Vertical dis-integration and vertical re-integration: Limits to the modern production system

Abstract

This paper attempts to sketch the characteristics of mass production activities in the modern IT/electronics industry while avoiding simplification. In the second section “Revisiting the post-Fordism controversy”, we clarify that the general perception of the characteristics of American industry/corporate organization in the 1990s, particularly in the IT/electronics industry, was a series of discussions known as Wintelism. Next, the third section “The limits of Wintelism” discusses how the limits of this industry/corporate organization were revealed in the 2000s and thereafter, focusing on the characteristics particular to a model which is apt to promote accumulation of excess production capacity. It is also important to consider changing trends in product design, namely, the spread of “integrated products.” Then, in the fourth section “Addressing the limitations of Wintelism,” we examine how Apple, a leading brand from the developed world, and an EMS company from an emerging economy (Foxconn) that is a leader in today's mass production activities have tried to break through this limitation. What becomes clear is a phenomenon that could be called the rehabilitation of vertical integration or vertical reintegration. However, the mass production activities typified by Foxconn lack, at least at present, harmonization between industrial upgrading and “social upgrading,” labor-management cooperation, or a mechanism for “coordination.” This is one challenge for modern mass production activities. We touch upon this in the conclusion.

Notes

1 Refer also to Sakamoto (2005) for a comparison of Fordism, the Japanese model (lean manufacturing systems), and the subsequent distributed integrated production from the perspective of the evolution of production systems.

2 Tatsumoto (2007) offers an excellent study of the relationship between the evolution of Intel's bus architecture and obtaining platform leadership.

3 Industries with frequent product updates require huge capital investment. If the demand exists to meet the capital investment, there is no problem. However, when demand disappears due to a shock, excess capacity tends to emerge. The semiconductor industry is a classic example of this, as I mentioned earlier in this paper. In the industry, these huge capital investments have put pressure on company profits. As a result, the industry has become an oligopolistic market dominated by a small number of giant firms.

4 The author summarizes this while focusing on competition between IBM and Microsoft in the enterprise IT market. Microsoft's provision of comprehensive solutions services “without destroying its own partner-driven culture,” was a self-denial of the strategy it had adopted to date (Morihara 2017, Chapter 6).

5 ”Profit strategy” is a concept created by Boyer and Michel (2001–2002) to analyze the diversity of “production models” (an analytical concept that explicitly considers micro/macro loops and institutional complementarities) and corporate strategies.

6 According to Song (2017), Apple's suppliers are required to “adopt a dedicated special system” for transactions with Apple (Apple 2017).

7 In this respect, the supply chain in this industry differs from the Japanese Shitauke (network of subcontracted suppliers). According to Sei (1999), the Toyota Production System is characterized by “the elimination removal of stagnation and transportation from the parts production process, leading to processing – production – transportation – stagnation – processing, and arranging it as a ‘continuous process’ as much as possible” (63). As a result, “the importance of facilities management systems is greater than in the West” (74). The reason long-term relationships are often seen in the Japanese automotive industry is likely because “the combination of ‘systematization of production’ and high-density labor and subcontractor management” (77) forms the foundation of the production system.

8 Note that Marukawa (2013) overlays the so-called “drawing supplied” on (1) and “drawing approved” on (2).

9 Janoski, Luke, and Oliver (2014) point out that Apple is not only attempting to maintain suppliers' dependency relationship with the company as much as possible, it also frequently changes contractors to avoid increasing the influence of the company's suppliers in important markets.

10 According to a well-known study by Kraemer, Linden, and Dedrick (2011), Apple received 58% of the sale price of the 2010 iPhone model, with many of its suppliers benefiting only marginally. LG, for example, had 5%, Samsung had 7%, and other US, Japanese, and Taiwanese suppliers had no more than 1–2% (4).

11 As Morihara (2017) touches on, Microsoft is imitating these Apple strategies through trial and error. The breakthrough in that strategy may be the announcement of Surface.

12 One example of this is was the opportunity to proactively accept Apple's highly demanding requirements and bring production of carbide end mills, used in machine tools, in-house (Nikkei Monodukuri, November 2012). Apple's requirement was the “end milling of stainless steel or aluminum alloy casing parts using small machining centers.”

13 ”The common characteristics of Japanese work styles are less about individual professions or skills themselves but rather the way in which each one of these professions is linked to the work of the others. It is not a question of the division of labor separating and combining each profession into specialized areas; rather it includes new developments in the field of specific forms of “collaboration” in which these specialized professions cooperate with one another. (Sei 2011, 281–282).

14 This point has been characterized by the concepts of “corporatism” (Matsumoto 1998), “corporatism” (Baba 1991), “corporate society” (Watanabe 1990) and “corporatist regulation” (Yamada 1999). There are various trends here; however, the reality in mind is generally the same. See also Isogai (2004) for one review of this accumulation from an economics perspective. It should be noted that I do not mean to suggest that Japan's corporatism is a better social policy. As I have pointed out earlier in this paper, people other than the core male full-time employees continue to be marginalized in Japan's corporate society.