The Influence of Knowledge Accumulation on Buyer-Supplier Codevelopment Projects

This article investigates innovation across a supply chain and considers how knowledge accumulation as a consequence of buyer‐supplier codevelopment projects can influence the projects' specifications. The setting is the semiconductor industry, and the players are chip producers who cooperate with their suppliers to modify their manufacturing equipment used to produce new semiconductor devices. Two detailed case studies were undertaken to determine the tradeoffs encountered by the buyer and supplier when setting the parameters that govern codevelopment projects. The findings from the case studies inform a conceptual framework that outlines the net payoffs to buyers when deciding whether to “make” or “buy” their production equipment. If buyers pursue the “make” option, they then have to decide the degree to which they sponsor modifications tailored to their production processes or modifications more generally applicable across the industry. More generally applicable modifications likely would prompt suppliers to invest relatively more in follow‐on knowledge creation for upgrades and field support while leading to lower equipment costs due to economies of scale from larger production runs of the new equipment. The framework suggests that when making this sequence of decisions, an innovative buyer also weighs the importance of codevelopment for securing intellectual property rights, guaranteeing early access to new equipment enabling early product launch, and achieving high production yields quickly due to “previewing” the equipment. The conceptual framework leads to a multi‐period model that focuses on the importance of knowledge accumulation for project parameterization. As captured by the model, buyers may prefer generally applicable modifications to customized ones, because generally applicable modifications may lead to greater knowledge accumulation at the supplier. This knowledge accumulation may be either “embodied” in equipment upgrades or “unembodied” in improved field support. In addition to shaping the nature of particular codevelopment projects, knowledge accumulation also may have profound implications for long‐run industry structure. As seen in the semiconductor industry, knowledge accumulation at equipment suppliers has contributed to the rise of contract manufacturers, because these manufacturers can outfit their production facilities with equipment that embodies the accumulated knowledge. These findings suggest that for both short‐run and lon