PREFACE We are living in the era of information. The 21st century has come with more than ever powerful working tools: the computer, the Internet, and Information technology. The computer has been playing an increasingly important role in the daily lives of people, families, organizations and businesses. With their huge computing and processing power, computers have boosted up productivity, increased accuracy, saved time, and become essential equipments for almost every business today.
Together with the widely application of the Internet and Information technology, the computer has become even more powerful tool which improves every aspect of people’ lives. Owning to its power and functionalities, the demand for computer has increased continuously over years, pushing the PC (personal computer) industry become one of the most competitive and dynamic. Within 6 years from 2006 to 2010, the worldwide PC sales almost doubled and stay at more than 300 million units in 2010.
Large computer companies today spend billions of dollars annually on innovating new technology, developing new products in order to gain the top position on the market. Besides, due to the fast pace of changing, as a feature of the industry, computer firms have to adjust their overall strategies continuously to stay strong. Dell Inc. is one typical example of successful computer enterprise by using appropriate strategies toward technology innovation and operation.
With innovation based on standardization, direct sales model, and the support of modern and fast information technology system, Dell keeps in hand key comparative advantages to win the first position in the market for many years. Until now, Dell still remains as the toughest competitor for any PC maker. Being attracted by the eventful computer industry and efficient operation of Dell Inc. , the writer decides to choose the PC industry as the theme and Dell Computer is in the centre for this working paper. Within the limited volume of this thesis, the writer will go through three parts:
The first part introduces briefly about the computer industry, technology development, strategies of enterprises regarding technology innovation and development as well as some short stories of leading companies. The second part talks about Dell Inc. , including its history of development, its strategies of technology innovation and operation, and its global expansion. This part will analyze how the combination of creative technology development policies and business model help this firm becomes one of the leading computer makers in the world.
The third part will be about technology development in Vietnam in globalization scenario, Vietnamese technology enterprises and some lessons withdrawn from Dell Computer’s success and failure for them. Due to the limited time and knowledge of the writer, this paper inevitably contains some limitations and shortcomings. Therefore, the writer would like to receive every feedback or comment from teachers and people who interested in this topic to improve the quality of the thesis.
Chapter 1: OVERVIEW OF TECHNOLOGY AND DEVELOPMENT STRATEGY OF COMPUTER ENTERPRISES IN GLOBALIZATION 1. 1. Overview of technology development in computer industry in the world: The personal computer (PC) industry is one of the strangest and most dynamic in the world. Probably there is no other kind of product that is so technologically sophisticated, changed so rapidly, sells for so much money, and is sold by so many companies for not much profit. The fierce competition in this industry is the reason why so many problems are
Since PC could be assembled from standardized components without much expertise required and the barriers to entry are not as tough as in the past, new computer business is established on a frequent basis. As a result, there are thousands of companies making PCs that perform similar functions pushing the market to be extremely price-competitive. Since the market is so competitive, vendors often sell at very low margins. Computers are not the same as many other products, where the company selling the device is making upwards of 50% of the price of the product as gross profit. For PCs it is often around 10%.
Additionally, there is probably no other industry that has prices change as dramatically and frequently as the PC industry. Usually, prices are decreasing. This is good for the consumer but very bad for vendors, because it means that their already low margins get squeezed if prices drop between the time that they buy a product and the time they sell it. Drop in the price of PC comes from both severe competition and rapid changes in technology. As a consequence, PC makers often prefer to keep low inventories. Whenever prices fall, the vendors potentially lose money on every component in inventory at the time.
Due to the rapid frequency of changes in technology, functionalities and capacity of computers are improved continuously, broadening PC’s definition over time. In the dawn of PC industry, a computer was a bulky device, furnished with some simple functions and small volume, but extremely costly. Today, people could possess small handheld devices which are integrated with processing power and functions tens times better than huge mainframes decades ago. The PC industry has a strong connection with the software industry and the application of the Internet.
These two peripheral industries have accelerated the speed of technology innovation even faster. In years recent, a computer device has evolved into a centre for all the digital peripheral such as music players, digital cameras, video recorders, internet TV, etc. With the technology evolution, computers have become the ever powerful tools that are essential for any success business and modern families; and the PC industry become one of the most strategic industries in the world in the 21st century. 1. 1. 1. Velocity of development and innovation:
The personal computer industry has grown from a hobbyist industry in the 1970s to a highly profitable industry worth hundreds of billions of dollars worldwide. Driven by consumer demand to access the Internet and the advancements of microprocessor technologies, the demand for PCs for personal and business use has climbed continuously in the early 21st century The PC industry is one among the fastest growing industries in the world. According to a research carried out by Etforcasts, the annual worldwide PC sales has a trend to double every six years. By 2000, the PC sales was 132 million; and almost doubled in 2006.
The velocity of increase in this industry is at a staggering rate of around 9% annually compounded. (Table 1) Table 1: Worldwide PC Sales Unit: 1 million PCs |Year |1990 |1995 |2000 |2005 |2010 | |Worldwide PC Sales |24 |58 |132 |207 |325 | (Source: etforecasts) Another noticeable index is the number of PC in use. In 2000, there were more than 500 million units in-use and the figure in 2010 is over 1400 million units almost three times higher. Table 2) Table 2: Worldwide PC in use Unit: 1 million PCs |Year |1990 |1995 |2000 |2005 |2010 | |Worldwide PC in use |100 |225 |529 |910 |1,425 | (Source: Etforecasts) The figure above shows that the computer industry has a huge growth potential. These growth potentials are fostered by the upgrading of obsolete machines, newly established business around the world, new generation or innovation of computer devices integrated with digital functions.
