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Technological Life-Cycles: Lessons from a Cluster Facing Disruption Bent Dalum, Christian Ø.R. Pedersen and Gert Villumsen European Urban and Regional Studies 2005; 12; 229 DOI: 10.1177/0969776405056594

The online version of this article can be found at: http://eur.sagepub.com/cgi/content/abstract/12/3/229

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Bent Dalum, Christian Ø.R. Pedersen and Gert Villumsen Aalborg University, Denmark

Abstract

New disruptive technological life-cycles may initiate closely related to the emergence of new key tech- the emergence of new regional industrial clusters or nologies.The analysis is focused on the strategy and create opportunities for further development of policy issues involved in the specific phase where existing ones. They may, however, also result in one technological life-cycle may (or may not?) be stagnation and decline. For clusters in many of the succeeded by the next. When facing disruption the fast developing technologies, the evolution is closely actors in the cluster have discussed various strategies related to shifts in technological life-cycles. During for how to cope with shifts in the technological life- the 1980s and 1990s new mobile communications cycles. We find that there is room and need for technologies have emerged as a series of distinct policy and collective action in periods of uncertainty life-cycles, which have caused major disruptions in created by new disruptive technological life-cycles. the industry.The paper examines the key features of a cluster in wireless communications technologies, KEY WORDS ★ communication technology where the economic evolution has been quite ★ regional clusters ★ technological life-cycles

This paper is focused on how regional clusters may ‘disruptive’ refers to such significant changes in the react on the emergence of new disruptive basic technologies as may change the industrial technological life-cycles. During the 1980s and landscape. Tushman and Anderson (1986) describe 1990s new mobile communications technologies disruption as a technological discontinuity which is have emerged as a series of distinct ‘generations’. so significant that no increase in scale, efficiency or The introduction and diffusion of each of these life- design can make the older technologies competitive cycles have caused major disruptions in the industry, with the new one. but have also opened opportunities for new entrants. The case to be studied in detail is a cluster of The shifts from one generation to the next have also high-technology wireless communications firms in involved some major policy issues, such as choice of the region of North Jutland, Denmark. A special regulation and standardization set-up and the need emphasis is given to the study of whether and how a for large investments in university R&D. ‘collective spirit’ may be formed and turned into For detailed analysis of clusters in many rapidly collective action in periods of major threats and developing technologies, the theories of challenges. This again leads to a discussion of the technological life-cycles seem to fit, because a given interaction between privately and publicly initiated cluster often experiences the passing of several life- efforts and policy initiatives. Ideally, the paper aims cycles. The capability of a cluster to adapt to these at pointing to some features and mechanisms of a sequential ‘shocks’ of new technologies is the core more general relevance for evolution of regional field of the study. This paper intends to further clusters based on fast-developing technologies and develop the analysis of sequential disruptions by the opportunities and potential necessities for using the concept of technological life-cycles and developing policy measures in periods of major apply this on a single case over an extended period disruptions. of time, including several cycles. The term The term ‘cluster’ is applied as ‘geographic

concentrations of interconnected companies . . . well as influencing for example the discussion on linked by commonalities and complementarities’ income convergence versus divergence among (Porter, 1998: 199). It is important how precisely European regions. Krugman’s writings also caused a these commonalities and complementarities are comprehensive, but rather hostile, reaction from the conceived and defined. Martin and Sunley (2003) community of economic geographers during the have surveyed the wide array of cluster definitions 1990s, surveyed by Martin and Sunley (1996) and applied in the literature more recently. The cluster Martin (1999). concept appears to be very elastic and imprecise in In 1990 another stream of literature dealing with academic as well as in policy circles. The present the geographical dimension of economics emerged paper faces this problem by using a concise and from research rooted in a strategic management operational definition. The object of this analysis is perspective, in terms of Porter’s (1990) highly a rather precisely specified regional cluster, influential reinterpretation of Dahmén’s (1970; NorCOM, consisting of approximately 50 firms, a 1988) development blocks as regionally based science park, and Aalborg University. The industrial clusters. Also emerging in the early 1990s delimitation of the cluster has deliberately been was the literature on innovations systems, whether narrow, i.e. a common knowledge base focused on national (Lundvall, 1992; Nelson, 1993), regional radio waves as an information carrier. The size has (Cooke, 1992), or based on specific technologies made it possible to base the paper on extensive (Carlsson and Stankiewicz, 1991) or broader sectors interviews and interaction with a large share of the (Breschi and Malerba, 1997). Technical change and major players in the cluster, as well as allowing its diffusion have been core drivers of the rather specific discussions of policy issues. innovation-systems literature as well as of Porter’s The section which follows this introduction work. They share the view that the traditional linear highlights the general theoretical background of the model, where scientific discovery and invention paper, which is the reborn interaction between move on to industrial innovation in a fairly simple geography and economics since the early 1990s. The manner, cannot explain the dynamics of industrial next focuses on the concepts of technological life- development, neither at present nor historically. On cycles and the role of disruption. After that the the contrary, they share an emphasis on the systemic technological life-cycles in the mobile character of technical innovation – the institutional communication technology industry are analysed. set-up matters as does interaction among a great The cluster in its regional context is introduced many actors, such as firms, universities, industry next, while the following section contains the associations, standardization bodies, government analysis of the interaction of various generations of regulators (at the national as well as regional level), mobile communications technologies and the science parks etc. While the innovation-system evolution of the cluster. Next we focus on the future literature has emphasized the role of interfirm challenges for the cluster and the role of policy and cooperative networks, Porter has emphasized local privately initiated collective efforts. Finally, we competition as a main dynamic force in the present the conclusion. development of clusters. Recently, major attempts to synthesize and integrate these various lines of work have been presented. The Oxford Handbook of Economic The interaction between geography and Geography (Clark et al., 2000) represents a great economics effort to bring together the various contributions, although without necessarily solving the differences Since the early 1990s, the literature on the between the various approaches; there is still a importance of geography for economic development rather large gap between mainstream economics and has been revitalized. Inside the economics the other approaches. Edquist (1997) presents the profession Krugman (1991; 1995) has engaged in a various contributions to the innovations-system ‘crusade’ to integrate the spatial dimension into literature, which to a large extent appear to have mainstream economic theory. This has borne fruit been integrated through that effort. Porter (1998; in such theoretical work as Fujita et al. (1999) as 2000) contains an effort at further integration of the

