An Economic Analysis Of Corporate Organization Modularity

Ever since Marshall's theory came into being, economists have realized the importance of organization to economic efficiency. As a result, corporate theory, institutional economics and industrial economics have flourished. During the economic transitional period, organization as the fourth production element in Marshall's theory demonstrates its importance no less outstanding than the tangible production elements of capitals, labor and land. Those countries which take a lead in make a change in organization tend to outrun others in economy. In history, the USA and Germany surpassed the traditional power of the UK in economy because of the adoption of modern corporate organization. With the employment of flexible and network production method, Japan became an economic power after the Second World War. Similarly, the USA economy leaped forward in the 1990s thanks to the corporate organization modularity.Corporate organization is an open system, whose change is related to external environment. The change of main technological form and market plays a decisive role while the institutional environment a subsidiary one. Under this theoretical framework, this dissertation analyzes the rationale for the corporate organization modularity, arguing that the basic fctors of the corporate organization modularity are the rise of the modern information technology, the development of individualistic needs and the globalization of economy. The above-mentioned factors demand that the mass customization production way replace the traditional mass production way, which in turn leads to the modularity of technology. The modularity of technology dismantles the interdependency between the components of the product system, and makes the modularity of corporate organization possible. Under the supportting system of the existing institutions, the motive for capturing the rent through the evolution of organization tends to facilitate the corporate organization modularity. Logically there are two steps for the corporate organization modularity, first the vertical seperation of the corporate organization and then the re-networking. In the modular production network the highly autonomous companies impart knowledge by standardized protocols. Such knowledge is termed as encoded knowledge, which the standardized protocols guarantee its exchange even at the global level. In nature this is much different from the relational production network involved in economic geography.The corporate organization modularity changes the traditional industrial structure. The modularity of value chain reduces the survival space of the big companies of the Chandler's era vertical integration, changes the industrial organization structure and intensifies competitions. The"invisible hand"takes the leading position of the"visible hand"once more. This dissertation proposes and further illustrates the meanings of competitively monopolistic market through the analysis of the change of the industrial organization structure following the value chain modularity.The biggest change that the corporate organization modularity brings to organization can be summarized as delegation, intensification of competitions and open organization, which facilitate the efficiency of the corporate organization. The current study points out the nature of the origin of the corporate organization modularity performance through a further analysis of the meanings of the property rights of the corporate organization modularity: the definition of the property rights→market expansion→value creation.The technological modularity does not necessarily result in the organizational modularity. To materialize the latter, the support of institution is necessary, and the building of the institutional support system must serve the overall objective of market function expansion for the diversity of choices, observe the principle of institutional complementing, namely, the principle of facilitating the overall institutional building, in the comparative institutional theory. By means of this principle, this dissertation put forward a package of suggestions, including the institution of property rights, financial channel, labor contract, standandization system, rational institution of dispute arbitration and the institution of management practice.