Technological Change and Industrial Transformation

Vicky Xiaoyan Long, Magnus Holmén, Vicky Xiaoyan Long, Magnus Holmén

• Publisher: Routledge
• Year: 2021
• ISBN:
  9780429752346
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Industrial transformation is a research and teaching field with a focus on the phenomenon and mechanisms of industrial development and renewal. It concerns changes in economic activities caused by innovation, competition and collaboration, and has a rich heritage of evolutionary economics, institutional economics, industrial dynamics, technology history and innovation studies. It borrows concepts and models from the social sciences (sociology, history, political sciences, business/management, economics, behavioural sciences) and also from technology and engineering studies.

In this book, the authors present the key theories, frameworks and concepts of industrial transformation and use empirical cases to describe and explain the causes, processes and outcomes of transformation in the context of digitalization and sustainability. They stress that industrial transformation consists both of Darwinian "survival of the fittest" selection, and of intentional pursuits of innovation, and of industrial capabilities creation. The work argues that managing the global trends of transformation is not only about new technology and innovation: existing institutional settings and dynamic interactions between technological change, organizational adaptation and economic activities also have a profound impact on future trajectories.

The areas under investigation are of great relevance for strategic management decisions and industrial and technology policies, and understanding the mechanisms underlying transformation and sustainable growth.

1
WHY THIS BOOK?

Vicky Long and Magnus Holmén

Introduction

This book analyses industrial transformation, which broadly refers to changes in the nature of industrial activities: how these activities are organized, what firms and other actors know and do and how they interact with each other. The analysis and explanation of industrial transformation critically depend on the definitions and applied theoretical lenses in use. The terminology industrial transformation implies the existence of an industry. What is defined as an industry, however, is changing. Often, an industry refers to a set of competing and collaborating manufacturing and service firms creating, producing and disseminating similar products or services for adjacent markets. While such a view suffices in many cases, the very fact that industries are emerging, converging or diverging and even disappearing (e.g., Kodak film) due to firms’ entrepreneurial activities and fundamental changes in technologies, institutions and consumption suggest that the definition of an industry needs to be broader. An industry therefore refers to a set of dynamically changing firms that by interacting are capable of creating, delivering and capturing values.

More precisely, industrial transformation consists of qualitative changes in the types of inter-firm activities as well as in the forms of interactions and relations involved when actors create value and deliver services. Activities include, but are not limited to, those related to innovation, competition and collaboration. Relations and interactions include, but are not limited to, networks and the division of labour between firms.

Industrial transformation as a phenomenon is not new: industries have always changed, arguably at a greater speed during the last few decades. Industrial transformation is also increasingly an international phenomenon, with an even longer tail to its product life cycle, for example. Over time, the main driving forces of the transformation change, and so do the characteristics of the transformation. This book stresses two novel phenomena and challenges: digitalization and sustainability.

Digitalization refers to changes in human and business behaviour enabled by digital technologies. These can be viewed as a result of increased use and diffusion of information and communication technologies (ICT). Recently, digitalization has begun to cover technologies such as digital platforms, cloud computing, the Internet of Things (IoT), autonomous systems, artificial intelligence (AI) and machine learning (ML).

Sustainability covers a balanced development capable of handling challenges in, for example, environmental degradation and (the projected) depletion of natural resources. These challenges are related to the recent labelling of our time as the Anthropocene, in which there is a socio-ecological (im)balance within the environment. The notion of sustainability used here is in line with industrial policy-related transition studies that address how to make the transportation and energy sectors environmentally and economically sustainable, for example. This is distinct from the macro-oriented notion of sustainability used in UN reports, which deals with broad environmental, economic and social challenges, such as overconsumption, social inequalities and ageing populations.

While the two phenomena have been observed and studied for a long time, the novelty in this book is the depth and breadth of interactions between them and industrial activities. Indeed, digitalization and sustainability¹ have hitherto mostly been discussed in a rather separate manner.

The departure of this book is that we argue that if these urgent and prevailing challenges are ever to be met and reconciled, a coherent understanding of industrial transformation is needed. The focus of the book is on the changes in technology that are associated with industrial transformation. Our argument is that an understanding of the cogs and wheels of the changes in technology underlies an understanding of industrial transformation.

Industrial transformation in this book is viewed as a dynamic historical process in the sense that the process incorporates factors that may only be fully manifested over time. Industrial transformation is context specific, with qualitative changes that condition quantitative steps, and vice versa. This means that industrial transformation can be understood as an interaction between technological change, organizational adaptation and economic activities, and endogenous institutional forces.

Given this, it is clear that industrial transformation is a dynamic process, embracing changes in (types of) actors, (types of) activities (what they do) and (types of) interactive norms (e.g., standardization in telecommunication industries). It should be noted that while firms are normally the main actors in a capitalistic regime, this does not exclude other actors, such as universities, non-profit organizations, public organizations and authorities, from playing pervasive, necessary and critical roles in initiating, guiding, shaping, constraining or terminating industrial transformation processes.

The aspirations of actors are crucial because industrial transformation is largely endogenously driven. An endogenous process is a change from within, even when such a process is triggered and affected by responses to external pulls and shocks such as changes in institutions and technologies. For example, industrial entry may at times be necessary for industrial transformation, but the entry of new firms into a sector is insufficient to explain the nature and outcome of the process. However, industrial transformation is not an isolated process, but an open one. Thus, it may involve restructuring and adaptation in, for example, a globalized value chain or a globalized circular economy.

