Vertical Specialization and Industry Structure in High Technology Industries

We examine the evolution of vertical specialization in three industries: chemicals, computers, and semiconductors. Vertical specialization is the restructuring of industry-wide value chains, such that different stages of the development, production, and marketing processes are controlled by different firms, rather than being vertically integrated within the boundaries of individual firms. In some cases, vertical specialization may span international boundaries and is associated with complex international production networks. After decades of vertical specialization, firms in the chemical industry appears to be re-integrating stages of the value chain. By contrast, the semiconductor and computer industries have experienced significant vertical specialization during the past ten years. We examine how and why these contrasting trends in vertical specialization have coevolved with industry maturation and decline, and underscore the importance and role of both industry factors and business strategies necessary for This research was supported in part from funding from The Alfred P. Sloan Foundation. The paper has benefited from the helpful comments of Asish Arora, Joel Baum and Anita McGahan. The authors are solely responsible for any errors or omissions. Address all correspondence to the authors at their respective addresses. Business Strategy Over the Industry Lifecycle Advances in Strategic Management, Volume 21, 317–356 Copyright © 2004 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0742-3322/doi:10.1016/S0742-3322(04)21011-7