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products and extending them towards machine tool systems instead of specializedmachines. However, the particular German variant of these systems lay in the designof confined automation and of decentralized options to steer them.From the organizational perspective, firms could not reduce their cooperation inexchanges of information and support between customer firms and specializedsuppliers. Instead they had to watch out for cross-sectoral forms of cooperationbetween electrotechnical firms and machine tool firms. They had also to intensifytheir vertical relations with customers, in order to follow a less market-based and amore technology-driven path of innovation (ibid). These forms of cooperationfostered the networked firm model in Stuttgart, which favoured collective goodsexchange via vertical customer-supplier relations.Changing forms of governanceIn tracing the development of new patterns of governance analysis needs to makeuse of all the governance modes identified as relevant to local economies (Le Galèsand Voelzkow 2001). However, these mainly appear in various hybrid forms.Some issues were of general and collective concern; for instance the creation of auniversal and commonly used programming language. These measures had beencarried out indirectly by the state. Cooperation between firms had been establishedto meet this demand. But the technical adaptation to specialized machine toolsrequired R&D measures implemented by the firm. Unsurprisingly, Hirsch-Kreinsen(1993) reports that R&D measures in the machinery industry had been much higherin Germany (on the firm level) than in the USA in the 1980s. Many firms which weinterviewed stated that customer demand was essential for the firm’s own learningand the actual adaptation process. Some mentioned that customers gave advice onthe R process, but not all of them supported this development by providinginfrastructure such as laboratories to the firms (Interview BW-F-03).Many developments therefore had to be made in-house by the firms themselves,because they knew best how to implement this technology. One entrepreneurbought steering equipment from the USA and constructed an automatic drillingmachine; he then invited other firms in Stuttgart which supplied this firm andpointed out that there was a complete new market niche evolving from which theycould all profit. A popular new invention in the 1980s was the processing centre(Bearbeitungszentrum) at which several different phases of the work process could behandled. This firm earned most of its money during the 1980s just by selling a

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