America Owes Asia for Its High-Tech Rebound
Anyone benefiting from the remarkable boom now under way in U.S. high technology owes a debt of gratitude to Asia.
Not because Asians are buying products--though U.S.-brand electronics are proving remarkably popular there. Rather, the recent success of many U.S.-owned technology firms rests on the growing technical sophistication and competitive strength of non-Japanese Asian companies. From Taiwan to Malaysia, from Singapore to Korea, they are the silent partners behind America’s high-tech resurgence.
Only 10 years ago, Japan’s seemingly unstoppable electronics giants--large, rich and able to invest for the long term--were demolishing U.S. competitors in everything from TV to computer chips. But today, U.S. producers are back on top. In these raucous, idea-intensive, interactive times, surely it was American ingenuity, creativity and entrepreneurship that turned around American electronics.
Certainly, a fair measure of credit is owed U.S. cleverness in defining new products and altering business strategies. New electronics products are converging technically into programmable systems built around microprocessors and networked together: From the inside, most electronics products now resemble a personal computer.
These types of products tend to result in a particular kind of market rivalry: competition to set de facto standards, such as Microsoft has achieved in PC operating systems. Over the last half-decade, the U.S. market has been the principle battleground on which these standards wars were fought. And with just a few exceptions--Nintendo in video games or Sony in 8-millimeter video camcorders--U.S. firms have defined the products, set and controlled the standards and thus achieved dominant positions in the market.
But U.S. firms could never have prospered without the ability to develop and produce the new products and get them to market fast. That is where their Asian-based production networks come into the story.
Think back 15 years. U.S. consumer electronics firms were almost completely dependent on Japanese competitors to supply component technologies such as tuners, picture tubes and miniature motors. And this technology dependence was the first step toward defeat in the market. U.S. firms were so far removed from the critical underlying technologies that they could not design state-of-the-art products. Their component suppliers, moreover, were also their principal competitors, so U.S. firms had little control over product cost, timing and feature quality. By 1980, even once-dominant companies such as General Electric and RCA were also-rans.
The loss of the consumer electronics industry, in turn, eroded the U.S. supply base for other segments of the electronics industry and threatened them with similar technological dependence. There was only one alternative for forward-thinking U.S. firms: transform their affiliates in the rest of Asia from assembly operations based on low-cost labor into sophisticated suppliers.
That transformation, which continued through much of the 1980s and continues today, was driven by local private investment and strongly supported by government policies. In Korea, large conglomerates such as Samsung dominated domestic electronics development, but in most of the rest of Asia--including first Hong Kong, Taiwan and Singapore and later Malaysia, Indonesia and Thailand--resident ethnic Chinese investors played an especially important entrepreneurial role.
Governments provided a panoply of fiscal and tax incentives and invested heavily in modern infrastructure, generic technology development and worker training. They engaged in selective trade intervention--and, in some cases, even provided market intelligence and product development road maps. The result was more and more capable local Asian producers such as Acer, Tatung & Winbond in Taiwan or Creative Technologies in Singapore. They became increasingly skilled suppliers of components, subassemblies and sometimes entire products.
Concurrently, at home, firms concentrated scarce corporate resources on new product definition and the associated skills--design, architecture and software development--necessary to create and maintain de facto market standards. In turn, they upgraded their Asian affiliates, giving them greater responsibility for hardware development and manufacturing. They significantly increased local sourcing of components, parts and subassemblies and contracted out design and some manufacturing.
Compaq Asia, for example, established its Singapore factory in 1986 for simple assembly of components--acquired mostly in Japan--for desktop PCs, with final assembly in the United States. By 1994, its Singapore operation was designing and manufacturing all notebook and portable PCs for worldwide consumption, from components purchased all over Asia. Hewlett-Packard’s Singapore operations evolved similarly, from assembly of calculators in 1977 to its current global responsibility for portable printers and Pentium desktop PCs and servers. Chip design and development of tools and manufacturing processes are all done locally.
Similar stories could be told for Motorola and AT&T; in telecommunications; IBM, Apple and Dell in PCs; Maxtor, Connor, Seagate and Western Digital in disk drives; TI, Intel, AMD and National Semiconductor in computer chips.
These stories contrast sharply with the development pattern of Japanese investments in the region in the same period. Though change is starting to come, Japanese firms for the most part still closely control their Asian affiliates’ decision making from Japan. Only low-end products such as televisions, headphones and calculators are trusted to offshore affiliates. They draw minimally if at all on the indigenous Asian producers that fuel U.S. production.
The differences between U.S. and Japanese production networks in Asia have proven decisive in the market. U.S. firms were able to relieve the constraining threat of competitive dependence on Japanese firms. Their Asia networks helped lower production costs and turnaround times while keeping pace with rapid technological change. In the bargain, they helped spawn Asian-based direct competitors to Japanese firms in major markets such as computer memory chips and consumer electronics.
But nothing is forever in electronics. Indigenous partners in production in Asia are also formidable potential competitors. As the Chinese market develops in both technical sophistication and size in the next decades, the mantle of electronics leadership could well pass back to Asia. Then that debt of gratitude owed to Asia will be reclaimed in full.