Yearly PC sales for the U. S. and the main regions of the world are summarized in the next figure. North America will remain the largest region through 2007. All figures are in millions of units. Figure 1: Annual PC Sales of the main regions of the world [pic] (Source Etforecasts) In 2003, the number of PCs sold in the US was roughly about 30% of the total worldwide sales. This data indicates that the remaining 70% of the PC sales happened outside the US. This shows that there are many opportunities yet to be discovered by firms around the world.
According to etForcast , Asia will be the region with the fastest growth in computing devices. This trend is confirmed by the rapid urbanization and modernization of China in recent years, and expected to continue to grow in the next decade. Therefore, it is logical to move the PC manufacturers in the US into the global arena. PC revenue was growing slower than unit growth due to considerable price declines and saw a pause the last two years due to lower unit sales growth than price declines. The worldwide PC revenues were $251B in 2000, which increased to over $333B in 2007. Worldwide PC revenue declined to $320B in 2010.
According to experts of Etforecasts, worldwide PC revenue has a trend to grow again in the next five years to around $400B in 2015, which is due to the unit growth boost from the iPad and competing products. To get a clearer picture of the potential of IT industry, have a look at the following figure about computer and peripherals industry in the period from 1999 to 2004. This computer and peripherals industry include products which are computer-based and inter-connected to computers. These products are indicators of how well the entire industry is doing in terms of new innovations and future development.
Figure 2: Computer and Peripherals Industry 1999 – 2004 Unit: billion Dollars [pic] This figure is a good indicator of the huge potentials in the IT industry. Although the industry had a minor setback in 2001, the net profit and sales remains high for 2004. As mentioned above, IT industry has become a center for computer and peripheral devices. There will be a greater demand in networking because computers are more connected to each other. Wireless technology will continue to grow in range and speed for more and more information need to transmit between computers and across networks. . 1. 2. Overall impact to the development of economies in the world The 21st century comes with more than ever powerful tools which based on the widely use of computers and the Internet. The popularity of PCs is phenomenal because it has revolutionized the way people communicate, how information is stored, and people’s ability to access knowledge at their fingertips. Besides, PCs have become necessities in the corporate world simply because business processes involve heavy use of computers and Internet.
In fact, the percentage of population with computer connected to the worldwide network has become one of the key indicators for the level of modernization and human power of economies in the world. Following is the figure for some typical countries: Table 3: Internet users per 100 people |Country |2007 |2008 |2009 |2010 | |US |75. 2 |74. 1 |78. 2 |79. 3 | |Japan |73. |74. 7 |77. 4 |79. 4 | |Germany |75. 4 |78. 3 |79. 7 |82. 5 | |Australia |69. 6 |71. 7 |74. 1 |75. 8 | |China |16. 0 |22. 7 |29. 0 |34. 4 | |Singapore |67. 9 |68. 0 |68. |70. 1 | |Vietnam |20. 9 |24. 2 |26. 8 |27. 8 | (Source: World Bank estimates – World Development Indicators) There are two things that can be easily seen from the above table. First, the advanced economies often have high percentage of population with computer connected to the Internet. Developed countries such as US or Germany have a very high rate, almost four-fifth of the population; meanwhile, developing countries like China or Vietnam stay at much more humble levels.
This means that internet connection is one of the indicators for the power and modernization of the economies. Second, the percentage in general has the trend to increase continuously over time which denotes the increased demand for computers and Internet using. People’s job will more and more related to the application of computer and Internet’s functions. Information technology has shifted the paradigm of economies. In a macroeconomic sense, information technology affects the patterns of production, investment and employment.
Production structure: as the information technology evolves, the world is now in paradigm shift from the industrial age to the information age. As a result, there is a growing demand in the service fields that require expert knowledge and information. Thanks to information technology, existing service industries such as banking and distribution are enhancing efficiency and expanding their business areas. New industries on the basis of information technology such as software industry and information processing service are rapidly growing.
The following table is about information and communication technology goods exports include telecommunications, audio and video, computer and related equipment; electronic components; and other information and communication technology goods of some countries. The number is taken as percentage over the total goods exports. Table 4: ICT goods exports (% of total goods exports) |CountryYear |2007 |2008 |2009 | |US |14. 2 |12. |13. 0 | |Japan |15. 7 |14. 3 |14. 7 | |Germany |7. 9 |6. 9 |6. 8 | |Australia |1. 8 |1. 5 |1. 4 | |China |29. 1 |27. 5 |29. | |Singapore |36. 2 |35. 9 |35. 4 | |Malaysia |41. 6 |26. 2 |38. 1 | (Source: United Nations Statistics Division’s Commodity Trade) The table shows clearly that ICT products is an important part in the production structure of countries, especially Asian developing countries since the percentage is very high (times higher than developed economies).
This can be explained as the trend of outsourcing in big technology firms of developed countries to take advantage of cheap labor force and market potential in Asia-Pacific area. Investment structure: as information technology changes the aspects of competition, investment is made more in the area of information and communications that promotes productivity and efficiency of knowledge-based products. As the demand for high technology goods has increased continuously, the IT industry becomes a highly profitable but competitive industry.
Severe competition in home countries forces computer firms to expand globally, finding new market for their growth. In addition, the pressure of price-competition requires them to find ways to cut cost. As a result, large multi-national technology tend to invest in potential markets such as countries in the Asia-Pacific area or India, changing dramatically the investment structure of both home countries and investment receiving countries. According to OECD Factbook 2010 regarding to investment structure of the world, ICT shares in total non-residential investment doubled, and in some cases, even quadrupled between 1980 and 2000.
