Network and Learning: Constructing Cross-Cutting Ties in Taiwan's Decentralized Production System

Increasing work in economic sociology has focused on the “embeddedness” thesis: specific patterns of institutional linkages between the state, civil societies and the market account for variations in economic outcomes. Of major concern are the “institutional innovations” conducive to development. As a solution to conventional weak institutions in developing countries, increasing research suggests that constructing cross-cutting ties by connecting previously isolated groups can improve access to new knowledge, thus enhancing firms’ capability building through recombination of resources in new ways that are conductive to a broad-base entrepreneurship. Building upon this stream of research, this paper illustrates the specifics of the institutional innovations conducive to a broad-base development by examining upgrading and innovation in Taiwan.

 Through in-depth case studies of machinery-related industries (bicycles, auto parts and machine tools) which have demonstrated resilience in global competition, this paper investigates how inter-firm/cross-cutting collaborations and public private synergies are possible within Taiwan’s decentralized industrial structure. The paper shows that incremental breakthroughs often come from independent parts makers and specialist firms, contrary to the existing assumption that leading large firms orchestrate changes. Second, public supporting institutions have been crucial in coordinating the decentralized economy by bridging different production networks to facilitate learning, contrary to the conventional developmental state thesis of industrial targeting and scaling up. The recombination of ideas and networks, as expressed in inter-industry/sectoral learning, has been crucial in understanding the innovative capacities of the SMEs. Theoretically, the case of Taiwan contributes to the recent debate on “pragmatic turns” as governing principles of network production.