Industrial transformation is not an automatic process. We argue that industrial transformation is the result of intentions, driven by the aspirations of firms and other organizations. These intentions can be seen in proactive behaviours such as an active adoption of Industry 4.0 in manufacturing processes. Intentions can also be seen in problem-solving-based reactive behaviours, exemplified by the reorientation of the pulp-and-paper industry in the era of a dramatic downturn of newspaper demand to produce recyclable plastics. This means that industrial transformation is, to a certain extent, predetermined by changes in (types of) inputs and regulations.

Here we also subscribe to the importance of learning endeavour argued by the assimilation school, which deviated from the arguments put forward by the accumulation school (cf. Nelson and Pack, 1999). While the latter – the accumulation school – argues that learning is a by-product of capital investment, for example, the former – the assimilation school – argues that learning is an intentional behaviour that requires arduous effort. However, this does not imply that the intentions and aspirations of central firms and other actors are sufficient. An accumulation of production factors (capital, labour) is also necessary. Indeed, transformation may be the unintended consequence of the aspirations and activities of competing firms, for example.

This means that industrial transformation involves uncertainty of different kinds: (a) the Knightian (1921) uncertainty, namely that we do not know future outcomes and nor can we assign any measurable probabilities; (b) the Rosenbergian (1996) uncertainty, namely that the rate and direction of technological change are unknowable; and (c) the organizational (learning) uncertainties due to the presence of bounded rationality and tacit knowledge. Industrial transformation therefore needs to move away from equilibrium analysis by treating technology evolution and competition as an open-ended process, along which many actors can have a say (with varied power, though).

Much of the time, industrial transformation is a cumulative process, implying it is path dependent. This implies that organizational capabilities, routines and technological trajectories play key roles in shaping the development. Therefore, industrial transformation needs to be understood as dealing with the creation, survival and death of firms and other types of organizations, and not limited to aspects of growth and success.

Given our stress on uncertainty and the dynamics of changes, this book consists of process-oriented studies of industrial transformation. The empirical chapters embrace historical elaborations on the causes, conditions and pathways of this new wave of transformation, where technologies are deployed, actors are engaged, forms of interactions are adjusted and consumption patterns are derived and/or coevolved.²

In the following, we present in detail the objectives of this book and the key contributions of this volume.

The new stylized facts

What has happened in recent years at the digitalization front and at the sustainability front that calls for the contribution of this book?

Digitalization

The word digitalization can be viewed as an umbrella concept that embraces:

• Technological developments in fields like big data, cloud computing, the IoT, ML, AI and Industry 4.0.
• The rapid growth of artefacts, applications, services, processes, standards (protocols) and platforms produced by industry actors, ranging from basic connectivity (switches and grids) to highly interactive and big data analysis-based content services (Facebook, Uber). Some products (smart grid) are relevant to specific industries and customer segments, but increasingly more products and offerings (augmented reality, Swish/Alipay as a mobile payment app) have a platform function, a generic enabling function, which is instrumental to the transformations of other industry sectors and the whole of society.
• Observed laws and regularities such as Moore’s law³ and the “second half of the chess board”,⁴ related to the rate and the direction of technological development.
• Mechanisms such as increasing returns, network effect and externalities. Increasing returns due to the scale and scope of development, production and adoption are frequently observed (e.g., in operating systems); network effects arise on the demand side (e.g. in Facebook, World of Warcraft), creating a bandwagon effect. It may be assumed that when some of the mechanisms are in operation, there is an effective tendency towards monopoly (as indicated by Google or Amazon, for example). Such an outcome, however, is not predetermined because these mechanisms may also be counteracted by new technologies, policies or competitive forces. Blockchain, for example, supports peer-based collaboration and a decentralized governance system.

The above lists embrace both ontological and epistemological developments under the umbrella of digitalization. While most of the above-mentioned stylized facts have arguably been observed and discussed quite recently, we should keep in mind that the digitalization process has not occurred overnight. Long (2016, p. 225) argues that digitalization has been an ongoing process for at least five decades, with the first two decades (the 1970s and 1980s) consisting of technological breakthroughs in major sub-ICTs (e.g., integrated circuits, LANs) and the last three decades (1990s–) with a wide range of industrial deployments and transformations throughout the economy (mobile, cloud, big data, analytics, visualization, the IoT, smart machines and AI).

Sustainability

The terminology of sustainability is used in different ways, broadly referring to making human activities environmentally, socially and economically viable. From an environmental perspective, in the field of sustainability, there is a huge number of reports that are updated daily (e.g., the UN Environment Emissions Cap Report⁵), presenting alarming figures and projections. In this book, sustainability is an environmentally oriented umbrella concept that has links with industrial transformation at the following points.

• It causes changes in the relative prices of the factors (land, labour, capital) of production. There is a growing consensus that the widespread problems of pollution and climate change are caused by humankind’s over-utilization of finite (natural) resources. The recent labelling of our time as the Anthropocene ⁶ speaks of the human-influenced atmospheric, geologic, hydrologic and biospheric conditions, which arguably threaten to wipe out other species. This changes the factor endowments of a country in general and the conditions for industrial development and transformation in particular regions. For example, a regional drought can cause the shutdown or relocation of process industries (e.g., Coca-Cola production, paper mills). At the same time, a change in environmental conditions is itself a spur to ...