In 2008, ICT shares were particularly high (at 24% or more of the total) in countries like the United States, Sweden and Denmark, etc. Software has been the fastest growing component of ICT investment. In many countries, its share in non-residential investment multiplied several times between 1980 and 2008. In 2008, software’s share in total investment was highest in Sweden, the United States, Denmark, Finland and the United Kingdom. In the recent years, software accounted for 50% or more of total ICT investment in France, Finland, Sweden, Japan, Korea, Denmark, the United Kingdom, the United States, Canada, Switzerland and Netherlands.
Communication equipment was the major component of ICT investment in Portugal and Greece. IT equipment was the major component in Belgium and Ireland. Changes in employment structure: In advanced economies, the number of workers in manufacturing sector is drastically reduced by shrinking share of its production. But employment in information and knowledge-intensive service sector is increasing with automation and investment in information technology. In the occupational categories, there are more demands for experts with creativity and information technology.
Meanwhile, for developing countries, a large number of people move from the agriculture sector into manufacturing due to the trend of outsourcing of big technology firms in the world. Investment in infrastructure of high technology firm in developing countries to take advantage of the cheap manufacturing factors has created jobs for millions of employment in the local areas. In a microeconomic sense, information technology changes business activities. It is important today that how much information a company have and how much of them could be converted into useful knowledge.
The global modern economy has proved that knowledge itself, not a physical good, is a valuable product. In other words, owning to advanced information technology, knowledge-based workers, who create and utilize information, play a key role in economic activities and knowledge creating organizations like research institutes and universities will find their increased roles as a place for economic activities. Changes take place in every part of the business from the communication system to development of goods and technology, procurement, production, sales, distribution, and after sales services.
Enterprises depend heavily on rapid development of diverse goods and technology in order to satisfy customers. Time to market is also getting an important position in today economic environment. Modern communication methods such as email or fax have been widely used in companies since they accelerate the whole business process and save a lot of time. Meanwhile, enterprises have a trend to change production system from mass production under economy of scale into production on demand thanks to the application of E-commerce and advanced communication tools.
Keeping a smooth flow of information both internally and externally has become one of the key comparative advantages of companies in technology field. It helps companies save time and keep them updated constantly with information about the real demand of the market. That is the basis for their customization to truly meet the need of theirs customers. In short, the informatics era come with the technology evolution has restructured and speed up people’s lives, business operation, and the whole economic scenario of every countries in the world. The technology power of countries in the 21st century comes with the economic and politic power.
Information, communication and computer-related industry have become the strategic focus of development in almost a large number of countries and regions around the world. National policies to promote technology development and innovation: When talking about the countries growing fast and increasing their power with technological means today, people often mention the role of information technology, the widespread use of computers and the Internet. Information technology sector has proven itself to be the most strategic power in the development of national economies due to its productivity, speed, and versatility.
As a consequence, countries in the world have set up and changed their own policies and strategies to develop their technology power on a continuous basis. On of the main indicator regarding to the policies for technology development and innovation of countries is how much they spend on research and development activities (R&D). The following table shows a brief comparison of this expense in some typical countries in the world. For even a clearer look, the second column takes this expense as percentage over the GDP of those countries. Table 5: Domestic expenditures on R&D by country 2009-2010 (most recent year available) Country |R&D expense (million current ppp) |R&D expense/GDP (%) | |US 2009 |401 576. 00 |2. 90 | |Japan 2009 |137 314. 21 |3. 36 | |Germany 2010 |86 209. 64 |2. 82 | |France 2010 |49 990. 76 |2. 6 | |South Korea 2010 |53 184. 86 |3. 74 | |United Kingdom 2010 |39 137. 82 |1. 77 | |Canada 2010 |23 970. 09 |1. 80 | |Italy 2010 |24 269. 15 |1. 26 | |China 2009 |154 147. 6 |1. 70 | |Singapore 2009 |5 733. 23 |2. 27 | |South Africa 2008 |4 708. 22 |0. 93 | (Source: OECD, Main Science and Technology Indicators) In general view from the above table, developed countries often have a higher rate of R&D expense over their GDP, more or less of 3%. This is relevant with the result of strong technology power and potential in these countries.
Meanwhile, developing countries such as China has also spent a substantial amount to develop its technology power to catch up with developed economies in the world. In deed, the location of R&D investment has a trend to move toward new emerging economies such as India or China. This is considered as the direct consequence of outsourcing activities of many large technology firms in the world in the process of global expanding and cost cutting. According to an estimation of European Commission, between 13 years from 1995 to 2008 the world’s gross domestic expenditure on R&D (GERD) almost doubled in real terms.
Over this period real GERD increased by about 50 % in the EU, 60 % in the United States, 75 % in developed Asian economies, 855 % in China, 145 % in BRIS countries (Brazil, Russia, India, South-Africa) and almost 100 % in the rest of the world. As a result, less than 24 % of R&D expenditure in the world was located in the EU in 2008, compared to almost 29 % in 1995. The share of the United States and Japan also decreased substantially from almost 38 % to 33 % in the United States and from 16 % to 13 % in Japan.
Moreover, this global trend has been accelerating since 2004, which marked the beginning of a steeper increase in R&D expenditure in China and developed Asian economies. Figure 3: Changes of World GERD in real terms [pic] (Source: DG Research and Innovation Data: Eurostat, OECD, UNESCO Notes: BRIS: Brazil+Russian+India+Singapore) This evolution is expected since rapid economic growth in China and a number of other countries in the world allows for rapid increases in R&D expenditures in these countries. Also, high growth rates are more easily reached when the initial level is relatively low.
