The Dynamics of Innovative Industry Networks during Digitalization : A Case Study of the Game Software Industry in Korea

Digitalization rapidly transforms the network structure of industries. The diffusion of mobile technology has changed not only our daily lives but also business strategies. According to the Sectoral Innovation Systems (SIS) theoretical framework, digitalization is one of the main factors that co-evolves with actors, market or non-market interactions, and institutions. However, most recent research focused more on the life cycle of products or the learning process than on the interactive dynamics among SIS factors. There is limited empirical evidence about the extent to which digital technology co-evolves with industrial networks. This research applies social network analysis (SNA) methodology with the SIS framework, to examine the rate of network evolution and the behavioral changes of firms in the game software industry (GSI) in Korea undergoing digitalization. The GSI network had 1,813 firms with 2,210 directed business transactional links between 2008 and 2017. Major empirical findings are as follows. Firstly, the GSI network structure was highly sparse, with an average density between 0.002 and 0.006 on a scale from 0 to 1. The network diameters varied from 2 to 5. Secondly, the largest component of the GSI network had a dramatic transformation between 2011 and 2014, after the adoption of smartphones in 2010. Digitalization completely transformed the GSI. Finally, the Stochastic Actor-Oriented Model (SAOM) could not confirm a significant role of digitalization on the evolution of the GSI network. However, it indicated a negative influence of knowledge stock in the network evolution.

I. Introduction

Digitalization or digital transformation is the use of information and communication technology (ICT) to generate new revenue or to reduce cost with digital information and knowledge that is accessible by computers. Digitalization can accelerate the innovation process since ICT increases the speed of knowledge diffusion and reduces the physical proximity barriers. ICT not only transforms how we communicate in daily life with emails and instant messaging but also converges the manufacturing, biotechnology, and health industry. Given the changing personal, social, and industrial environment, governments anticipate that the digital transformation benefits the society as a driver of economic growth [1]. Many governments promote the digital agenda as the norm of innovation policies [2], [3]. Organizations also expect positive effects of digitalization from the efficient revenue generation, cost reduction, and risk management [2].