Innovation in Global Industries U.S. Firms Competing in a New World (Collected Studies) (2008) / Chapter Skim
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1 Personal Computing
1 Personal Computing
Pages 19-52
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From page 19... ...
Today, the core personal computing industry includes not only traditional desktop and laptop PCs and PC servers but also smart handheld devices such as personal digital assistants (PDAs) and smart phones.
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From page 20... ...
And although the traditional desktop and laptop PC is becoming less central to all computing activities, over 225 million PCs were sold in 2006 and the PC is often the first place to find innovations that may migrate later to other devices. As important as product innovation has been, equally important is the steady price declines in recent years, which have brought PCs within the reach of more of the world's population.
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From page 21... ...
, concept design, and product planning are performed mostly in the United States and Japan; applied R&D and development of new platforms mostly take place in Taiwan; and product development for mature products and a majority of production and sustaining engineering are performed in China.
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From page 22... ...
Product innovation includes the creation of new product categories such as notebook PCs and PDAs, as well as the creation of new product platforms such as multimedia PCs and wireless "mobility" notebooks. The scope and outcome of product innovation in PCs is shaped by the presence of global architectural standards set originally by IBM and now largely controlled by Microsoft and Intel.
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From page 23... ...
At the plant level, some firms have replaced assembly lines with small production cells to facilitate BTO production and have adopted process improvements such as reducing the number of steps and improving quality in final assembly. They also have employed a range of information technologies such as shop floor management systems, bar coding, and automated software downloads to improve manufacturing performance (Kraemer et al., 2000)
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From page 24... ...
Contract manufacturers provide a range of manufacturing services, including subassembly, final assembly, logistics, and even customer service. Original design manufacturer is a term coined in Taiwan when its contract manufacturers began to offer product design and engineering as well as manufacturing of notebooks, motherboards, and other products.
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From page 25... ...
Available components seldom meet all these needs, so the lead PC vendors each developed their own product roadmaps, which signal to the component suppliers where the firm is headed, the target markets and expected volumes, and the price and performance of components needed to succeed. By doing so, they provided advance knowledge to the upstream suppliers who could respond in terms of feasibility, aggregate demand across PC vendors, plan for the coming changes, and inform their own suppliers.
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From page 26... ...
Products and Innovation Activities Although new form factors are emerging, desktops and notebooks remain the leading products in the industry, with important differences between them that affect innovation activities. For desktops, product innovation mainly centers on conventional systems integration -- incorporating new parts, components, and software into a system and ensuring that they work together.
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From page 27... ...
Most notebook PCs are designed to be built in a particular assembly plant with specific manufacturing process requirements. As a result, product development and final assembly are almost always handled by one company.
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From page 28... ...
The global demand for PCs is changing in terms of form factor, commercial versus consumer markets, and regional consumption. Portable devices (laptops and notebooks)
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From page 29... ...
. The United States is the single largest market, with 61 million units shipped in 2005, but fast-growing China has surpassed Japan as the second biggest market.
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From page 30... ...
Production of desktop base units and various components and subassemblies by Taiwanese companies shifted to the Pearl River Delta in Southern China, but final assembly was usually done regionally: in the United States and Mexico for the Americas, in Ireland
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From page 31... ...
companies outsourced notebook production to Japanese, Taiwanese, and Korean manufacturers but eventually shifted mostly to Taiwanese ODMs. In 2001, the Taiwanese government changed investment limitations for Taiwanese firms and the notebook industry moved en masse to the Yangtze River Delta near Shanghai. Japanese firms such as Toshiba moved their own notebook production to the region to take advantage of the supply base, but they also outsourced much of their production.
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From page 32... ...
, mostly in the Shanghai/Suzhou region of China. In the past, the location of final assembly was driven by the need for proximity to demand in the United States and Europe but now appears to be driven by growing demand in Asia as well as by the growing capability of firms to exploit lower costs for labor, land, and facilities, the availability of cost-effective skilled labor, and government incentives in China. For instance, low-cost sea shipment of standard (not BTO)
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From page 33... ...
In the United States, there are business skills such as market intelligence and product management that are hard to find elsewhere. There are also leading industrial design firms that specialize in small electronic products such as notebooks and cell phones, and strong software and high-level engineering skills.
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From page 34... ...
Taiwan mostly lacks marketing skills and industrial design skills that would allow it to take over the concept and product planning stages, because of its focus on original equipment manufacturer/ODM production rather than development of branded products. China has many well-trained mechanical and electrical engineers, but most lack the hands-on skills that come with experience.
