Increasing Complexity and Limits of Organization in the Microlithography Industry : Implications for Japanese Science-based Industries

The purpose of this paper is to identify characteristics of the complexities and organizational limits that science-based industries in Japan are facing, to clarify the causes and effects of those characteristics and to show how they are related to the recent decline in global competitiveness in these industries. The microlithography industry is used for this purpose as a typical example of sciencebased industries. In this industry, Nikon and Canon were quite dominant until around the mid 1990s, while ASML of the Netherlands began to increase its competitive strength rapidly in the mid 1990s. The paper introduces the new concept of “interim modularity” vis-à-vis “ex ante modularity” à la Baldwin and Clark (2000) to explain how ASML tries to cope effectively with the drastically increasing complexity of such a technology. The concept of interim modularity is defined as the communication benefits induced by the modular architecture during trial-and-error development processes, no matter how incomplete such architecture may be. The paper emphasizes that extremely complex tools like microlithography require interim modularity to effectively orchestrate the dispersion of specialized knowledge and know-how over a wide range of professionals inside and outside of corporations and that interim modularity is more effectively pursued by ASML than by Nikon or Canon. The paper also indicates that the insufficient cognition of the importance of interim modularity has been widely weakening the competitiveness especially in Japanese science-based industries. **Hiroyuki Chuma is Professor at the Institute of Innovation Research, Hitotsubashi University, 2-1, Naka, Kunitachi, Tokyo 186-8603, Japan (e-mail: ce00005@srv.cc.hit-u.ac.jp); and Faculty Fellow at RIETI (Research Institute of Economy, Trade and Industry).