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Downloaded from http://eur.sagepub.com at Universiteit Maastricht on September 3, 2007 © 2005 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. DALUM et al.: TECHNOLOGICAL LIFE-CYCLES 231 strategic-management perspective with the ‘workstation’ computers and the PC) were at the emerging research tradition in economic geography heart of the Silicon Valley resurgence in the 1980s, and innovation systems. when the Boston area, according to Saxenian, was The various lines of research on the interaction left behind in the computer industry. between territory and industrial development have, Thus, radical technological change may cause thus, somehow tended to converge. Major efforts to disruptions for existing clusters as well as form the do empirical comparisons of regional innovation foundation for the emergence of new ones. systems have been performed in several European projects during the second half of the 1990s with an early proponent of the concept of regional innovation systems as a central node (see e.g. Theory of technological life-cycles and Braczyk et al., 1997; Cooke et al., 2000; and Cooke, disruptive technologies 2001. The present paper is focused on a particular line The transformation and change of sectors, of research in this context, that of high-technology- industries and products are shown in the literature based regional clusters. Many of the available cluster on industry life-cycles (Vernon, 1966; Klepper, studies have been focused on more static 1996) and product life-cycles (Abernathy and descriptions of their characteristics at a given point Utterback, 1975) to follow a life-cycle from birth to in time, although flavoured with evidence of some of maturity. Abernathy and Utterback (1975) focused the main features of their history. A more systematic on technological innovation, where product and focus on the role of technology and the development process innovations were integrated into a single of specific clusters over longer time spans has model explaining the evolution of a product life- somehow been given less priority. This may be due cycle. to the great variety of regional clusters. In the beginning (the fluid phase), there is a lot Generalizations across this variety may seem of experimentation with different designs etc., difficult, especially concerning different patterns of resulting in a high number of product innovations. evolution over time. This paper intends to further The early stage then turns into a phase dominated develop the analysis of sequential disruptions by by incremental innovations, when a dominant using the concept of technological life-cycles, and to design emerges. As the rate of product innovations apply this to a single case over an extended period of drops and technological uncertainty is lowered, the time, including several cycles. rate of process innovations increases. Consequently In the theory of the patterns of technical productivity increases and the scale of production innovation the concepts of product, industry, and grows (Utterback, 1994). The focus shifts from technological life-cycles seem fit to a more dynamic product performance maximization to cost analysis of the development of regional clusters. minimization (the transitional phase). In the Klepper’s (2002) analysis of the early concentration following mature phase, the overall rate of of the automobile industry in Detroit is an example innovation fades, the products become standardized of the merit of the industry life-cycle approach. For and the production processes become more efficient detailed analysis of clusters in electronics, the and closely integrated with the products. theories of technological life-cycles seem fit because The industry life-cycle and the product life- a given cluster often experiences the passing of cycle are closely linked. Entry, exit, and growth are several life-cycles. It is the capability of a cluster to added to the product life-cycle to form the industry adapt to these recurrent disruptions caused by new life-cycle. In addition, the fluid phase of an industry technologies which is the core field of the study. is characterized by a high number of entrants. But Saxenian’s (1994) account of the history of Silicon as the industry enters the transitional phase and the Valley is closely related to the emergence of radical number of firms peaks, a shake-out occurs resulting new technologies, as is her analysis of how the Route in concentration. The prices decline during the 128 region got stuck in one, at the time highly cycle and while the market size initially is small, it successful, technology – i.e. minicomputers. Two grows rapidly in the transitional phase. new technological life-cycles (Unix-based The organization of the firm and the character of

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its innovative activity also change during the cycle straightforward. The life-cycle of an established (Utterback, 1994). In the early phase there is high technology may be prolonged by ‘sustaining innovative activity among smaller firms and new innovations’ or may be disrupted by the emergence entrants, while in the mature stage, with less of a new technology. Sustaining innovations are not product innovation, there tends to be an advantage necessarily incremental, but may be quite radical. in the innovative activity of large and established Initially the disrupter underperforms the firms (Audretsch and Feldman, 1996; Klepper, established technology, but it enables new 1996). In Cainarca et al. (1992) the industry life- applications for new customers, presents new cycle is split into (different) life-cycles of benefits, and the performance improves rapidly. The subindustries defined by their technology. This disruptive technology may initially have a lower technological life-cycle is more than a product but performance than the established one and may also less than an industry life-cycle. It is also important serve different customers and applications. For a to note that each technological life-cycle has long period the established technology may continue different features, that is competition, user needs, to perform better and the disrupter may not be seen applications and so forth can be different. as a threat. Because the disrupter has a different Utterback uses an S-curve model where the improvement trajectory, it can eventually evolution of technology, industry or product follows outperform the old technology, although the latter an S-curve over time. The performance is usually may fight back for a prolonged period. either measured by technological performance or The evolution paths of the cycles are, obviously, market penetration. Utterback uses the American not as deterministic and predictable as indicated in ice industry as an example, but finds a similar Figure 1. Many potentially disruptive technologies pattern in others, such as the computer industry. will not win or outperform the old technology due However, the coexistence and shifts from one to technological lock-in, de facto standards, technological life-cycle to the next are not sustaining innovations, timing and so forth. A

Performance

Disruptive technology Sustaining innovations

Established technology

Time

Figure 1 S-curves for the established and disruptive technology

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Downloaded from http://eur.sagepub.com at Universiteit Maastricht on September 3, 2007 © 2005 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. DALUM et al.: TECHNOLOGICAL LIFE-CYCLES 233 possible cause can be different types of disruption. transformation process with special emphasis on Tushman and Anderson (1986) categorize these as regional instability and dynamism in these different product (new product class, substitution or phases. fundamental improvement) or process disruption (substitution or radical improvement), which are either competence destroying or enhancing. Bower and Christensen (1995) and Lewis et al. (2001) have Technological life-cycles in the mobile emphasized that the usual causes of disruption are communications industry new business models, applications or customers, but not necessarily the technology itself. The concept of technological life-cycles fits neatly The disruptive technology often comes from the evolution of mobile-communications outsiders and not the industry leaders – see technologies. The significant changes in the basic Utterback (1994) and Bower and Christensen (1995) technology from the first generation (1G) – and is therefore very hard to predict. Even technology to the second (2G) constitute a shift of disrupters may be disrupted. But when a new technological life-cycles. Likewise the emerging technological life-cycle successfully takes off, the third generation system (3G) represents a new outcome is often a shift of market leaders and potential cycle. The pattern for the European location. Likewise, a new technological life-cycle mobile communications industry is shown in Figure may offer new opportunities for existing or 2, which also contains an ‘envelope curve’ in order emerging regional clusters. Audretsch and Feldman to illustrate that there may already be a life-cycle (1996) show that there is a tendency in the early pattern of the entire industry moving towards the stages of an industry life-cycle for innovative mature stage, due to (temporary?) market saturation activity to cluster, whereas it is more dispersed in of mobile phones in the most dominant markets. the mature stages. Storper and Walker (1989) and The 1G cycle consisted of analogue mobile Thompson (1975) have studied the industrial- systems, of which the Nordic NMT – the first

Performance

Industry? UMTS (3G)

GSM (2G)

NMT (1G)

Time Figure 2 The technological life-cycles of the European mobile-communications industry

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international system operating from 1981 – became recent history of the industry indicates that an very successful. The disrupter and subsequent new exaggerated optimism concerning the transition technological life-cycle was the pan-European from 2G to 3G has led to a technology-push- GSM, which was a shift to digital technology and dominated approach where customer needs have required a new infrastructure. The disruption played too small a role. caused by GSM not only led to replacement of The UMTS variant of 3G requires a completely NMT; GSM even became the de facto dominant new infrastructure. The order of magnitude of the world standard. GSM also became a disrupter to the estimated costs is reported to be around $150b, networks of fixed telephones and satellite cell while the costs for the major European operators to phones as well as to the telecom service-provision acquire 3G licenses during the spectrum auction industry (Mannings and Cosier, 2001; Dalum, processes during 2000–01 were around $120b. The 2003). operators have vested interests in the roll-out of 3G Within each of the generations different systems in Europe, but it is nonetheless not clear to what have been competing worldwide. The NMT system extent 3G will cause radical disruption, partly became adopted in several, mostly European, because of the sustaining innovations, such as countries as well. But technically inferior and EDGE, and other potentially disruptive internationally incompatible systems were technologies. In particular, Wireless Local Area implemented in the dominant European markets of Networks (WLAN) – which provide low-cost, high- Germany and France, while the UK adopted an speed, short-distance wireless Internet access – may adjusted version of the US (1G) AMPS system, be considered a potential disrupter to the emerging called TACS. During the 1G cycle the US and 3G networks. Latin American markets were dominated by the AMPS system. Although the highly successful GSM has emerged as the dominant world standard within the 2G technologies, the equivalent US North Jutland – the emergence of ICT digital technologies have caused fierce competition between these rivalling systems, especially in the US The region of the North Jutland County is located and Korea. Also within the 3G technologies, no at the northern tip of the peninsula of Jutland at the universal standard could be established. The top of the Central European continent. The European–Japanese UMTS system competes with population is around half a million people, slightly the US CDMA2000, and a potential Chinese rival less than one-tenth of the Danish total. Total standard (TD-SCDMA) has not been decided on employment was 245,800 persons in 2001, of which yet. For detailed historical accounts on the various the private sector share was 161,700. The largest generations of mobile-communications systems, see municipality is Aalborg, the fourth largest city in Dalum et al. (2002), Funk (2002), King and West Denmark, with 163,000 inhabitants. The region is (2002) and Hommen (2003). ‘specialized’ (i.e. has an employment share above the At present the industry is in the transition phase national average) in the primary sector and in metal between 2G and 3G. However, the 2G technologies products, but also in mechanical engineering and are ‘fighting back’ with the sustaining innovation electronics. This industrial structure is in line with EDGE (or 2.5G) which offers data transmission the average Danish ‘non-metropolitan’ counties. speed of the same magnitude as the first 3G The two ‘metropolitan’ regions are Copenhagen networks. The latter is still in the process of being (including its suburbs) and Aarhus. rolled out and has been hit by various delays, such as The presence of a fairly visible segment of the lack of sufficiently attractive terminals – a situation ICT sector is a rather recent feature. Total ICT quite similar to what happened a decade ago during employment was almost 8,450 in 2001, of which 30 the early implementation of the first GSM percent was in manufacturing compared to 22 networks. But the open question is will the smooth percent for Denmark. The specialization indicator pattern indicated in Figure 2 be realized? Or said in ICT manufactuing increased to 1.1 during the differently, will history to a certain extent repeat 1990s, concentrated in two segments: itself? The outcome is not easy to predict. The telecommunications and components. Telecom

