From: Institute for Operations Research and the Management Sciences
U.S. Computer Co's Hold Off Asian Competitors But Risk Losing Despite Asian Recession "Next Bill Gates Might Be a Teenager In China"
LINTHICUM, MD, February 16 - U.S. computer companies continue to fend off challenges from Asian competitors by dominating high-end "knowledge processing" and leaving more cost intensive operations to Asian companies, according to a paper in a journal published by the Institute for Operations Research and the Management Sciences (INFORMSR).
Yet despite the Asian recession, the authors warn, the American advantage could drift to the Far East, as befell the American consumer electronics and auto industries, unless American firms remain vigilant.
"The next Bill Gates might be a teenager in China, ready to ride the wave of growth in Asian markets and shift the balance of industry power across the Pacific," they say.
The study, "Globalization and Increasing Returns: Implications for the U.S. Computer Industry" is by Kenneth L. Kraemer and Jason Dedrick of the Center for Research on Information Technology and Organizations at the University of California, Irvine. It appears in a special issue of Information Systems Research, an INFORMS publication.
Dr. Kraemer and Mr. Dedrick are the authors of Asia's Computer Challenge: Threat or Opportunity for the United States and the World? The book was published earlier this year by Oxford University Press.
The authors' research included field interviews with over 600 respondents in the U.S., Japan, Korea, Taiwan, Singapore, Hong Kong and China.
Dominating High End
The paper, which traces the history of the computer industry, shows that American companies have held off Asian competitors by concentrating on markets that yield increasing returns over the life cycle of their products. Americans have dominated knowledge processing, including research and development, software development, product design, customer service, distribution, and marketing - including brand promotions like the successful Intel Inside campaign.
At the same time, they have relied on Asian suppliers to carry out activities with decreasing returns such as manufacture and assembly. The result has been a symbiotic relationship.
Although threatened by Japan's manufacturing prowess in the 1980's and early 1990's, the authors say, the U.S. computer industry avoided the fate of the consumer electronic industry partly by tapping the capabilities of other Asian countries to counter Japanese competitors.
On balance, they maintain, U.S. companies remain in a strong position - for now. American companies in what is called increasing return markets win whenever the market grows, so they benefit from the availability of low-cost hardware made in Asian and from the growth of the Asian market. The competition in what is called the decreasing returns business is mostly a war among Asian companies, with at least some American companies enjoying the spoils.
As one Asian executive told the authors, "We're all killing ourselves to make money for Microsoft and Intel."
New Elite Emerges
In spite of the generally positive assessment of the U.S. position in the global computer industry, it would be a mistake for U.S. companies to take their eyes off Asia as a source of future competition, they write. The Asia-Pacific market has great long-term potential, in spite of the recent economic troubles in the region. If other Asian companies follow Japan's mercantilist trade and investment policies, U.S. companies could find the region a very difficult place to do business. The innovative marketing strategies of U.S. PC makers often are not easily implemented in Asian markets.
Formidable growth has characterized the Asian computer market, even in the worst of times.
"What has evolved over the last fifteen years is a vast production system stretching throughout the Asia-Pacific region," they write. Each key country in Asia has established a unique place for itself based upon its national capabilities, its inherent economic advantages, and government policies that support industry and enhance national capabilities.
And a new elite is emerging. "Thousands of Asian engineers have been trained in U.S. universities, and while many of them remain in the U.S., providing a vital supply of human resources, they retain strong contacts to their home countries," say the authors. "Likewise, many of Asia's computer companies are headed by people who cut their teeth working for U.S. companies, and they know very well what it takes to compete in the U.S. market."
The Institute for Operations Research and the Management Sciences (INFORMSR) is an international scientific society with 12,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications.