Transcript Slide 1

Enter the Dragon: China and the
Global Computer Industry
Jason Dedrick and Kenneth L. Kraemer
Personal Computing Industry Center and
Center for Research on Information Technology and Organizations (CRITO)
University of California, Irvine
Presented at Seminario Globalizacion
Mexico City, March 15-17, 2006
Based on research supported by the Sloan Foundation and National Science Foundation
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Trends in the Global Computer Industry
• Historical
– Mainframe era: vertical integration
– PC era: Dominance of Wintel standards, rise of global production
networks
• Recent
– Extreme price and time competition
– Shift to build-to-order and direct sales in U.S.
– Outsourcing of manufacturing and product development
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Evolution of Production
• Shift from North America and Europe to Asia-Pacific
starting in 1980s
• Emergence of regional hubs in 1990s: Ireland, Scotland,
Singapore, Taiwan
• Shift to lower-cost locations in late 1990s: Eastern
Europe, Mexico, China
• Shift from everywhere to China since 2000.
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Computer Hardware Production by Region
200000
180000
160000
The Americas
EMEA
Asia Pacific
120000
100000
80000
60000
40000
20000
0
19
85
19
86
19
87
19
88
19
89
19
90
19
91
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92
19
93
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94
19
95
19
96
19
97
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98
19
99
20
00
20
01
20
02
20
03
20
04
US$ Millions
140000
Source: Reed Electronics, Yearbook of World Electronics Data
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Leading Computer Producing Countries
World
region
1990
1995
2000
2005
Value US$ mil
Share
Value US$ mil
Share
Value US$ mil
Share
Value US$ mil
Share
48,559
27.0%
76,284
26.5%
90,430
24.0%
61,069
17.3%
Brazil
4,634
2.6%
6,500
2.3%
7,000
1.9%
7,180
2.0%
Mexico
1,161
0.6%
3,110
1.1%
11,900
3.1%
10,156
2.9%
52,428
29.2%
72,678
25.2%
65,130
17.3%
33,618
9.5%
Singapore
6,974
3.9%
21,127
7.3%
22,209
5.9%
18,233
5.2%
Taiwan
5,886
3.3%
16,007
5.6%
27,212
7.2%
5,022
1.4%
China
645
0.4%
5,600
1.9%
27,500
7.3%
97,500
27.6%
Malaysia
381
0.2%
5,280
1.8%
17,368
4.6%
13,161
3.7%
S. Korea
3,073
1.7%
6,795
2.4%
15,241
4.0%
20,244
5.7%
Americas
US
Asia-Pacific
Japan
Source: Reed Electronics, Yearbook of World Electronics Data
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Explaining China’s Ascendance
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Evolving IT policy
Role of MNCs
Role of Taiwanese firms
Growth of indigenous industry
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China’s IT Policies
• 1970s-1980s: Policy aimed at developing self-sufficiency.
• Early 1990s: Shift to pragmatic approach
– Focus on PCs and peripherals
– Joint ventures with foreign MNCs
– Export promotion
• Late 1990s (Ninth Five-Year Plan, 1996-2000)
– Promote domestic PC manufacturers
– Increase domestic content
– Golden Projects to modernize infrastructure, stimulate IT use and
support domestic IT industry
• 2001-present
– Liberalize under WTO rules
– Promote software and semiconductors
– Promote but regulate Internet use
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Role of MNCs
• China required MNCs to take local partners
– IBM-Great Wall, Compaq/Stone, HP/Legend, Toshiba/Tontru
• Now local partners not required. Dell and HP operate
independent subsidiaries.
• Foreign PC makers producing in China to gain market
access. Some are exporting, e.g., Dell, Toshiba.
• MNC role is greater in other sectors, e.g. servers, mobile
phones, network equipment
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Role of Taiwanese firms
• Taiwanese firms leaders in notebooks, motherboards,
scanners, monitors, keyboards, add-on cards.
• Original design manufacturers (ODMs) develop and
manufacture notebooks for all major PC vendors.
• Most of their production now in China
– MNCs have pushed Taiwanese suppliers to China.
– Shenzhen for desktops, components, peripherals,
Shanghai/Suzhou for notebooks.
• Current division of labor
– Taiwan: HQ, R&D, early new product development (NPD) stages
– China: Manufacturing, process engineering, later stages of NPD
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Role of Chinese domestic companies
• Limited role in global production networks
– Domestic companies are mostly absent from the supply chain.
Taiwanese suppliers have moved to China.
• Local firms exporting in some niches, e.g. low-end
networking.
– Huawei sued by Cisco for stealing technology, but settled.
– Has grown from $2.7B in 2002 to $8.2B in 2005, half for export
• Domestic companies dominate local PC market, but lag
MNCs in servers, high-end networking
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China PC market
• Desktop market share (Q3 2005)
– Lenovo
32.4%
– Founder
12.3%
– Tongfang
8.5%
– Dell
7.5%
– HP
6.8%
– TCL
3.6%
– Hasee
3.5%
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Lenovo: A Global PC Company
• Lenovo dominates domestic market.
• Purchase of IBM’s PC business in 2005 gives them
global reach. Now #3 PC vendor worldwide.
• Complex management structure
– Top executives are North American. Chairman is Chinese.
Largest shareholder is Chinese Academy of Sciences
– Global HQ in New York. Major operations in North Carolina,
Beijing, Shenzhen
• Dual brand product strategy
– ThinkPad brand strong in corporate notebook market.
– Targeting global consumer markets with Lenovo brand
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Issues for China
• Greater China
– Taiwan’s design, manufacturing and management skills, China’s lowcost labor and engineering skills and large market make a formidable
combination.
– Will they become competitors to each other or to MNCs?
• Climbing the technology ladder
– Can China become a center of innovation and entrepreneurship?
– Quality of engineering graduates is mixed, experience limited.
• Government policy
– Targeting R&D, want to move beyond role as global workshop
– Promoting domestic standards, e.g., 3G cell phones, wireless. Could
hurt MNCs and isolate China from global market.
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Implications for the U.S.
• Substantial job losses in manufacturing. Smaller losses
in IT services, software, other “knowledge work”
• Focus is on R&D, product management, software
architecture and design, marketing, branding. Can these
also be moved offshore?
• Concern about disappearing bottom rungs on career
ladder.
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Implications for other ‘peripheral’ countries
• East Asia losing manufacturing to China.
– Taiwan, Singapore, Malaysia and others trying to diversify or
upgrade.
• Production moving from Ireland and Scotland to Eastern
Europe.
– Proximity to EU for bulkier and more time-sensitive products.
• India far ahead in software and services, strong in chip
design. Starting to move into manufacturing
• Others looking for niches
– Software (Israel, Russia), call center (Philippines, Costa Rica)
• Everyone avoiding direct competition with China.
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Implications for Mexico
• Loss of high volume manufacturing to China, but overall
production only down a little.
– Disadvantage in labor costs and lack of supplier base
– Proximity to U.S. still valuable for bulkier items and for timesensitive production.
• Growth opportunities in specialized segments, e.g.
software, chip design, IT services, Spanish language
content.
• Government policy mostly hands-off.
– Liberalization has increased IT use
– Lack of promotion a disadvantage against other countries
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