Global Production Networks, Innovation, and Work: Why Chip and System Design in the IT Industry are Moving to Asia

This paper was prepared as an issue paper, to be discussed at the Planning Meeting of the SSRC on "Emerging Pathways to Innovation in Asia," September 12-13, 2003. The paper describes a research project that explores why chip design is moving to Asia, despite its high knowledge-intensity. Trade economists would search for an answer by looking at differences in the cost of employing a chip design engineer and comparative factor and resource endowments. However, an analysis of Asia's comparative cost and resource advantages can only explain what attracts chip design to particular locations ("pull factors"). It cannot explain what forces are behind the growing mobility of IC design, pushing for and enabling geographic dispersion. A central proposition is that chip design is moving to Asia in response to radical changes in design methodology ("system-level integration" through "modular design") and organization (automated "design factory"). Both changes have dramatically increased the cognitive and organizational complexity of design. This makes it less likely that a single company will exclusively handle all stages of design for a specific chip. Instead, many companies are contributing, based upon their specific areas of expertise. As a result, integrated forms of design organization, where (almost) entire ICs are designed within a single firm, are giving way to vertical specialization where stages of IC design are outsourced to other firms (dis-integration of firm organization) and relocated across national boundaries (geographic dispersion). The project is being undertaken in collaboration with the Institut fuer Sozialforschung (IfS) Frankfurt, Germany and is supported by a grant from the Volkswagen Foundation