firms as of September 2002, in order of revenue, were Flextronics, Solectron, Sanmina-SCI, Celestica, Foxconn and Jabil Circuit (Lehman Brothers, 2002). Flextronics acquired Solectron in 2007. 1 The authors would like to thank employees at Jabil Circuit, ASCOM and Solectron for their helpful comments and guidance in developing this summary.