The International Centerfor Research on the · Management of Technology

ABSTRACT A firm's proximate environment, defined as its factor conditions, demand conditions, suppliers,related and supporting industries; and firms' strategy, structure and rivalry can constitute a sourceof national or regional competitive advantage. How do supportive proximate environments comeabout, and how can they be lost? What are their origins and migration paths? In this paper weargue that a firm's proximate environment is a function of the process of technological evolution. Itis a function of how initial and prevailing conditions, together with chance events, influence theprocesses of uncertainty resolution, capabilities building and survivor selection that arecharacteristic of technological evolution. We also argue that a region can lose its advantage when adominant design emerges or when a technological discontinuity makes obsolete the localizedtechnological capabilities of not only manufacturers, but also of their suppliers, customers andrelated industries.. The environment is not static, but dynamic, as firms and nations, in response totheir performances, also influence it by changing their strategies or altering some of the initialconditions. In addition to discussing these questions implications for strategy and policy makersare outlined.

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