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From page 35... ...
They also use these design centers to transfer knowledge to the ODMs and to train locally hired hardware and software engineers to take on more project management and advanced development activities. This division of labor is similar for notebooks and desktops, although some U.S.
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From page 36... ...
. A near-term division of labor for product development is likely to be as follows: component-level R&D, concept design, and product planning in the United States and Japan; applied R&D and development of new platforms in Taiwan; and product development for mature products, and nearly all production
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From page 37... ...
As China gains experience, it is still possible that the ODMs will shift more of the development process and newer products there, but, unless it becomes a key final market for PCs, it is not likely to capture the market-driven functions of concept design and product planning. As of now, China's PC market is still only about one-third the size of the U.S.
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From page 38... ...
The share of global notebook shipments produced by Taiwanese ODMs rose from 40 percent in 1998 to 85 percent in 2005 (Table 1)
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From page 39... ...
Examples of relational factors include the close interdependence between development and manufacturing of notebook PCs, and the "guanxi" social networks that link Taiwanese firms and managers. TABLE 2 R&D Investment by Taiwanese ODMs and CMs (million U.S.
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From page 40... ...
, unless otherwise indicated. Regarding economic factors, the manufacturing of desktops was primarily pushed offshore to major world regions to reduce production cost, and secondarily for proximity to markets.
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From page 41... ...
Cost was also the key factor for notebooks, where both development and manufacturing were outsourced or offshored almost from the beginning -- first to Japan, then to Taiwan, and currently to China. Japan's capabilities with development and manufacturing of small form factors provided an initial pull, but lower costs, development of strong indigenous engineering capabilities, and the fact that Taiwanese firms were considered less likely to compete directly with U.S.
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From page 42... ...
While previous efforts to develop very-low-cost PCs for developing countries have failed, PC makers and others continue to experiment with new designs. IMPLICATIONS OF GLOBALIZATION OF INNOVATION The globalization of innovation has led to a new global division of labor as described earlier.
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From page 43... ...
Implications for Firm Strategy For branded PC vendors, the international innovation network described earlier enables faster product cycles with quicker integration of new technologies because the Taiwanese companies are good at fast turnaround and there is a good supply of cost-effective engineers in Taiwan and China to handle more models, changes, and upgrades. It has increased consumer choice, helped grow the market, and for a long time was advantageous for Dell because its direct model gave it an advantage in getting those products to the business customer.
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From page 44... ...
. Apple designed the system architecture that affected critical features such as sound quality and power consumption and developed the distinctive industrial design of the iPod; it developed most of the iPod and iTunes software in-house or adapted others' software.
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From page 45... ...
brand image, marketing, -- utsource detailed physical O concept design internally design, test, and software -- nternal or outsourced I built within standard industrial design architecture -- W and SW are modular H -- everage existing L complementary resources and distribution that in PCs, with more internal development and much closer interaction with key component suppliers. Finally, for the iPod to be successful in the market, Apple created a new business model that integrated hardware, software, and online content delivery.
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From page 46... ...
As a result, it has been more diversified companies such as Samsung and Sony, wireless specialists such as Nokia, as well as many startups that are trying to innovate with new product platforms that mix communications, entertainment, and computing capabilities in smaller form factors. In these cases, firms have worked with outside partners to exploit external sources of knowledge while keeping their own innovative activities mostly in-house and close to their home base.
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From page 47... ...
Our field interviews indicate that design innovation, especially concept design and product planning, is likely to remain concentrated in the United States for the major U.S. firms in the personal computing industry.
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From page 48... ...
As one PC industry executive told us in interviews, he has to "push" more physical design and project management jobs overseas in order to keep concept design jobs at home. The number of jobs directly moved offshore is not large and occurs incrementally.
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From page 49... ...
The U.S. suppliers of key components such as microprocessors, storage, and software are also setting up R&D and design centers offshore, sometimes in locations with specialized skills such as Israel or Japan, and sometimes in big emerging markets with low-cost engineering talent such as India and China.
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From page 50... ...
However, the United States has fallen behind a number of countries in both wireless and broadband adoption and is not the lead market for products and services such as mobile phones and online gaming. As a result, innovations in new personal computing devices such as smart phones, video game consoles, and other network devices are likely to target foreign markets initially, making it more likely that innovation will occur in those markets rather than in the United States.
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From page 51... ...
. Is production pulling knowledge work to China: A study of the notebook computer industry.
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From page 52... ...
. Radical innovation and corporate regeneration.
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