As the business of designing, building, and distributing PCs becomes increasingly globalized, U.S. PC vendors have exported less valuable work offshore, while keeping more valuable and innovative product development, project management and marketing and branding functions here.
However, as countries in Asia and the rest of the developing world develop sophisticated engineering talent and production capabilities, and as economies develop, centers of innovation may shift closer to PCs’ ultimate consumers, especially Asia, according to a recent report.
Entitled “Globalization of Innovation: The Personal Computing Industry,” the report was prepared for the National Academy of Sciences Board on Science, Technology and Economic Policy by the Sloan Foundation-sponsored Personal Computing Industry Center at UC Irvine.
The report presents a mixed bag for U.S. firms.
“An optimistic view is that U.S. firms are outsourcing and offshoring lower end manufacturing and routine engineering work, freeing resources to focus on more dynamic innovation which will sustain profitability and create new jobs in the U.S. A more pessimistic view is that innovation will follow manufacturing offshore, leaving U.S. firms uncompetitive and draining the U.S. of the innovation that drives growth and employment,” the report states.
In fact, the report appears to favor the more pessimistic view, at least to an extent, stating: “It appears that once production moves to a low cost location, it will pull higher level activities to it.” Additionally, designing and manufacturing PCs near the customers who will buy and use them is another factor fueling this trend.
For instance, by 2005 China was the single-largest producer of PCs and computer equipment overall in the world, the report says. “Taiwanese [manufacturers] produced 85 percent of all notebooks in the world in 2005, mostly in the Shanghai/Suzhou region of China.”
Indeed, a new market report from Forrester Research seems to bear that out. It predicts there will be a billion PCs in use worldwide in 2008, and 2 billion by 2015, with most of that growth coming in areas, such as China and India.
“The emerging Brazil, Russia, India and China markets will account for more than 775 million new PCs by 2015,” according to a Forrester statement. “The vast majority of growth in the PC and related industries will come from emerging markets
However, one industry observer disagrees that U.S. companies have, or will, lose their edge in PC innovation any time soon.
“I don’t buy that,” Tim Bajarin, president of strategic consultant Creative Strategies, told internetnews.com. “They said that five years ago, and 10 years ago, [and] I just don’t believe that the U.S. and Silicon Valley will ever lose that role,” he added. The spirit of innovation is alive and well here, he said, citing innovations such as Google and YouTube, as well as the plethora of research labs located here.
Next page: U.S. as innovator
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The UC Irvine study does state that much innovation comes from the U.S., where users, developers and entrepreneurs have traditionally pushed the envelope, coming up with new and innovative uses of new technologies. Among recent innovations it cites is the iPod music player, the Palm Treo and the RIM Blackberry, for instance.
But it also says that, as emerging markets take off, those regions outside the U.S. also have the potential of becoming hotbeds of innovation, especially in the areas of desktop and laptop PC design. These are markets where the product designs are, to a large extent, driven by standards set forth by companies like Intel and Microsoft.
There are hurdles that still must be overcome, however. “China has many well-trained mechanical and electrical engineers, but most lack the hands-on skills that come with experience. Industrial design is weak and marketing and business skills are very underdeveloped,” the UC Irvine report states.
Additionally, at least for now, U.S. companies like Microsoft, Intel, AMD and Nvidia, as well as Dell, HP, Apple and others, will continue to reap the majority of profits in the near term.
And the report makes broad recommendations as to how U.S. firms and universities can remain innovatively competitive and adapt as the economics and technologies evolve.
“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,” the report says.
“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,” it adds.
The report does have some good news for U.S. firms overall — at least for now.
“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 U.S. and Japan; applied R&D and development of new platforms in Taiwan; product development for mature products, and nearly all production and sustaining engineering in China.”