In that context, the share of the EU and other advanced economies is bound to shrink and the figure below quantifies this shrinkage. This re-balancing in knowledge production has important consequences for the EU in terms of international scientific and technological cooperation and knowledge flows in the world. In the 2002 Lisbon Strategy, the EU set the objective of devoting 3 % of its GDP to R&D activities by 2010. In 2005, with the re-launch of the Lisbon Strategy, Member States set their own national R&D intensity targets to be met in 2010.
In the Europe 2020 Strategy adopted in 2010, the EU maintained the 3 % objective for 2020 and in the following months, Member States adopted their 2020 national R&D intensity targets. Despite a 25 % real-terms increase in research expenditure over the period 2000–2008, R&D intensity in the EU has stagnated at around 1. 85 % of GDP between 2000 and 2007 with a slight increase in 2008 and 2009 to 2. 01 % of GDP (Figure I. 1. 2). This late increase in R&D intensity is, however, due to a more rapid decrease in GDP than in R&D expenditure.
In the United States, after a continuous decline during the first half of the decade, R&D intensity started to increase from 2005 to 2. 77 % of GDP in 2008, slightly above its 2000 value (2. 69 % of GDP). This quasi-stagnation of R&D intensity in the EU and the United States contrasts with the strong increases observed in Japan, South Korea and China during this period, up to 3. 44 %, 3. 37 % and 1. 54 % of GDP respectively. Part of the very high R&D intensity growth observed in China is due to its low initial position. It is to be noted that this increase slowed down in 2007–2008 in Japan.
Of the largest contributors to R&D expenditure in the EU, France and the United Kingdom have followed a similar path to the EU average, while Germany is closer to the US level. 1. 2. Development strategy of technology enterprises: Although the market for computer is huge and profitable, the competition is truly fierce between leading providers including Dell, Hewlett-Packard, IBM, Sony, Toshiba, Acer and Apple. As the demands for computer and computer-related products are getting higher day by day, there is also a pressure for PC vendors to drive the price down to compete with others.
It is often down to the level where profits are questionable; as mention in the previous sector, around 10% of price margin. Meanwhile, PC vendors also have to cope with rapid product cycle because high technology is changing so quickly. As the result, IT enterprises have to keep their costs down and try to maximize their market share. The use of information systems to gain competitive advantage becomes very attractive to the companies in this industry. Each firm follows their own strategy of technology innovation and doing business. Dell: The innovative Direct-Sales Business Model eliminates the need for a retail chain.
The ability to customize PC on an individual customer basis is one of the main comparative advantages of this vendor. Dell’s PCs are built and upgraded based on standardized components of collaborative partners. Hewlett-Packard: It merged with Compaq Computer to compete against Dell. This computer giant still relies on the more traditional retailer channel business model. HP also offers variety of computer products such as printers, scanners, and digital cameras. IBM: Traditionally IBM is in the mainframe and large scale computing market. It holds the most patents in the world as an attempt to stay ahead in the competition.
The PCs from IBM are gear towards corporate and business use. Lenovo: Lenovo is the world’s second largest PC maker after its 2005 acquisition of IBM’s personal computer business. . Lenovo markets its products directly to consumers, small to medium size businesses, and large enterprises, as well as through online sales, company-owned stores, chain retailers, and major technology distributors and vendors. Sony: a Japanese consumer electronic giant becomes a computer maker. Their computers gear toward the consumer market and offer tools for video editing.
It is aiming towards the overall design and appearance of the computer. The main Laptop line of Sony is Vaio which tend to concentrate on the high end market. Toshiba: a Japanese diversified manufacturer and marketer of electrical products, information & communications equipment and systems, Internet-based solutions and services. In PC venture, Toshiba focuses on portable computers. Their computers offer a balanced between price and performance. Acer: Taiwan PC maker which has been staying in top 5 PC vendors regarding the market share in recent years after its acquisition of US-based competitor Gateway.
In the early 2000s, Acer changed it business strategy a manufacturer to a designer, marketer and distributor of products, while performing production processes via contract manufacturers. Acer’s products are competitive both in the quality and the price. Apple: Last major PC maker that is not using Microsoft’s Windows operating system. Apple has moved from competing directly with the Wintel market to a more leisure computer market. Their computers focus on design and user-friendliness. The customers for Apple are personal users, educational institutions, and graphics design firms.
The following table is about global market share of leading vendors in recent years: Table 6: Global PC Market Share 2008 – 2011 |Rank |2008 |2009 |2010 |2011 | |1 |HP |18. 4 |HP | Customers |Individuals |Corporate |Education |Government | Markets US |Europe |Asia |Latin America | Manufacturing strategy |Customized |Fixed features | Sales and distribution |Direct Sales |Retain Chains | Company’s structure |Alliances |Independent |
Any enterprise in the computer industry has to choose at least one primary and perhaps some combinations of the supplementary strategies. The two primary strategies are low cost and product differentiation, and the supplementary strategies include innovation, grow, and alliance. In order to implement the low cost strategy as the primary strategy, the firms have to notice a few important points. In the least-cost competition there is only one winner, and this is to say there is only one company that can achieve the least cost in the production. Low cost strategy emphasizes on ways to cut cost as low as possible.
For example, the most popular way is based on economies of scale which means the firms have to sell a lot of the same products to sustain the extremely low profit margin on each item. Other ways include the policies to keep low inventory, direct sales to cut the cost of middleman. Generally, the firms need to use information systems to exploit cost reductions and form strong business alliances with suppliers and other logistics providers. Dell Inc. is the best example of companies successful in applying this strategy. The direct sales model and the ability to maintain almost-zero inventories have ontributed greatly in the forming of extremely competitive price of its products. On the other hand, the differentiation strategy focuses on separating the product from the industry standard. This is a strategy that focuses on unique products that exceed the industry average in terms of performance and design. The product must be highly customizable so it caters to individuals rather than having a generic form. Firms using differentiation as a strategy need to constantly make adjustments to the product because of the competitor’s imitation.
