Explaining the resilience of a decentralized production network: The case from Taiwan

Increasing globalized production has cast doubt on the sustainability of certain aspects of the territorial embedded production system such as industrial districts/clusters. The original thesis of the industrial district involves an extensive division of labor in production among a system of small- and medium-sized enterprises (SMEs) clustered in a geographical locale, with each participating in complementary economic activities. The presumption is that the current local inter-firm network may be dissolving as production moves offshore. Moreover, to compete with production from low-wage countries, innovative capabilities by firms are required. The literature assumes that this necessitates large firms and quasi-hierarchical governance, which, in turn, tends to undermine the cohesion that sustains the existing inter-firm network, and raises the question of the viability of the industrial district as a model. Empirically, however, the vitality of industrial districts/clusters has gone hand in hand with the increasing expansion of global production networks. The mechanisms that permit their vitality remain rudimentary. This paper attempts to explore the mechanisms that allow such a phenomenon to occur through a case study of the bicycle industry in Taiwan, where the domestic inter-firm production networks have continued to persist while the firms actively coordinate and participate in the internationalization of production. Two key factors relevant to understanding the process are identified: a) the roles of inter-firm alliances in collective learning, and b) the role of the Taiwanese state in facilitating learning within a decentralized production network. The state agencies do this by initiating information exchange among different domestic production networks so that they can search for a recombination of information and ideas.