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Downloaded from http://eur.sagepub.com at Universiteit Maastricht on September 3, 2007 © 2005 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. DALUM et al.: TECHNOLOGICAL LIFE-CYCLES 235 hardware has been especially outstanding with an entrants were a North Jutland firm, Dancall, which increase from a three-times to nearly five-times started as a maritime communications spin-off from larger employment share compared to the national SP Radio, and the Finish Nokia, which acquired the average. Mobira start-up. The 1980s became the decade of the 1G life-cycle. Growth was very rapid for Ericsson, Nokia, Dancall, and Storno. The business opportunities appeared very promising, but The NorCOM history – the interaction competition increased. Prices and size of the of cluster evolution with technological terminals decreased, while technological life-cycles and disruption performance increased rapidly. While the next generation of systems could be seen on the horizon, These statistical patterns cover a wireless Storno was sold to the dominant US terminal communications cluster, NorCOM, in North producer, Motorola, in 1986. In North Jutland Jutland consisting of two related fields: mobile another maritime communications start-up from the telephony (development and production of 1970s, Shipmate, also entered the NMT field in hardware and telecom services) and equipment for 1985 as Cetelco. maritime communications and navigation. The At the end of the 1980s North Jutland had cluster originated in the mid-1960s when the become internationally visible as an NMT region. ‘mother’ company SP Radio switched from being a Several of the large telecommunications consumer electronics producer for the domestic multinationals had entered the NMT terminals market to radio telephones for small ships. This market, such as Siemens and Alcatel. The first firm quickly became one of the world leaders in its Alcatel terminals were developed in North Jutland field. During the 1970s a few maritime by T-Com in 1986 – a spin-off from Dancall which communications firms emerged as spin-offs from would be acquired by Korean Maxon in 1991. The SP Radio. An important trigger for further coincidence of the take-off of NMT from 1981, the industrial development was the start of Aalborg first vintage of MScs finishing their degrees in University (AAU) in 1974, which integrated two electrical engineering at AAU in 1979, and the close previous undergraduate-level engineering schools industry–university interaction in the emerging both with departments in electronic engineering. mobile-telephony industry paved the way for this early development. It was not an outcome of a deliberate industrial policy effort, although it could not have happened without the result of a deliberate The NMT (1G) life-cycle – an embryo of a outcome of a public policy effort, the start of cluster formed Aalborg University in 1974.

From 1981 the Nordic mobile telephony operators (incumbent government-owned monopolies) launched the first cross-national public mobile The GSM (2G) life-cycle – the regional telephony system ever seen, the NMT.1 The system cluster consolidated became an enormous – and unexpected – commercial success in terms of user penetration, During the last half of the 1980s a new life-cycle which called for significant attention internationally. was emerging. The tremendous success of NMT The main producers of the equipment were inspired the European telecommunications Swedish Ericsson, which was the unchallenged operators to create a Pan-European system, entirely leader in infrastructure equipment, and Danish based on digital technology. This process was given Storno, located in Copenhagen, being strong in strong political backing by becoming a Europe 1992 terminals. ‘flagship project’. The standardization process of A new technological life-cycle had emerged and the GSM system was taken over by a new EU barriers to entry were lower at the early stage, at organization, the European Telecommunications least within the terminals market. Among the new Standards Institute (ETSI). The GSM system was

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planned to become operational in 1992 and a large fair in Hanover, Germany, in 1992. At the time amount of prestige and political momentum was terminals were presented by only a handful of embedded in the entire process. companies, including Ericsson, Motorola, Nokia, GSM – and its competing 2G technologies in the and Dancall-Cetelco (in various guises such as US and Korea – represented an entire, new, Philips, Hagenuk, and Dancall). Although a new technological life-cycle. The infrastructure had to technological life-cycle could be envisaged, the be rebuilt in terms of antennas and base stations in NMT market was still growing and it coexisted with the landscape. The technological challenges for the emergence of the 2G cycle. The competition in developing this new infrastructure as well as the the NMT market had changed during the 1G life- GSM terminals were huge. A veritable race began cycle, the many entrants and the success in terms of because many of the incumbent telecommunications a rapid diffusion of the mobile phone and (at the hardware producers saw the commercial time) high user penetration had led to falling prices opportunities already harvested by Ericsson, and fast technological change. The innovative effort Storno/Motorola, and not least Nokia in the second in GSM by the small North Jutland firms basically half of the 1980s. drained them financially, because the competition The challenges were of such a magnitude that was fierce in the NMT market. Both were taken some of the major multinationals formed over by foreign companies. Dancall was acquired by precompetitive alliances for developing parts of the UK Amstrad, then by Bosch, and later again by equipment. Nokia, until the 2G cycle not active in Flextronics and Siemens. Cetelco was taken over by infrastructure equipment, formed with Alcatel and German Hagenuk, to be sold later on to Italian AEG the ECR900 consortium to develop GSM Telital. infrastructure technology (Dalum, 1993). Ericsson At this stage, the first private GSM operator, cooperated with Siemens at some stage during the Sonofon,2 decided to build its main operations in 1988–92 period as part of the contract of building Aalborg and the AAU research profile was the Deutsche Telekom 2G infrastructure. consolidated by a new research Centre for Personal In the North Jutland context the advent of GSM Communication (CPK), which became an important was a major challenge and also seen by many as a international actor at the research scene in wireless major threat, given the character of the small and technologies. But there was a widespread fear at the medium-sized firms. GSM was no doubt seen as a time, that the (planned) closing-down of DC major disruptive phenomenon on the horizon. Development would be the end for the region in However, local university research had flourished mobile-telecom hardware development and during the NMT boom and the interaction with the production. However, instead of dying, this group of local industry thrived. The knowledge industrial development engineers managed to start a infrastructure of the region began to become ‘cloning’ process – through existing firms or via internationally visible. The two local producers and spin-offs – which resulted in the region becoming a competitors, Dancall and Cetelco, announced in development hub for GSM terminals with six or 1988 a precompetitive joint venture, DC seven firms developing GSM equipment, mainly for Development, to develop the basic technology for foreign companies. GSM terminals – located on neutral ground at the The shift from the 1G cycle to 2G had caused a newly founded Aalborg University science park, significant amount of disruption. The advent of a NOVI. The two firms explicitly planned to close the new cycle had created uncertainty and a major joint venture when the mission was accomplished technological challenge for the firms in the and compete based on different features of the NorCOM cluster. The ‘solution’ was thought to be terminals, such as design. Close interaction with the joint venture model for developing the basics of AAU and the National Telecom Agency in testing a GSM phone between the two largest firms. The of the new terminal equipment was among the strategies of other firms in the cluster were less project’s important ‘outside’ factors. coordinated and more diverse. The local affiliate of The DC Development team peaked at Maxon continued to develop NMT phones since approximately 30 persons in 1992 and managed to this market was still growing and Maxon had a develop a GSM terminal presented at the CEBIT deliberate strategy of postponing its entrance into

