This article argues that upgrading in China has been a historical success, that upgrading must be seen as a learning process, and that current Chinese upgrading involves a transformation in industrial learning dynamics. During China's initial export‐oriented industrialization strategy, indigenous producers successfully upgraded by apprenticing themselves to their foreign customers, and they learned through integration in transnational communities of practice. The success of those initial unilateral learning relations enhanced the sophistication of the Chinese market, both as a community of producers and as a market for manufactured goods. This has generated a new phase of learning‐driven upgrading in which Chinese producers and MNC manufacturers both seek to make their Chinese operations more sophisticated. In this new context, apprenticeship disappears and Chinese and foreign players learn from one another. A core claim about the new mutual learning is that it is facilitated by the globalization of formal learning systems, such as corporate production systems (CPSs).

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This paper provides a broad survey of the current terrain of components production in the high-wage regions of North America and Europe. Its central message is that it is unwise to believe in the unitary characterizations of the development of relations between original equipment manufacturers (OEMs) and suppliers in contemporary manufacturing. The character of the current environment aligns strategies among all parties such that heterogeneity in relations between customers and suppliers is systematically reproduced. Four broad types of strategy are shown to be both currently possible and pursued in the current market. But there is a considerable amount of hedging as well as hybridity observable among component producer strategies. In a similar way, the range of governance mechanisms currently being developed and deployed among producers in the sector is quite broad. The same problem is being addressed by a multiple of alternative institutional arrangements. Mechanisms can be either public or private, or both, and formal or informal. They can also be corporate, associational, consortial, and market-based.

As production and design disintegrate and become more collaborative, involving dynamic relations between customers and firms supplying complex subsystems and service, products and production methods become more innovative but also more hazardous. The inadvertent co-production of latent hazards by independent firms is forcing firms and regulators to address the problem of uncertaintythe inability to anticipate, much less assign a probability to future states of the worldmore directly than before. Under uncertainty, neither the regulator nor the regulated firms know what needs to be done. The regulator must induce firms to systematically canvas their practices and identify potential hazards. But recognizing the fallibility of all such efforts, the regulator must further foster the institutionalization of incident or event reporting procedures: systems to register failures in products or production processes that could be precursors to catastrophe; to trace out and correct their root causes; to alert others in similar situations to the potential hazard; and to make certain that countermeasures to ensure the safety of current operations are taken and the design requirements for the next generation of the implicated components or installations are updated accordingly. In this essay we develop these arguments and look closely at changes in the Norwegian offshore oil and gas industry and its regulator, the Petroleum Safety Authority to better understand the coevolution of vertically disintegrated industry and new forms of regulation.

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medium-sized firms (SMEs).The third part analyzes interactions between production in developed and developing regions, together with the evolution of SME strategies in high-wage regions in response to the resulting challenges and opportunities. The concluding section considers the implications of these developments for power and inequality in global supply chains. Manufacturing Disintegration: Permanent Volatility, the Crisis of Fordist/Chandlerian Organization, Industrial Districts and Lean Production Much of the recent literature on inter-firm relations and disintegrated production in manufacturing dates back to discussions that began in the 1980s about the crisis of the vertically integrated firm (Piore and Sabel 1984; Hirst and Zeitlin 1991; Harrison 1994; Storper 1997) At that time, both actors and observers perceived that the environment in core sectors of manufacturing in advanced industrial economies had become distinctly more volatile and uncertain. Many factors were advanced to account for this qualitative transformation: macroeconomic destabilization, shortening product cycles, accelerating technological change, the differentiation of consumer taste, the intensification of competition, the globalization of product markets. There is no consensus on what separates symptom from cause in this transformation. 1089 But all arrows point in the same direction: towards the conclusion that producers confront a permanent and ineradicable challenge of increased environmental volatility and uncertainty. These new environmental conditions have resulted in organizational and strategic consequences for producers. At the most abstract level, debate since the 1980s points to a shift between two opposed ideal types: from the vertically integrated 'Fordist' or 'Chandlerian' firm to decentralized, clustered, networked, lean, flexibly specialized, and/or recombinatory producers. The former characterizes the dominant model of organization and practice prior to the onset of new environmental conditions; the latter the organizational forms and practices that have proved most successful in the new environment. Pervasive environmental volatility and uncertainty rewards continuous innovation. Competition elevates production quality and cost reduction capability to the fore. Flexible and specialized (disintegrated) producers, engaged in ever-shifting collaborative and market exchanges, flourish under these conditions while hierarchical and vertically integrated producers flounder. Put in a more evolutionary idiom, competition from recombinant coalitions of independent specialists gradually drives out firms seeking to integrate those specialties within their own operations.

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This paper discusses the current crisis in the German industrial district of Baden Württemberg. Considered to be a flagship example of flexibility and international competitiveness for European manufacturing during the 1980s, producers in the district -both large and small -have fallen upon hard times in the 1990s. This paper suggests that the explanation for the crisis cannot be traced either to high wages or low levels of productivity in the region. Rather, the problem confronting the producers in Baden Württemberg-and by extension in German industry as a wholeis that they are being challenged by an alternative system of flexible manufacturing that is superior to their own. Rigidity in the system of production in Germany can be traced to institutional arrangements that were previously thought to be a source of strength: broad yet nonetheless specific skill categories and distinct, functional divisions within management. Successful adjustment in Germany today will have to involve profound self-reflection on and debate about the reform of some of the most taken-for-granted dimensions of German industrial order.