As an illustration, Apple’s primary strategy is in product differentiation. It tries very hard to differentiate itself from the rest of the PC manufacturers through better design and performance. Through Apple’s own brand image, it tries to convince the customers that its computers are superior to other competitors. The PC industry offers a wide range of products. Desktops and laptops are computers that target at home customers. For business, government, and educational customers, they will find the tablets and servers both very attractive to fit their needs. In the 21st century, the PC industry is truly global.
Computers can be shipped to different places around the world with the minimal modifications. The computer itself is the same for all countries; however, the documents and manuals that come with the computer will have to be localized to the specific countries. Besides a clear primary strategy, a good combination of the supporting strategies is also important. Innovative use of information systems in Supply Chain Management will enable the firm to cut costs to support the primary strategy. Total Quality Management allows a company to provide and sustain a good customer service time after time.
Strong Alliances are formed to foster a closer relationship with the suppliers and logistics providers. Alliances can also drive the costs down and increase the profit margin on each product. The options for strategy are limitless. The goal for all firms is to make a well-balanced choice – a choice that will ensure the competitive edge of the firm in the industry. Failure in doing so will result in loss of market share and perhaps the end of the business opportunity for the firm. 1. 3. Development strategies of some MNCs in the world and achievements: 1. 3. 1. Globalization of the Personal Computer industry:
Table 7: Share of global PC production by region | |1985 |1990 |1995 |2000 | |Americas |53% |32% |32% |34% | |EMEA |24% |27% |20% |19% | |Asia-Pacific |23% |41% |48% |47% | Source: Reed Electronics Research, Yearbook of World Electronics Data Note: EMEA: Europe – Middle East – Africa) The computer industry has long been one of the most global of industries. The Asia-Pacific production network was concentrated in Southeast Asia, particularly Singapore and Taiwan. In Singapore, many U. S. and other MNCs set up production of computer hardware, especially disk drives. In Taiwan, entrepreneurial local companies found opportunities supplying the major PC makers, beginning with simple parts and moving up to more sophisticated components, and assembly of PCs and peripherals.
Over time, labor-intensive activities were relocated to low-wage locations such as Thailand, Malaysia and China, with Singapore and Taiwan coordinating production in these sites and handling more sophisticated manufacturing processes at home. Japan and Korea were less successful as global PC producers, but were the major suppliers of high volume components such as memory chips and flat-panel displays. As early as 1988, the Asia-Pacific region had surpassed the Americas as the largest producer of computer hardware, even though the largest market was in the Americas and most leading PC vendors were U. S. companies.
Asia-Pacific gained production at the expense of both the Americas and Europe/Middle East/Africa (EMEA) until 1990; since then it has grown relative to EMEA while the Americas’ share of production has remained stable. In absolute terms, production has continued to grow in all regions. In Europe, production was concentrated in Germany, the UK, France and Italy during the 1980s. Each of these countries had a “national champion” computer vendor that had been nurtured through government procurement and other policy measures. However, none of the national champions made a successful transition from mainframes to personal computers.
As a result, production stagnated in the mid 1990s in all of the countries except the UK, which attracted IBM and Compaq to locate PC production in emerging industry clusters in Scotland and Wales. In the Asia-Pacific region, production was dominated in the 1980s by Japan, which nearly tripled production between 1985 and 1990 to surpass the U. S. as the world leader. During this time, Singapore and Taiwan also saw rapid growth, followed by Korea. In the early 1990s, Japan continued to see solid growth in production, while Singapore and Taiwan each tripled their production to become the third and fourth largest producers in the world.
In the late 1990s, however, Japan’s production declined precipitously, and Singapore and Taiwan saw much lower growth rates. The fastest growth was now occurring in the less developed ASEAN countries of Malaysia and Thailand, and most dramatically in China, which has leaped to number four in world production. This shift to developing countries was driven by investments by U. S, Japanese and Taiwanese firms looking for lower cost production sites and, in the case of China, looking for market access as well. 1. 3. 2. Strategies of some leading PC makers in the world and achievements: Hewlett-Packard (HP):
HP is a PC vendor that operates in more than 170 countries all over the world. HP was founded in 1939. Corporate headquarters are in Palo Alto, California. In recent years, HP has remained as the largest IT company in the world, with revenue totaling $127. 2 billion for fiscal year 2011. In 2011HP stayed at number 11 in Fortune 500 ranking. In 2002, HP and Compaq have merged together to gain the market competing with the main competitor Dell. These steps in the strategy of HP has boosted the market share of this PC enterprise become much larger than Dell and help the company stay at the first place in the world for years.
Probably no other company offers as complete a technology product portfolio as HP. The company provides infrastructure and business offerings that span from handheld devices to some of the world’s most powerful supercomputer installations. HP offers to consumers a wide range of products and services from digital entertainment and from computing to home printing. This PC vendor divides its products into three groups to meet the need of each market segmentation, including: The Personal Systems Group: business and consumer PCs, mobile computing devices and workstations.
The Imaging and Printing Group: inkjet, laser-jet and commercial printing, printing supplies Enterprise Business: business products including storage and servers, enterprise services, software and networking In order to innovating its technology constantly, at the moment HP scientists are focused on 24 large-scale projects that fall under eight high-impact research areas: printing and content delivery; mobile and immersive experiences; cloud and security; information analytics; intelligent infrastructure; networking; services; and sustainability.