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GSM technology for some years. The emerging Parallel to the horizontal proliferation, a vertical cluster thus consisted of firms with radically deepening was also seen. The first significant event different strategies, from early movers to late was the decision to locate the major activities of the entrants who followed a more opportunistic wait- first private mobile-phone operator, Sonofon, in and-see strategy. In the first half of the 1990s the Aalborg from 1991, which resulted in nearly 1,000 cluster consisted of somehow fragmented small and jobs at the end of the decade. This deepening was medium-sized players with rather different matched later on by upstream entrance of strategies. specialized component developers, especially The latter half of the 1990s became a period of marked when one of the US leaders in chipsets for very rapid growth. To some extent the events of the mobile phones, Analog Devices, opened an affiliate late 1980s were replicated but on a larger scale. And in Aalborg in 1997. Analog delivered chipsets for what were already becaming more and more evident two of the local terminal developers and wanted to from the early 1990s were the contours of a be present at the now thriving GSM development wireless-communications cluster, to a certain extent hub. This deepening was brought further by the based on close personal interaction between Texas Instruments acquisition of a GSM developer, engineers (Dahl and Pedersen, 2004). ATL, in 1999, and Infineon, which founded DWD, During the 1990s this cluster was widened a small GSM developer in 1999. horizontally3.Several firms entered the cluster as University R&D and education thrived further spin-offs or as inexperienced entrants. Many of in the late 1990s, when CPK at AAU was prolonged these started working in wireless-communication with a second major research council grant technologies other than the dominant mobile and 1998–2002. All over Europe there was a general lack maritime-communications technologies; for of electronic engineers in the late 1990s. Any region example, a group of engineers left Dancall and were which could offer qualified engineers and an joined by a group from Maxon to found RTX, innovative research environment in the wireless which over a decade became a world leader in field could attract multinational companies – and developing cordless phones for big companies on North Jutland indeed did. OEM terms. In the second half of the decade RTX At the end of the decade the GSM developers entered mobile communications as well. A new moved into ‘sustaining’ solutions, such as GPRS collaborative activity was initiated between some of and EDGE, which are able to speed up the data- the firms in the cluster and some ‘outside’ firms in communication performance of GSM solutions. the field of cordless phones. A standardization This indicated the early beginning of the next major project involving a group of Danish firms founded technological life-cycle, 3G. In general, major Dansk DECT Udvikling focusing on further players in the industry were attracted by the specification of the European standard for cordless viability of NorCOM and saw opportunities for also phones, DECT. The main idea was that the using the region as a development hub for 3G European standard was too loosely defined and technology. This was the explicit aim of Nokia and would not necessarily allow for seamless Ericsson when they founded 3G development units compatibility of equipment or parts from different in North Jutland in 1999. producers. By making a more detailed specification In 1999 and the first half of 2000, the NorCOM of the DECT standard and getting it approved at cluster thus became clearly visible on the the European level they went for creating a Danish international scene, but dark clouds appeared on the advantage within the cordless segment of the horizon. industry inspired by the success of NMT. The cordless-phone technology was, however, disrupted by the rapid diffusion of mobile phones, but survived as an add-on to the fixed-line telephony Is UMTS (3G) a major threat? system. In 1995 the consortium was taken over by Ericsson, which continued working on cordless The emergence of 3G as a new technological life- technology, but soon diversified into other cycle is also expected to create disruption, but the technologies. telecommunications turmoil began long before the

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roll-out of 3G networks. The turmoil was caused by cluster to the same extent (in relative terms) as the global crisis in the ICT sector which started in during the initial GSM phase a decade earlier. The 2000, as well as the characteristics of the spectrum crisis in the telecommunication industry and the auctions in Europe and the emergence of other increased complexity has forced many of the players potentially disruptive wireless technologies. to focus their R&D in larger units and to form Complexity and convergence are two central issues. alliances. However, the high complexity and the The increased complexity of the technology creates demand for an increased number of functionalities disruption, because development of UMTS of the 3G handsets open new opportunities for technology requires huge resources, while the specialization. convergence between wireless technologies and the The evolution of the mobile-communications fixed net has potentially created even more technology has led to convergence between the disrupters. mobile devices and wireless networks with the fixed The complexity and costs of making a mobile net. Although there is convergence, there are still phone have increased 20–30-fold in each cycle. The differences between the mobile Internet and increased complexity from the 1G to 2G required a wireless access to the fixed Internet. large R&D effort, which could be managed mainly One of the major driving forces behind 3G is the by the large firms. Multinational companies entered ‘killer’ demand for data access on the move. There the promising market and other firms formed seems to be a demand for the combination of alliances and cooperated in the early stages of the mobility and communication, which provides access technology. Development of 3G handsets – let alone to data and other corporate, commercial, and the equipment for 3G infrastructure – requires huge communications services. However, other R&D resources, which has led the big players to technologies capable of creating wireless access to form joint-development consortia, and joint- the Internet are also available, and they may cause production activities have emerged. Sony and serious disruption to 3G. Ericsson founded a joint venture developing 3G The character of the firms in the NorCOM handsets; Toshiba and Mitsubishi formed an cluster had changed during the latter part of the 2G alliance, which also has been the case for NEC and cycle, basically caused by the (grossly exaggerated) Matsushita (Panasonic). commercial potential seen at the time in the In North Jutland the density of firms in the emerging 3G cycle. While the cluster in the cluster increased and at the end of 2000 there were transition phase between 1G and 2G still mainly 40 firms employing 4,200 persons, which was about consisted of small and medium-sized Danish-owned half of the total ICT employment in the region (see firms, the ownership structure changed significantly Table A1). Several firms were doing GSM during the second half of the 1990s. Then very fast development and the cluster became significantly growth of the GSM market and the perspectives for denser compared to the peak of the 1G cycle. But the coming 3G led to an expansion process among compared to the most outstanding regional all the major large multinationals in the industry. concentrations or clusters in the ICT sector – such Ericsson, Nokia, and Siemens set up UMTS as Silicon Valley, Southern Sweden, Southern development units in the region and Motorola Finland, Munich, and Cambridge – it was still acquired a local development firm. And the big sparse. The following firms performed R&D in players in the chipset technologies for 2G and 3G UMTS in 2000: L.M. Ericsson (125 employees), also established or acquired development units in Siemens (350), Maxon (105), Shima (60), and the region. Condat (20). In 2004 the pattern had changed; The outcome for the cluster was that these large Maxon was focused on sustaining innovations, while players did not go for local collaborative strategies, Shima had been closed down. Ericsson had closed such as especially the joint GSM effort, DC its 3G development in North Jutland and Siemens Development, which became crucial for the vitality had downsized its R&D staff from 350 to 200 during of the cluster during the 2G cycle. An initiative was, 2001–03, but had increased employment again in however, taken by the small players in the region – 2004 to 270. Development of the basic 3G such as Maxon, Telital, Shima, and RTX – to technologies does not appear to take place in the discuss the establishment of precompetitive

