Dell computer's tech and strategies

1

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:

2

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.


3

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 encountered by those who deal with PC vendors.

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


4

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
Worldwide PC Sales

1990

1995

2000

2005

2010

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)


5

Table 2: Worldwide PC in use
Unit: 1 million PCs
Year
Worldwide PC in use

1990
100

1995
225

2000
529

2005
2010
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

(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


6

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 computerbased 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

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


7

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.
1.1.2. 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
US
Japan
Germany
Australia
China
Singapore
Vietnam

2007
2008
2009
2010
75.2
74.1
78.2
79.3
73.6
74.7
77.4
79.4
75.4
78.3
79.7
82.5

69.6
71.7
74.1
75.8
16.0
22.7
29.0
34.4
67.9
68.0
68.4
70.1
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.


8

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)
Country\Year
US
Japan
Germany

2007
14.2

2008
12.8

2009

13.0

15.7

14.3

14.7

7.9

6.9

6.8


9

Australia
China
Singapore
Malaysia

1.8
1.5
1.4
29.1
27.5
29.5
36.2
35.9

35.4
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,


10

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.


11

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)


12

Country
US 2009
Japan 2009
Germany 2010
France 2010
South Korea 2010
United Kingdom 2010
Canada 2010
Italy 2010
China 2009
Singapore 2009
South Africa 2008

R&D expense (million

R&D expense/GDP

current ppp)
(%)

401 576.00
2.90
137 314.21
3.36
86 209.64
2.82
49 990.76
2.26
53 184.86
3.74
39 137.82
1.77
23 970.09
1.80
24 269.15
1.26
154 147.36
1.70
5 733.23
2.27
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.


13

Figure 3: Changes of World GERD in real terms

(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


14

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.


15

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


16

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
1
2
3
4
5
Others

2008
HP
Dell
Acer
Lenovo
Toshiba

2009
18.4 HP
14.3 Acer
11.1 Dell
7.2 Lenovo
4.5 Toshiba
44.5

2010
HP
Dell
Acer
Lenovo
Toshiba

2011
19.3
17.9 HP
17.2
13.0
12.9 Lenovo 13.0
12.2

12.0 Dell
12.1
8.1
9.7 Acer
11.2
5.1
5.4 ASUS
5.9
42.3
42.1
40.6
(Source: Gartner and IDC estimation)

The position of leading competitors in the PC market has changed a lot in recent
years due to the acquisition and merger of companies. Dell stayed for years at the first
place in the early years of 2000s; however, after the acquisition of Compaq, HP has
gained the biggest market share, much bigger than Dell and stayed at No. 1 position.
The acquisitions of IBM by Lenovo and Gateway by Acer have also changed the
position of these two companies. In 2009 and 2011, Acer and Lenovo respectively
overcome Dell to gain the second position on the global market.
1.2.1. Technology innovation
Leading PC makers mainly follow 2 ways of technology innovation: to become
a leading innovator or to follow standards-based innovation.
Leading innovator: By this way, PC makers follow independent innovation to
create a brand new technology. They focus on R&D activities in order to achieve


17

technical breakthroughs which enable enterprises to form a strong technical barrier by

applying for a patent and exclusive right of the new technology or product.
Product innovation in this way occurs through two broad processes: R&D and
new product development. R&D is an ongoing activity that generates new
knowledge that can be applied to new products. New product development is a multistage process of design, development and production that creates physical products
for target markets. These two processes are both very costly because this is when the
computer makers try to develop something totally new to the market. This is the case
when an entirely new product is being created such as the wireless notebook that
requires integration of communication technologies, or in the case of a new product
category such as the Apple iPod.
If the new technology is widely accepted by the market, the leading innovation
companies will receive a huge benefit from the exclusive right of using the new
technology. If the consumers want to use the new product, they have no other way but
buy them from the exclusive providers since they are the only sources. However,
following this way means that independent innovation enterprises should input
adequate human and material resources in the research and development and market
development. They bear the huge cost of R&D and also the risk that the product may
not be well recognized on the market. Moreover, because technology in the computer
industry changes very fast, the new technology, after a short period of time, will be
standardized. At this point, the leading company of the technology will face with the
tough competition from other parties who can produce the same technology with
much cheaper price. The leading company will continue the cycle of R&D and
product development for a new product.
Standards-based innovation: This way mean the computer maker will based
on standardized technology and market demand to build their own product by
improving product design, capacity, productivity, etc.
Standards based innovation offers advantages and safeguards which
independent innovation cannot match. Standardization means a technology has the