However, in recent years, HP has shifted from creating entirely new technology to using standardized components in producing PCs. The clear figure is that this company has reduced it R budget continuously. In 2009, HP spent $2. 82 billion on R, down from $3. 54 billion a year earlier. In 2007, HP’s R spending was $3. 6 billion. This movement in its strategy has supported greatly to lower cost. HP keeps a balance in its products, good quality PCs integrated with updated technology but at a competitive price level. Apple Apple Inc. , formerly Apple Computer, Inc. is a multinational corporation that creates consumer electronics, computer software, and commercial servers. Apple’s core product lines are the iPad, iPhone, iPod music player, and Macintosh computer line-up. Founders Steve Jobs and Steve Wozniak effectively created Apple Computer on April 1, 1976, with the release of the Apple I, and incorporated the company on January 3, 1977, in Cupertino, California. For more than two decades, Apple Computer was predominantly a manufacturer of personal computers, including the Apple II, Macintosh, and Power Mac lines, but it faced rocky sales and low market share during the 1990s.
With the introduction of the successful iPod music player in 2001, Apple established itself as a leader in the consumer electronics industry, dropping “Computer” from its name. The latest era of phenomenal success for the company has been in the iOS range of products that began with the iPhone, iPod Touch and now iPad. As of 2011, Apple is the largest technology firm in the world, with annual revenues of more than $60 billion. The main lesson from Apple’s success, however, is the central importance of focusing on strong products that are well-designed for the market.
For years in this century, Apple has become the best leading innovator with continuously updated generation of its products and brand new ones. Steve Job, the company’s leader, is a genius at minimalist designs that integrate technology breakthroughs to fill a newly emerging need with unusual style. The result can be seen in the way he describes the attraction of the iPad “It’s like holding the Internet in your hands. It’s so much more intimate than a laptop and more capable than an iPhone. It’s truly magical. ” The following figure presents the budget Apple has spent on R&D as percentage of revenue.
In general, spending on R&D of this company is high, keep this vendor among the top 50 R&D spenders in the world. However, company’s revenue increases faster than this expense (as illustrated as decrease trend of the figure), especially since 2010 with the introduction of the ever successful tablet – Ipad. Figure 6: Apple’s R&D % of sales [pic] (Source: Larry Dignan – ZDNet news) Behind such great products, Apple thrives because it has been described as a well-oiled machine. The company has outsourced its manufacturing operations, while 317 Apple stores are wildly popular and profitable.
The Apple music store – iTunes – has expanded into a powerful vehicle for trading videos, movies, and possibly other information products. Lenovo: Lenovo is the world’s second largest PC maker in 2011. This Chinese company is established on November 1, 1984. In 1985, the company launched the first Chinese-made motherboard with Lenovo technology. The brand name, Lenovo, was born from this. Lenovo operates factories in Chengdu and Hefei in China, Japan, and as of December 2011 has plans to start production in Argentina.
Lenovo focuses on vertical integration in order to avoid excessive reliance on original equipment manufacturers and keep costs down. This PC maker offers to the market the ThinkPad, IdeaPad line of notebook PCs and ThinkCentre line of desktops. These brands became part of Lenovo’s offerings after its 2005 acquisition of IBM’s personal computer business. As its strategy, Lenovo markets its products directly to consumers, small to medium size businesses, and large enterprises, as well as through online sales, company-owned stores, chain retailers, and major technology distributors and vendors.
This direct sales model helps the company to reduce cost of middle man and retailers, and form the basis to get instant feedback from its customers. This all reduces the cost of producing and selling products and keeps this enterprise stay competitive on the market. Besides, Lenovo owns the greatest track record for innovation in the PC industry and remains committed to innovation in its products and technology. As stated in the company’s statement, Lenovo’s innovation strategy is based on a two-tiered approach to solving real-world customer problems: Focus the majority of development on ideas that can be brought to market within 24 months; and, Invest longer term in research targeting “game changing” big plays” At the moment, Lenovo operates seven research and development centers and more than 46 world-class laboratories, including major research centers in Yokohama, Japan; Beijing, Shanghai and Shenzhen, China; and Raleigh, New York City. The company employs more than 1,700 engineers, researchers and scientists and has received more than 100 major design awards.
Lenovo’s R centers have produced some of the world’s most important advances in PC technology, ranging from the original Bento Box PC notebook design in 1992 to the 2008 launch of the innovative ThinkPad X300, considered as one of the world’s lightest, thinnest and most innovative full-featured notebook PCs ever. Lenovo’s commitment to innovation introduces more industry breakthroughs and technology that sets the technical standards for business users as well as consumers. Chapter 2: DELL COMPUTER’S TECHNOLOGY INNOVATION AND DEVELOPMENT STRATEGY 2. . Overview of Dell computer’s development: This section of the paper deals with Dell Computer in the PC industry in terms of how they fit in the global PC industry, their technology innovation, their competitive strategy, the significance and the roles of the information systems, and the strengths and weaknesses of Dell Computer in the industry. In 2011, Dell reported $61,494 billions in sales, 16% increased in comparison with the previous year, and employed 100,300 people worldwide in production, development, and customer support of the operation.
Dell is truly a global business with products range from desktops, laptop, workstations, servers, networking devices, and computer peripherals such as printers, cameras, LCD TV, mp3 music players, and recently tablet. Each Dell’s product can be further customized to meet the needs of the customers. Dell’s direct sales business model has been refined and modified to support the changing product line and customer service. However, the main idea behind the direct-sale business model remains unchanged.