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Downloaded from http://eur.sagepub.com at Universiteit Maastricht on September 3, 2007 © 2005 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. DALUM et al.: TECHNOLOGICAL LIFE-CYCLES 239 collaborative ventures in 3G technologies. The WLAN is, as opposed to UMTS, using lesson from the initial stage of the 2G cycle unlicensed spectrum and is highly deregulated. One concerning the potential benefits of collaboration of the attractions is the possibility to build up small- was clearly understood within the cluster, but the range, high-speed, wireless networks at low cost and companies could not agree on common goals and while avoiding some of the problems of carriers joint strategies. controlling the ‘last mile’. But there are advantages and disadvantages with 3G as well as WLAN solutions. To mention a few: WLAN has higher speed, but has a limited reach, while the mobile Is ‘beyond 3G’ or ‘4G’ a major opportunity? networks are significantly slower but have much better coverage. The massive investments required to build the The potential disruptive effects of the WLAN coming 3G infrastructure paired with deep financial technology on 3G may turn out to be a potential problems of the telecommunications sector in opportunity for the NorCOM cluster. Given that general in the early 2000s has increased the focus on development of 3G handsets has been organized by what is coming next on the horizon. 4G has loosely the large telecom multinational companies in been defined as the complete integration of the pairwise alliances, this is a field very difficult to wired and the wireless spheres of enter for small firms – at least in the initial phase of telecommunications with speeds of data the 3G technology life-cycle. However, the risk of communications of 100–50 Mb/s. But there is a 3G becoming a major failure cannot be neglected in certain amount of ambivalence prevalent in the light of the heavy financial burden the 3G terminology at present. ‘Premature’ versions of 4G infrastructure is causing for the mobile operators. are much closer – in fact already available – Also the demand for full mobility (3G) versus high- consisting of a combination of 2G and WLAN speed data transmission (WLAN) is subject to technologies. uncertainty. This is the basic background for the This potential disrupter to 3G is WLAN, a present true uncertainty about the future technology which makes short-distance, high-speed, infrastructure: will 3G or WLAN solutions win? Or wireless Internet access possible. The access device will they coexist as true complements? is mainly a laptop or PDA, but the speed is much higher than 3G and WLAN-based solutions seem very attractive even in the short run. The users will have to move to ‘hotspots’ – such as hotels, airports, What are the opportunities for public railway stations, cafés, and petrol stations – to be policy and collective efforts? able to reach the Internet. Instead of waiting until the 3G networks have been completely rolled out, The uncertainties analysed above are of a global users may demand a kind of ‘surrogate 4G’ solution character. Although the institutional set-ups differ where they will have to move around in the terrain between the main group of players in Europe, the with their laptop PCs or PDAs and mobile phones. US, and Japan, the present situation can be This kind of solution requires an infrastructure of characterized as very open-ended, where quite hotspots. different outcomes all have some degree of Given that the US is lagging seriously behind the probability. European mobile-telecom infrastructure – with severe The relevance of policy measures and/or implications for the US mobile-hardware industry – coordination between groups of actors at the there are strong incentives in the US market to national level may be of most relevance in the very promote a decentralized, WLAN-based, wireless uncertain transition phase between two Internet access approach. The latter should be technological life-cycles. The emergence and very conceived as a supplement to the ordinary wired fast growth of the 1G and 2G mobile telephone telecom infrastructure. Against this background there industry in initially the Nordic countries followed is a rapid process of technological change in this by several continental European countries may to a segment of telecommunications going on at present. considerable extent be attributed to the

