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

The competitive advantages of regional clusters are the focus of much scholarly and policy attention. The literature relies heavily on the concept of external economies to explain the advantages derived from the spatial clustering of economic activity. This article compares two of America’s leading technology regions—California’s Silicon Valley and Massachusetts’ Route 128, to suggest the limits of the notion of external economies and to propose an alternative network approach to analyzing regional economies. By rejecting the sharp distinction between what occurs inside and outside the firm, the network approach illuminates the complex and historically evolved relations between firms and the social structures and institutions of a particular locality. Through a set of comparisons of companies in Silicon Valley and Route 128, the article explains the divergent performance of these two apparently comparable regional clusters, and in so doing provides insights into the local sources of competitive advantage. The competitive advantages of regional clusters have become a focal point of scholarly and policy attention. The work of Paul Krugman (1991) and Michael Porter (1990) has spurred widespread interest in regions and regional development, once the sole province of economic geographers and regional scientists. These newcomers have ignored an already extensive and sophisticated literature on the dynamics of industrial localization (see, for example, Storper, 1989; Scott, 1988a, 1988b; Vernon, 1960). Yet, like their predecessors, they share a reliance on external economies to explain the advantages of clustering of economic activity. This article compares California’s Silicon Valley with the Route 128 beltway around Boston, Massachusetts, to suggest the limits of the concept of external economies and to propose an alternative network approach to analyzing regional economies. The common notion of external economies is based on an assumption that the firm is an atomistic unit