From a statement on Dell’s website, “Dell is doing business directly with customers, one at a time, and believe we can do it better than any one else in the industry. ” The successful direct-sales business model puts much emphasis on the customers. From the beginning to the end of the transaction, Dell understands completely what the needs of its customers are. This results in a satisfied customer with the potential to do business again and again in the future. After two decades of growth, Dell has become the world leading direct-sale computer vendor in the PC industry.
As a relatively young company, Dell finds themselves constantly competiting with old, more established companies like Hewlett-Packard and IBM. In many years in the early of this century, Dell reclaimed the title of the number one PCs supplier in the industry. The success of Dell Computer is not possible without the vision of Michael Dell and his innovative strategies of technology development and operation. The following is a brief history of Dell Computer and its development. 2. 1. 1. Introduction to the company: Dell, Inc. s an American multinational computer technology corporation headquartered in 1 Dell Way, Round Rock, Texas, United States. The company is founded on November 4th, 1984 by Michael Dell who at that time was still a student in University of Texas. In 1983, Michael Dell started his computer hardware retail business by selling hard drives and RAMs for IBM PCs. Dell bought his products from IBM dealers at cost, and later resold it through newspaper and magazines to individuals and businesses at lower cost than the retailers.
By April 1984, his dorm room computer business was already making about $80,000 a month, and the success was strong enough to persuade him to drop out of college. As a result, Dell founded Dell Computer with $1,000. In the next few years, he was making IBM clones computers under the name PC-Limited and sold it to customer directly without retailers. This approach allowed PC-Limited to sell computers to its customers at 40% of the price of the IBM computers. The direct-sales business model propelled Dell Computer to the leading PC supplier in the industry.
Table 8: Dell market share and rank from 2001 to 2010 |2001 |2002 |2003 |2004 |2005 |2006 |2007 |2008 |2009 |2010 | |Market share |13. 3 |15. 2 |15. 0 |16. 4 |16. 8 |15. 9 |14. 3 |14. 3 |12. 2 |12. 9 | |Rank |1 |2 |1 |1 |1 |1 |2 |2 |3 |2 | |(Data: Gartner Inc. ) For many continuous years, Dell was the number one PC maker in the industry. However the situation has changed dramatically since the merger of HP and the direct competitor Compaq in 2002, together they own the market share bigger than Dell. Besides, bigger size allows HP to foster it low cost strategy due to economy of scale.
Some years later come the rise of Lenovo and Acer with the acquisition of IMB and Gateway respectively. As a result, Dell keeps the third position in the market in 2011. The direct-sales business model is just one tool for Dell to do business. If the success of Dell is based solely on this model, Dell would have lost its competitiveness a long time ago. The competitors of Dell can duplicate the model and do business the same way as Dell. There are other factors staying at the core of Dell strength. Following is a summary of Dell comparative advantages based on several analyses about this firm:
Leading technologies: Dell always keen to embed latest technology in its products. Following standards-based innovation, Dell PCs are built with standardized components which are well-recognized by the market. Dell has spent much effort and money to push its product to the limit of capacity in order to serve customers with the best computing solution. In addition, due to its direct relationship with customer, Dell is able to introduce the latest relevant technology compared to companies using the indirect distribution channels. Moreover, Dell launches newer technology far more before the other companies that hold inventories.
The focus of Dell on technology personnel has helped this firm to catch up with every change in high technology. Customer Direct: one of Dell’s core strength is its firm belief in upholding the direct business strategy. Going direct has benefited this firm in many ways. Since it cut off all the role of wholesalers as well as retailers, it reduces greatly the cost of manufacturing and selling computers, resulting in products with very competitive price level. In addition, direct relationship is the basis for its ability of customization.
The information and feedback from customers could be collected easily and quickly. And this information will be of help in choosing the most appropriate computing solution to serve the customers. This process results in higher satisfaction and trust of customers on Dell’s products and services. This form of innovation has been of great importance in pushing it from the bottom all the way to the number one supplier of Desktops, notebooks, and server in the world. Information Systems: no one can deny the importance of Dell’s Information Systems as a competitive advantage.
Information Technology has been around for some time now and is available to everyone at fairly low costs, so it only makes sense for a company to have one. But by just having Information Systems they do not inherit a competitive advantage. The advantage comes from strategies built around solid business models. And Dell’s overall implementation of the customer direct business model which uses Information Systems is one of its most powerful competing forces. The efficient Information System at Dell has kept the flow of information run smoothly in the operation of this company.
It turns Dell Inc. into an extremely flexible machine which is always up-to-date. Leadership: Michael Dell, the founder of the enterprise is the one who has contributed greatly to Dell’s top position. His innovative vision about the PC industry and market trend has driven Dell to where it is today. Besides Michael Dell, Dell takes on some of the top executives in the world including its own employees such as Kevin Rollins who manages its day to day operations and helped develop strategies around the direct selling of computer systems and services.
As Dell Computer is moving towards a multi-products, multi-national, and multi-services business, it becomes impossible for one entrepreneur to have all the right skills in managing the company. The collaboration of leaders combines the talents of people in a company that is growing at a tremendous rate. Dell most certainly has more strengths than weaknesses as a company, but that just means it needs to keep a closer watch on its weaknesses. Rivalries as weakness: Industry rivalries are perhaps the greatest weakness of Dell. As one of the top PC manufacturer, Dell has everybody as a competitor.
HP and Compaq have merged to counter the strength of Dell. The new merger can lower their costs significantly so they can continue to use the retail approach to compete with Dell. In addition, when Dell expands globally, it also faces with strong competition from local region. From previous section, Asia is the area with the highest demand of PC at the moment. Therefore, some Asian computer firms have been emerging strongly; become the direct competitors of Dell. For instance, Japanese and Korean consumer electronics makers are switching to manufacture PC in recent years.