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standardization initiatives performed by first the at all levels as well as private consumers. The aim Nordic PTTs followed by the EU-created ETSI can be to be prepared for different future standardization body (Gessler, 2002). Both efforts trajectories, if not to influence these outright. Even were due to visionary telecom regulators and small regions may eventually influence the future (initially) incumbent monopoly wireless operators. development abroad if they use their potential This path to standardization is often nicknamed institutional advantages in organizing field the Nordic or Continental European way, as experiments which may be visible internationally. opposed to the US approach, often characterized by In the case of North Jutland such options may be a decentralized, if not anarchistic, bottom-up argued to be present, if the necessary consensus dominated procedure. The latter has been very could be established. This region was in 1999 successfully applied in the case of the Internet, appointed one of two Danish ‘IT Lighthouses’, or as where the process has been dominated by US actors, the so-called Digital North Denmark (DDN). The which has led to a US lead in the equipment national government allocated approximately €25m industry as well as the e-business industry, as and another €50m has been added by local- analysed by Mowery and Simcoe (2001) and Kenney government organizations as well as private firms. (2002). The Nordic and European experiences, so In one of the DDN projects an Aalborg University far at least, have fostered a common understanding group has collaborated with the largest IT service of the significance of international coordination firm in the region and a small group of efforts ex ante. But the general crisis in the telecom municipalities in order to design local optical fibre- service industry as well as among the equipment based network solutions, which will bring ‘true vendors from 2001, coupled with the huge rents broadband’ to local government organizations, which some of the major European governments private firms, and consumers – i.e. a Fibre-To-The- have extracted from the coming 3G service Home vision. Given that how to organize this providers in the auctions for licences, have caused a infrastructure – and not least the ‘last mile’ problem significantly higher degree of uncertainty in the – remains one of the fundamental barriers for transfer from the 2G life-cycle to 3G. The outcomes diffusion of IT in general, such experiments could are very difficult to predict, but they are deeply be of considerable importance in their own right. dependent on actions taken by the major actors. The infrastructure project opened unique The outer poles of the future scenarios in a opportunities for creating field experiments with an medium-term perspective may be represented by: optical fibre-based local infrastructure that also contained extensive possibilities for WLAN access. • 3G systems may dominate the mobile- Taking into account that a considerable communications networks with WLAN solutions competence has been developed in the NorCOM as a complementary service basically controlled cluster in developing 2G, sustaining innovations and by the incumbent mobile carriers. – at least among some of the firms – competence in • 3G may prove to be a new ‘Titanic’ in Europe, if various parts of 3G technology as well as a not Japan, because the US telecom industry may significant competence which has been developed in strike back by not adopting a 3G system to any other fields (e.g. in data transmission over very short large extent, but exploit the sustaining distances), there are several important points of innovations in 2G and combine them with the departure which may form an ideal basis for coming evolving opportunities offered by more to the forefront in the wireless-to-wired data- decentralized WLAN experiments. communications field – i.e. to become involved as a visible player in the early stages of a new At the regional level there is also room for policy technological life-cycle. This may happen not and collective efforts. Given such fundamental necessarily because of major technological uncertainties, it may prove relevant for a region breakthroughs, but through the capability as a region involved in these technologies to put forward field to combine unique field experiments in the area of experiments with the patterns of wired and wireless telecom convergence with telecommunications services seen from a user competence among several NorCOM firms to find perspective, including firms, government agencies various footholds in the field in the early stage, and

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Downloaded from http://eur.sagepub.com at Universiteit Maastricht on September 3, 2007 © 2005 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. DALUM et al.: TECHNOLOGICAL LIFE-CYCLES 241 especially to be placed as a ‘core player’ in the reluctant. The final outcome has been a result more international standardization efforts through of efforts from local firms, foundations, and documented user experiments. If some of the field university paired with significant contributions experiments prove successful, rumours may spread from large multinational telecom companies. internationally, create visibility, and attract some of the big global players. Echoes of the implementation of this vision may be heard internationally – as happened successfully concerning the capacity of Conclusion the region to become an international hub (although at a fairly small scale) during the GSM cycle. This paper has analysed features and mechanisms of The policy challenge is to perform the acts of: (a) a general relevance for evolution of regional clusters combining efforts at experimenting with the based on fast-developing technologies and the consumption structure – i.e. the telecom opportunities and potential necessities for infrastructure; (b) supporting the basic university developing policy measures when facing disruption. research in the field of convergence between The growth of the wireless-communications wireless and wired telecom; (c) interacting with the industry has been among the fastest of all industries local as well as the global industry. in the 1980s and 1990s. Technological innovation At the cluster level the NorCOM firms realized has been radical and very fast, not least in the that there was a need for collective efforts, given the dominant segment of mobile telephony. The new fundamental uncertainties and the more peripheral mobile-communications technologies have emerged role which these companies were approaching in the as a series of distinct technological life-cycles. These field of 3G technologies. Aalborg University and the have caused disruption in the industry and have cluster organization have jointly invested involved major policy issues in terms of regulation considerable efforts in gaining new ground in the and standardization. basic R&D background needed to become visible This systemic character of innovation has been players in the market for solutions for the future emphasized by the innovation-system literature in ICT infrastructure as well as in the international which the institutional set-up matters as well as academic community in this field. A significant interaction between actors. In the studies of high- outcome has been the establishment of a Centre for technology-based regional clusters the role of Teleinfrastructure (CTIF) at AAU in 2004, technology and the development of specific clusters consisting of more than 100 researchers. Among the over longer timespans have been given less priority. foreign contributors to CTIF is the large EU 6th However, for analysis of the evolution of technology- Framework Programme project MAGNET, where driven clusters the concept of technological life- AAU is the coordinator, as well as grants from cycles has proved to be useful in a more dynamic Samsung, Siemens, and Nokia. The establishment analysis of the development since a cluster often of CTIF has been an outcome of a prolonged battle experiences the passing of several life-cycles. to get support at the national level. The Danish The paper adds to the analysis of sequential government has been fairly hesitant, but finally gave disruptions by applying the theories of technological support through a specific innovation consortium life-cycles on a single case over an extended period scheme. What has probably been a decisive catalyst of time, including several cycles. The focus has been for the final establishment of the centre is support on the capability of a cluster to adapt to these and commitment from national and not least local continuous ‘bombardments’ of new technologies. industry and three local foundations, which have The NorCOM case revealed a close relation allocated money for free basic research. The support between the evolution of the cluster and and commitment from the local players – firms as technological life-cycles. The cluster emerged well as foundations – has been an outcome of a during the first cycle, succeeded in growing during ‘collective spirit’ accumulated among the network of the second cycle, and is now facing the third cycle. regional players over nearly two decades. In this A special emphasis has been given to the study of specific case the public-policy authorities at the whether and how a ‘collective spirit’ could be national as well as regional level have been somehow formed and turned into collective action.

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Policies at the regional level, and in the Danish technological life-cycles may make local case at the national level, cannot by their very nature competences obsolete, but even when disruptions create competitiveness among local high-tech firms. occur there are often elements of cumulativeness in The firms in the NorCOM cluster are not the innovation processes. As in the NorCOM case, the outcome of any ‘grand plan’ designed ex ante. task is to enhance the present competences to be However, some of the components behind the better placed to grasp the new opportunities created emergence of this cluster were definitely the by new technological life-cycles. Social experiments outcome of deliberate policy efforts and long-term based on the competences in the regional cluster struggles, such as the establishment and further consisting of firms and university will increase the consolidation of Aalborg University in 1974 and the probability of success. This is one of the ‘rules of science park NOVI in 1989. A ‘grand design’ of the the game’ for policy experiments in an evolutionary future cannot be planned for the same reasons. New setting.

