Inside-Out: Regional Networks and Industrial Adaptation in Silicon Valley and Route 128

Summary of: Inside-Out: Regional Networks and Industrial Adaptation in Silicon Valley and Route 128

Author(s) / Editor(s)

The decentralized organizational form, non-proprietary standards, and tradition of cooperative exchange (sharing information and outsourcing for component parts) of electronics firms in California's Silicon Valley explain why the region was able to keep up with the fast pace of technological progress during the 1980s, while the vertically integrated firms of the Massachusetts Route 128 beltway fell behind.


Publication Reference

Published in/by
Cityscape: A Journal of Policy Development and Research 2(2, May 1996):41-60.
May 1996


  • Silicon Valley's advantage in the 1980s was primarily a change of mindset from 'what is best for my company' to 'what is best for the development of the technology,' and from a firm-based perspective to a network perspective. "By institutionalizing longstanding practices of informal cooperation and exchange, they formalized the process of collective learning in the region."
  • While a vertically integrated company with proprietary standards could thrive and eventually monopolize a stable market, the intrinsic characteristics of the developing electronics market prevented such a company from surviving. "Innovation in all segments of the industry meant that it was more and more difficult for a single firm to produce all of the components, let alone remain at the forefront of the underlying technologies."

The statistics of differences in growth between Silicon Valley and Route 128 are startling: "in 1990 Silicon Valley was the home of 39 of the nation's 100 fastest growing electronics companies, whereas Route 128 claimed only four" and "Silicon Valley during the 1980s collectively accounted for more than $22 billion in sales, whereas their Route 128 counterparts had generated only $2 billion." At one point Route 128 firms had dominated the high technology market, but the firms could not keep up with its rapid, unpredictable pace. Saxenian argues the key was the decentralized organization form of Silicon Valley firms and that they were embedded in a social and institutional network that encouraged learning. The fate of two start-up companies, Sun Microsystems of Silicon Valley and Apollo Computer of Route 128 help to frame the story.

Although Sun and Apollo were equally positioned during the mid-1980s, Sun specialized on hardware and software for workstations, outsourcing for component parts, while Apollo "adopted proprietary standards and chose to design and fabricate its own central processor and specialized integrated circuits." Sun was able to develop complex new products quickly, relying on market competition between external vendors to ensure quality, state-of-the-art component parts.

Sun also kept its decentralized form "to preserve the flexibility and enthusiasm of a start-up company even as it grew." Similar to the corporate strategies of Japanese companies, decisions at Sun emerged more organically than in the hierarchical Apollo. Having autonomous division representatives contribute to company strategy also provides a training ground for future executives, as was the case at HP. "Former HP executives were responsible for starting more than 18 firms in Silicon Valley between 1974 and 1984, including such notable successes as Rolm, Tandem, and Pyramid Technology."