Modularity on Industry Structure: The Case of the World the Effect of Product Bicycle Industry

Abstract

The adoption of a modular product architecture for the bicycle allowed manufacturers to meet the simultaneous needs of product innovation and cost reduction. Such an approach however, has fragmented the industry into a series of largely independent segments that are primarily linked through the operation of market-based contracts. Active coordination between firms has been replaced by the embedded coordination that comes through modularity. The fragmentation of the industry on the basis of specialized capabilities has led to economic efficiencies and low barriers to entry for most segments of the industry. However, the lack of coordination has limited the industry's capability to make changes in the product architecture beyond the component level.

Why firms make unilateral investments specific to other firms: the case of OEM suppliers

“…Firms in the bicycle industry are much smaller than those in the information technology industry, and the market power between suppliers and their buyers is relatively more balanced in the bicycle industry. A bicycle consists of many components including tires, rims, hubs, frames, handlebars, cranks, saddles, chains, and pedals (Galvin and Morkel, 2001). The bicycle industry is highly fragmented and consists of a diverse group of small-and medium-sized component manufactures with specialized capabilities.…”

The value of information and optimal organization

“…So coordination between manufacturers of different components is unnecessary, and innovations are introduced in each component separately, as pointed out by Galvin and Morkel (2001). The number of suppliers of each component does not exceed two or three.…”

The Mirroring Hypothesis: Theory, Evidence and Exceptions

“…Typically, once the more modular architecture was in place and standards widely disseminated, specialized firms entered the industry by offering modules that competed with and eventually replaced the products of vertically integrated firms Consoli, 2005;Galvin and Morkel, 2001;Jacobides, 2005;Langlois and Robertson, 1992;Lecocq and Demil, 2006;Sturgeon, 2002).…”