Appendix

Table A1 Companies in the North Jutland wireless-communications cluster (2003)

Firm Activity Employees Established Owner

Analog Devices Wireless systems applications 35 1997 Analog Devices (Boston, US) (chipsets for mobile communications) BD-Consult Production & development of 16 1988 Founder (DK) specialized mobile comm. equip. Bluetags Bluetooth applications 8 2000 Founder (DK) CPK Research centre 60 1993 Sponsored by Aalborg University, research councils, EU and industry Cambridge Silicon Radio Design of single-chip radio 9 2001 CSR (Cambridge, UK) devices. Applications for Bluetooth Danphone Development of land mobile 21 1990 Eltomatic (DK) Communications (closed) radio communication Systems systems Digianswer Development of Bluetooth 83 1986 Motorola (US) majority. Founder technology (DK) 1/6 Danish Wireless Development of GSM/GPRS 48 1999 Infineon (Munich, GER) Design A/S (DWD) equipment Eurocom Industries Production & development of 250 1992 (1948) SAIT-Radio Holland (BEL- (SP Radio) maritime comm. & navigation NLD) & STN Atlas (GER) equipment (GMDSS/VHF) & satcom. equipment End2End Wire-free Application 42 2000 Pre-tel Wireless (London, UK) Infrastructure Provider (WAIP) ETI Telecommunication analysis 86 1985 Privately owned equipment Flextronics Production of mobile terminals 1,700 2000 Flextronics (US) and DVD equipment Force Electronics Development, marketing and 40 1989 Satellit Kompaniet (Oslo, NOR) distribution of satellite TV receiver equipment Futarque Development of satellite TV 25 2001 NOVI A/S, Erhvervsinvest Nord receivers (DK)

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Firm Activity Employees Established Owner

GateHouse System software and data 35 1992 Founders and employees protocols for satellite and radio communications GlobeSat Production & development of 3 1993 Founder (DK) satellite disks LH Technologies Development, manufacturing and 80 1992 (1976) Spraying Systems Co. (Illinois, US) Denmark ApS (LH Agro) marketing of electronics for agriculture LH COMLOG A/S Systems for communication and 32 1998 Founder (DK) logistics in the transport business Maxon (T-Com) Development of GSM/GPRS 130 1991 (1987) Maxon Telecom Co. (KOR) equipment M-tec Equipment for GPS-based road 20 1998 Founder (DK) pricing Niros Development of professional land 8 1985 Privately owned Telecommunications mobile radio equipment (LMR) Nokia Software for WAP and UMTS 20 1999 Nokia (FIN) NOVI Science Park at Aalborg 43 firms 1989 Major Danish institutional University (8 from investors and as minor this table) shareholders regional authorities On-Air Software for real-time end-to- 11 2000 A/S Dansk Erhvervsinvestering, end video streaming solutions to IPM Management A/S, Erhvervs cellular and wireless products Invest Nord, HC Projects, Vaekstfonden Penell Bluetooth. GSM-modems 20 1991 RTX Telecom A/S RF Micro Devices, Design of radio frequency chips 7 2000 RF Micro Devices, North Design Centre Denmark Carolina (US) Rohde & Schwarz Development of test 40 1993 Rohde & Schwarz GmbH & Co. Technology Centre A/S equipment for UMTS and KG (Munich, GER) Bluetooth RTX Telecom A/S Development of DECT, 210 1993 Founders (DK) 46%, National Bluetooth, CDMA, and UMTS Semiconductors (US) equipment S-Card Production of chip cards for 20 1991 Founder (DK) telecom (e.g. SIM cards) Siemens Mobile Development of GSM/GPRS 225 2000 Siemens (GER) Phones A/S and UMTS equipment Simrad (Shipmate) Production & development of 120 1994 Simrad (NOR) maritime navigation and (1977) communication equip. (GPS/VHF) Sonofon Mobile communications. 1,000 1991 Bell South (USA) 47.5% and Service provider Telenor (NOR) 52.5% SpaceCom Production & development of 16 1989 Founder (DK) satellite communications equipment STMicroelectronics Development of protocol 10 2001 STMicroelectronics (FRA, ITA) software for GSM/GPRS and UMTS chips

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Table A1 continued

Firm Activity Employees Established Owner

TDC Service provider 45 1990 Ameritech (US) Mobile and fixed net (Total TDC employment 17,000) Texas Instruments Development of GSM and 105 1996 Texas Instruments (US) UMTS equipment TTPCom Software for GSM/GPRS 18 2001 TTPCom (Cambridge, UK) and UMTS WirTek Wireless software technologies 15 2001 Founders Aalborg University Technical, social science & 13,000 1974 Government (AAU) humanities faculties students and 1,700 staff

Note: The firm names in brackets are the former names of the firms. Source: The homepage of the NorCOM cluster: [www.norcom.dk].

Acknowledgements countries. Their previous monopolies, the government controlled incumbents, were broken leading to fierce This research has benefited from support from the competition, even in the early stage with only two EU-TSER project TENIA, the Digital North operators. Sweden became the first country in the world Denmark project on Participatory Research, and the with four nationwide GSM operators. Competition in the service industry appeared to be strongest in the Nordic Centre for Teleinfrastructure, CTIF, at Aalborg countries, although the character of regulation was very University. Members of these teams are gratefully different from the US system. The key feature was the acknowledged for comments and support, as are the requirement of nationwide coverage, which led to very following for comments on various stages of the fast diffusion of 2G technology in these countries. They paper: Joergen Bach Andersen, Michael Dahl, maintained their lead from the 1G cycle in terms of the Martin Kenney, Stephen Klepper, Jorge Niosi, highest per capita penetration ratios. Mark Lorenzen, Ed Steinmueller, Jens Uggerhoej, 3 For a discussion of cluster dimensions see Enright (2001). Daniel Vekstein, and Joel West. Also thanks to participants at the DRUID Summer Conference (June 2002), and two anonymous referees. References

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