Being 'somewhat' integrated kills innovation, but going 'all in' makes a company a radical innovator.
March 19, 2026
Original Paper
The Integration Paradox: Structural Rigidities and the Governance of Innovation Resilience
SSRN · 6435913
The Takeaway
There is a U-shaped 'bureaucracy trap' where firms that try to control parts of their supply chain get bogged down in coordination costs. Only the top 5% of firms reach a 'resilience zone' where total architectural control finally pays off, allowing them to out-innovate competitors.
From the abstract
Whether vertical integration enables or constrains technological innovation has become a central strategic question as firms reassert supply chain sovereignty under geopolitical fragmentation. Transaction cost economics emphasizes bureaucratic rigidity, while the capabilities view stresses architectural control. We reconcile these perspectives through a structural threshold framework, drawing on a panel of 2,134 Chinese manufacturing firms observed during China's era of rapid market integra