Massive Modularity : Understanding Industry Organization in the Digital Age — TheCase of Mobile Phone Handsets

Digitization is transforming the organization and geography of industries. Once digitized,information can be generated, collected, stored, monitored, analyzed, and processed in ways not previously possible, andwhen common standards are used as modular interfaces, data can be transferred and put to use with greater ease acrossorganizations and geographic space. An important effect of digitization on industrial organization is the emergence ofglobal-scale modular ecosystems associated with specific classes of products, applications, and technologies. Themodules and sub-systems in these ecosystems can—albeit with significant engineering effort, because they are complex—bereused, connected, and layered to drive innovation and deliver products and services with immense complexity atscale. The nuances of this transformation have not been lost on the field of technology management and innovation. Theprimary focus of this literature has been on how to capture value in modular ecosystems, mainly by focusing on how tocompanies can influence or leverage industry architectures and “win” in an era of digital platforms. This paper makesthree contributions to these literatures, as well as to literatures on global value chains (GVCs), industrystandards, and industrial policy in the post- “WashingtonConsensus” era: 1) it develops a broader view of modular and platform ecosystems than has been advanced so far,highlighting the overlapping and layered nature of digital industry ecosystems; 2) it focuses on the multiplicity ofstandards that bind modular ecosystems together; and 3) it draws attention to the geographic and geopoliticalimplications of what it calls Massive Modular Ecosystems (MMEs). The case study of the mobile phone handset industryreveals three paradoxes associated with MMEs: 1) they allow for extremely complex products to be produced at scale,unlike more traditional industries; 2) they simultaneously feature high degrees of market concentration at the level ofcomplex sub-systems and components, and market fragmentation at the level of the industry overall and at the level ofcomplementors; and 3) they are concentrated in geographic clusters, but because MMEs integrate work carried out inmany specialized clusters in many countries, the system as a whole is geographically dispersed. This leads to a fourth,policy-related paradox: MMEs generate strategic and geopolitical pressures for decoupling when placed understress, but the same set of circumstances also creates pressures for maintaining the business relationships andinstitutions that have come to underpin global integration.