Globalization of Innovation: The Personal Computing Industry

Abstract

While the core innovation in the PC industry is led by major U.S. suppliers, there is a global network of components in Japan, Korea, Taiwan and elsewhere in Asia that supports system-level innovation by PC vendors who focus on incorporating these innovations into new products. High level architectural design and product management are done in-house by PC makers, while physical development and manufacturing are generally outsourced. Higher value analytical, design and management activities are usually done in the U.S. by U.S. firms, whereas the development and manufacturing of the physical product, along with the more routine product and process engineering is done in Taiwan and in China. This global division of labor has enabled U.S. firms to retain their leadership in the PC industry, as well as in key components and complementary products such as semiconductors, hard disk drives, graphics, printers, network equipment and all kinds of software. Outsourcing manufacturing and product development lowers costs while letting U.S. companies concentrate on their strengths in marketing, branding, design, product management, and distribution. It also enables faster product cycles with quicker integration of new technologies, and a proliferation of models aimed at niche markets. But innovation itself is more incremental, particularly in the dominant “Wintel” market, where the scope of innovation is constrained to variations within the standards set by Microsoft and Intel. Outside the Wintel world, Apple develops innovative PCs with higher margins, but its worldwide market share is small. Looking for growth, PC makers have moved into innovative product categories such as smart phones, handheld PDAs, portable music players and digital cameras, taking advantage of the global production networks created by the PC industry. This has resulted in some hit products such as RIM’s Blackberry, Palm’s Treo, and Apple’s iconic iPod, but success has been sporadic among traditional PC makers. For U.S. workers, globalization has led to a dramatic decrease in manufacturing jobs in the computer industry as most production has moved offshore. Much of the associated process engineering work has moved offshore as well, yet the total number of engineers in the industry has remained stable as U.S. engineers become more productive and graduate to higher value activities. Job growth is not happening in the U.S., especially for the more routine engineering work that traditionally provided experience on the first steps of the career ladder. But without aggressive globalization, the industry might have stalled, or U.S. firms might have lost their edge to Japanese and Asian competitors as was often predicted in the early 1990s. In order to assure continued leadership in innovation for U.S. companies, and a vital role for U.S. workers in the innovation process, industry executives and educators should identify skills needed for the dynamic, high value design and engineering work that is now done in the U.S., and take action to develop them. The key to innovation capacity lies in creating and developing talented individuals in areas such as concept design, system architecture, industrial design, and product management. For technology workers specifically, there is a great need for people who can work at the interface of engineering with computer science, or in functional terms, at the interface of hardware and software. There is also a need for people comfortable working in teams, across disciplines, and in a global environment.