Their advantage is the abundant of cheap and skilled workers. They focus on product designs as a differentiation strategy. Especially in recent year, Lenovo has become one of the top PC makers after the acquisition of IBM. In 2011, this firm even overcomes Dell and gains the second position of global market share. That is a clear illustration for the competition from Asia. Another potential problem for Dell is from the suppliers. Dell relies on the suppliers to provide them with the necessary components to build a PC.
If the suppliers cannot deliver the components to Dell, Dell will face with a delay in production. It will create a ripple effect to the rest of the business processes. Limited Technological Selection: even the strategy regarding technology innovation has brought Dell a lot of successes; it also causes a minor weakness that Dell is faced with is its choice of technology. Dell has the opportunity to employ technology as soon as it comes out, but this enterprise usually waits to verify how a technology will perform in the market before implementing it.
Dell’s cautious nature of adoption could possibly lead to a loss of market share to other companies willing to take a risk. And sometimes it is not necessarily a risk that it would be taking. One of the illustration could be pointed here is the success of Apple with the famous tablet Ipad in 2010. This enterprise spent 3. 1% of its revenue in 2009 on R&D and come up with the first tablet Ipad in the market. This product become a big success and helps this company gain the main market share for tablets after that.
Meanwhile, Dell has waited for a period of technology standardization to release its first tablet Latitude ST. Strategy Mimicking: Dell’s strategies of standards-based innovation and customer direct are well known and its business processes can be duplicated by any company. This is not seen as a direct weakness of Dell but an indirect weakness of Dell’s in relation to the market. In fact, many competitors of Dell have changed some parts of their technology focus when perceived the fact that Dell has born a much lower R&D cost while still gained the biggest bite of the cake.
For instance, in recent years, HP has shifted its technology innovation strategy into using some standardized components in stead of building their own technology. On another side, the emerging Taiwan firm Lenovo is also keeping a direct relationship with its customers, lowing down the cost and price of products. Strategies which help Dell stay competitive for years at the same time, could help its competitors, especially with newly emerging firms which do not stuck with any old and complex system need to change.
In general, Dell’s innovative strategies regarding technology innovation and direct business model enable it to become and stay competitive in the changing global market. With strong global sales and growth, Dell will continue to own a large market share in the PC industry. 2. 1. 2. History of development since establishment: Timeline of development: 1980: Michael Dell purchases his first computer-an Apple II-and promptly takes it apart to understand how it was designed and made. 983: Declaring he ultimately wanted to beat IBM, the young Dell conducts a lucrative business out of his dormitory room at the University of Texas, selling upgraded PCs and add-on components. 1984: With $1,000 in startup capital, Michael registers his business as Dell Computer Corporation, doing business as PC’s limited, and leaves school in May of that year. The company becomes the first in the industry to sell custom-built computers directly to end users, bypassing the dominant system of using computer resellers to sell mass-produced computers. 986: Dell unveils the industry’s fastest-performing computer, a 12 MHz, 286-based system, at the Spring Comdex national computer tradeshow. The system quickly attracts a large number of reviews from the technology press. The company also pioneers the industry’s first thirty-day money back guarantee, which becomes the cornerstone of Dell’s commitment to expand its service offerings and offer superior customer satisfaction, and offers the industry’s first onsite service program. 987: In a bold move for the risky operation, Dell establishes its first international subsidiary in the United Kingdom. Eleven more international operations would open over the course of the next four years. 1989: The fast-growing company experiences its first major stumbles: It accumulates excess inventory of memory components, which results in write-downs, and cancels an ambitious product development program code-named “Olympic. ” 1990: Dell becomes the first computer company to jump into the burgeoning market for computers sold through consumer retail stores such as CompUSA and Best Buy.
The company later becomes the first company to exit this segment as well, after determining the retail-store model did not meet its financial objectives. 1992: Dell achieves slightly more than $2 billion in sales for the fiscal year ended January 1993, which represents a remarkable 127 percent increase. 1993: Suffering from the pains of extremely rapid growth, Dell cancels a secondary offering and posts its only quarterly loss resulting from a temporary withdrawal from the notebook market, its exit from retail stores, and a restructuring of European operations. 996: Dell challenges the traditional market for premium-priced servers based on proprietary technology with its introduction of its Power Edge server line. In less than two years, PowerEdge vaults Dell from the tenth position in market share to the third largest server vendor in the world. The company’s quiet bid to sell custom-built computers over the Internet quickly becomes a public revolution when the company announces that sales over www. dell. com have exceeded $1 million per day. During the same year, Dell introduces its first custom-made web links for customers.
Called “Premier Pages,” the links allow customers to tap directly into the company’s own service and support databases. 1998: Dell solidifies its Internet leadership when it tops $12 million per day over the Internet, expands its Premier Page program to more than nine thousand customers and establishes web-based connections with its suppliers to speed the flow of inventory and quality information. Dell opens an integrated sales, manufacturing, and support center in China. 1999: Dell becomes the number one PC company in the United States, the largest worldwide market for personal computers.
To accommodate its growth, Dell opens new manufacturing facilities in Nashville, Tennessee and Eldorado do Sul, Brazil. Sales over www. dell. com top $35 million per day. 2001: It’s a year of firsts as Dell becomes the No. 1 computer systems provider worldwide, and reaches No. 1 in U. S. Intel-based server shipments. The PowerConnect line of network switches launches Dell into the networking equipment market. Dell signs an agreement with storage leader EMC to enable more affordable enterprise-class storage area network solutions for customers of all sizes. 003: The Company expands its product portfolio with Dell-branded printers and officially enters the consumer electronics market to serve as a single source for its customers. 2005: Dell