469 Technological discontinuities and flexible production networks: The case of Switzerland and the world watch industry * Amy Glasmeier tain and augment their competitiveness in a global Unrr~rs~t~of Texas at Austin, Texas, USA economy. On the eve of the electronics revolution, the Swiss watch production system, centered in the mountainous Jura region, was flexible, cost The twentieth-century history of the Swiss watch industry effective, and extremely profitable. Both horizon- illustrates how cultures and industrial production systems ex- tally and vertically disintegrated, the Swiss system perience great difficulty adapting to external change at differ- offered enormous variety while maintaining qual- ent points in time. The current emphasis on production net- ity and timeliness of delivery. “The multiplicity of works - unique reservoirs of potential technological innovation realized through cooperation rather than competition among enterprises, and the competition and emulation firms - lacks a detailed appreciation of historic networks, and that characterized the industry, yielded a product in particular their fragile character in times of economic of superior quality known the world over for high turmoil. While networks can and do promote innovation within fashion, design, and precision” [21, p. 481. an existing technological framework, historical experience sug- Beginning in the 1970s when foreign competi- gests their fragmented, atomistic structure is subject to dis- organization and disintegration during periods of technological tion hurdled technological frontiers in watch change. An exclusive focus on “production” ignores other movements, advancing from mechanical to elec- constraints that are powerful forces governing the reaction tric, electronic, digital and finally quartz technol- abilities of regions. Previous research has largely relied on a ogy, the Jura’s undisputed dominance ended. ’ model of oligopolistic competition to explain how the Swiss Massive job loss and out-migration occurred as lost control of the world watch industry. I conclude, on the contrary, that the Swiss experience must be understood from firms, unable or unwilling to adapt to new tech- the standpoint of how technological change challenges previ- nologies, closed their doors. Today, while still ous ways of organizing production, industry, culture, and world leaders in watch export value, Swiss society. Technology shifts present a series of strategic turning watchmakers produce only a fraction of their pre- points that industrial leaders must navigate during a period of 1970s output levels, and resources needed to in- technological change. vest in new product research and development are scarce [40]. In a span of less than 30 years, the world’s dominant watch region yielded technologi- In tro d u c tio n cal leadership (in watchmaking and micromecha- nits) to its Far Eastern rivals. What lessons can be The history of the Swiss watch industry is in- learned about network production systems and structive as countries and regions experiment with technological innovation from the experience of network production systems in attempts to main- Switzerland’s watch region? Industrial restructuring of the past 20 years has * This paper is based on original research conducted in Japan, left once dominant manufacturing regions such as Hong Kong, and Switzerland. The assistance of Luc Tissot, America’s industrial heartland and Germany’s Wendy Taillard, Pierre Rossel, and Jocelyn Tissot, of the Ruhr valley debilitated. Reincorporating techno- Tissot Economic Foundation, was greatly appreciated. The logical innovation within production systems of Foundation and its staff were instrumental in the successful deindustrialized regions has become a major con- completion of this research. A full elaboration of the argu- ment presented in this article can be found in various cern. Even technologically vibrant regions such as working papers in the Graduate Program in Community and Route 128, Silicon Valley, and Emilia Romagna Regional Planning, Working Paper Series. confront uncertain futures in the current period of Research Policy 20 (1991) 469-485 North-Holland ’ The Appendix provides a brief review of watch technologies. 0048-7333/91/$03.50 0 1991 - Elsevier Science Publishers B.V. All rights reserved 470 A. GIasmeier / Switzerland and the world watch industry intense technological development and interna- together by elaborate cultural, institutional, and tional competition. How can a region remain in- economic relationships, exhibits flexibility and novative during a period of technological change? adaptability within an existing technological Do network production systems offer a more flexi- framework. The case study also illustrates, how- ble and permanent means of regional adaption? ever, that within any production system flexibility By examining the experience of the watch industry and innovativeness are time-dependent. Therefore, I hope to tie together empirical experiences of given specific historical circumstances, they are researchers asking similar questions concerning vulnerable. the relationship between structure of production, The lack of coordination and organization regional culture, technological change, the forma- within small firm complexes has precipitated dis- tion and maintenance of core skills, and state-led cussions about the need for governing systems to regional development in industrial hinterlands. regulate small firm atomistic behavior and to rep- This article reviews the twentieth-century his- licate functions performed by the vertically in- tory of the Swiss watch industry. My purpose is to tegrated corporation such as R&D, management suggest that focussing’solely on production trans- training, marketing, and distribution. As Saxen- actions does not adequately explain how eco- ian’s work suggests, network production systems nomic, social, and cultural conditions interact to are vulnerable to technological threats from the form a complex of human relations that can re- outside [30]. Calls for institution-building must be main flexible and innovative over time. While tempered with the knowledge that coordinating networks are quite proficient at production and organizations quickly become absorbed into the innovation within an existing technological frame- regional fabric and ossify over time. During the work, disintegrated systems may neither accu- course of two centuries the Swiss watch industry mulate profits nor demonstrate a collective will to established elaborate institutions, organized tech- make essential investments in research, marketing, nological competitions and other social events, and distribution in response to technological and supported diverse organizations to bolster the change. At a more refined level, this article sug- industry’s innovative capabilities [8]. The strength gests that the current emphasis on production of these institutions has been and still is signifi- networks - unique reservoirs of potential techno- cant. The Swiss Watch Industry Federation (FH) logical innovation realized through cooperation was the leading organization in trade negotiations rather than competition among firms - lacks a for the world watch industry [24]. Long after the detailed appreciation of historic networks, and in Swiss lost volume leadership, the FH continued to particular their fragile character in times of eco- lead GATT negotiations [27]. Market share, nomic turmoil [29,30,31,32]. While networks can quotas, and tariffs are still negotiated by the FH and do promote innovation within an existing for the world watch industry. Yet despite its technological system, historical experience sug- worldwide reputation, in the 1960s and 1970s the gests their fragmented, atom&tic structure is sub- FH was unable to overcome resistance to new ject to disorganization and disintegration during technology. While the organization sponsored periods of major technological change [35,8,9]. * Swiss R&D, it could not force members to incor- Inter-firm networks are important ingredients porate new technologies into existing products. of technologically innovative and flexible in- This article departs from past treatments of the dustrial production systems. This insight is an watch industry’s post-war experience by examin- important addition to contemporary theoretical ing the rise of world competition through the lens discussions about the relationship between re- of technological shifts. Previous treatments have gional and technology development. As the case of largely relied on a model of oligopolistic competi- the Swiss watch industry suggests (within a par- tion to explain how the Swiss lost control of the ticular structure of production and organization), world watch industry. I conclude, on the contrary, a highly articulated system of production, tied that the Swiss experience must be viewed from another angle. How do technological shifts chal- lenge previous ways of organizing production, in- ’ The use of the term “disintegration” is meant to imply chaos not the evolution of the spatial division of labor as used by dustry, culture, and society? Fundamental changes Scott [32]. in technology present a series of strategic turning A. Glasmeier / Switzerland and the world watch mdustry 411 points that industrial leaders must navigate. The manufactured at large scale in centralized facto- Swiss were no exception. ries, while flexibility was maintained in dispersed This article first considers the historic evolution design and assembly