18

support of its industry. In other words, since the technology is already accepted by the
market, it is ensured about the inter-operating ability and future proofing, and thereby
contributes greatly to customer confidence. Additionally, as it draws on research from
multiple sources, standardization means technologies are continually improving in
their performance, and expanding into new areas and applications. As a consequence,
standard technology allows for larger and homogenous markets.
While many leading innovator try to differentiate their products by spending
huge amount of capital on R&D activities to create brand new technologies which
distinguish them from any thing available on the market, the others with more humble
budget for R&D could follow this strategy of innovation which is based on the
standardization of technology. When a new technology appears on the market, if it is
accepted by consumers, the leading innovator will often possess an exclusive right
with the usage and application of that technology and this would bring them
substantial benefit for a period of time. At this stage, the consumers have to accept
the price even if it not reasonable for that exclusive technology because that is the
only way they could use it. But this is just the beginning of the whole story. With the
higher demand of the market for that technology, it will become more and more
popular to the point that other parties could gain the knowledge of manufacturing that
technology and beginning to produce it. The technology is gradually standardized and
could be sold with much cheaper price than the exclusive one. This is the point when
companies with standards-based innovation strategy start playing their games. Based
on the standardized technology, they spend some money on R&D to build their own
products, upgrade its capacity, and improve the efficiency to serve their customers in
the way they want. This strategy of innovation benefits them in many ways: first, they
could spend a smaller amount on R&D activities with the same technology. Second,
because the technology is standardized, it is widely accepted by the customers on the
market which means small risk of their products being rejected. Third, they spend
money on developing their own products and they are often better than the original
products of leading innovators regarding the computing capacity, speed, volume, and

often with more competitive price.


19

The second strategy of technology innovation has proven itself to be a wiser
way to build a product. Among leading PC providers, Dell is the best example of
using this way of innovation to accelerate its business. Other competitors like HP or
Lenovo also have had the movements toward this way of managing their technology.
Application of Information Technology to the Industry
By looking at the size of the PC Industry, analysts will conclude that it is
impossible to run business efficiently without the use of Information Technology.
The entire business will be supported by three major aspects of IT use in the Industry;
they are the use of IT in the manufacturing, the use of IT in customer support and
service, and the role of IT in strategies that enable the firm to gain competitive
advantage.

Figure 4: PC industry Value Chain
Suppliers  Manufacturing  Retail Services  Customers
Information Technology Support
The PC industry Value Chain shows the logical components that support the
day-to-day business operations. Information Technology support is throughout the
value chain.
In the manufacturing stage, a firm has to be able to track the inventory of all the
components that goes into a computer, and they need to do it in with millions of
computers on a daily basis. It is close to impossible for any PC manufacturer to do
this without the use of IT to support the manufacturing process. IT helps to automate
a lot of the mundane daily task and leaves the resources free for other tasks.

20

PCs are highly customizable in features and processing power. Therefore, it is
important for the manufacturers to customize any PC to fit the needs of any customer.
To accomplish it efficiently IT will support the ordering processes and customer
service processes. All the information will store into a database, and the
manufacturer can look up the any information on any PC that they have ever built for
its customer.
IT is often used in the forming the strategy for the PC manufacturers. For
example, IT enables a manufacturer to manage their global sales and customer
services. The ability to manage an effective IT system lies among the main
competitive advantages of a PC company. An effective IT system ensures the flow of
information run smoothly both externally and internally within enterprises. And in
this era, information means profit. Large companies like Dell or HP have proved that
their success in managing the IT system helps them understand about the real market
demand, form the basis for their product customization. Furthermore, with the support
of the e-Commerce website, PC manufacturers open up unlimited business
opportunity that can span the entire world.
1.2.2. Business strategy:
As mention in the previous part, the competition in the computer Industry is
fierce and global. These conditions force the manufacturers in the industry to stay
competitive using well thought out business strategies and tactics. And it does not
simply stop there. The firms in PC industry have to continuously adjust its strategies
to response to pressures from customers, competitors in the market, and IT vendors.
The strength of the company lies with the capability to deal with all the changes and
the rapid adaptation of its strategies.
The following figure will present a Business Strategy Model for the computer
industry. The model is divided into categories of focus, and each focus will provide
several options that a firm can choose to implement in its strategy. Different firms
will have different strategies and combinations. Such differences will enable them to

compete in the same industry while vary in focus and capabilities.


21

Figure 5: Business Strategy Options in PC industry
Products
Desktops

Laptops

Tablets

Servers

Education

Government

Customers
Individuals

Corporate
Markets

US

Europe
Asia
Manufacturing strategy

Customized

Latin America

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

22

inventories have contributed 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 wellbalanced choice – a choice that will ensure the competitive edge of the firm in the

23

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 flatpanel 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’


24

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


25

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&D budget continuously. In 2009, HP spent $2.82
billion on R&D, down from $3.54 billion a year earlier. In 2007, HP’s R&D 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