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A Knowledge Network

Case Aims: To illustrate the role of knowledge networks in the production of innovative high-tech products.

In the past, large companies such as IBM, HP, Sony and Toshiba designed and manufactured their own products, often using internally produced components. Such highly integrated companies created and captured a


large share of the value of innovation, mostly in their home countries. Since then, supply chains in the global electronics industry have steadily disaggregated across corporate and national boundaries (Dedrick and Kraemer 2006). Companies that formerly manufactured most products in-house have outsourced production and even product development to global networks of contract manufacturers (CMs) and original design manufacturers (ODMs).

This new structure represents an innovation and technology network in which the lead firm acts a knowledge hub linking together the various sources of technological knowledge and competencies made available to and from other network members. While the lead firm remains the main recipient, other beneficiaries include network partners in the firm's supply chain and firms that offer complementary products or services.

In the initial iPod models, there was little technology that was unique to Apple. Apple even paid licensing fees to Singapore's Creative Technology for the method of navigating through song lists. But Apple understood the iPod needed to be at least as appealing aesthetically as functionally, and drew on its strengths in industrial design and software to bring the technology elements together in a unique way (Levy 2006). The second-generation iPod, introduced in 2002, added support for the Windows platform, greatly expanding the available market. In 2003, Apple introduced the iTunes Music Store (iTMS) with co-operation from the major music labels. The iTMS uses a system of digital rights management called FairPlay which prevents downloaded tracks from playing on portable players other than the iPod, since Apple has chosen not to license the system to its rivals.

The producers of high-value, critical components capture a large share of the value of an innovative product. For the 30GB Video iPod, the highest- value components are the hard drive and the display, supplied by Japanese companies Toshiba and Toshiba-Matsushita. Thus Japan captured the next largest share of the value of the iPod, thanks to those companies' strengths in those technologies. Other beneficiaries include Samsung, which supplied the Mobile SDRAM Memory and the Taiwanese firm Foxconn, which assembled the Back Enclosure and Mainboard PCB. In general, the greatest value from providing knowledge inputs within an innovation network goes to the countries whose firms provide critical differentiated technologies (Kinden et al. 2009).

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