UC Irvine, The Paul Merage School of Business
New Product Development
in a Global Knowledge Network:
The Notebook PC Industry
Kenneth L. Kraemer
Personal Computing Industry Center
The Paul Merage School of Business
University of California, Irvine
Seminario Globalizacion
March 15-17, 2006
Mexico City
This talk is based on research conducted by Jason Dedrick
and Kenneth Kraemer, sponsored by the Sloan Foundation.
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UC Irvine, The Paul Merage School of Business
Globalization: from manufacturing to
knowledge work
 Computer industry originally concentrated in the
U.S. and Japan
 Manufacturing shifted from U.S. to Taiwan and
SE Asia in 1990s, then to China since 2000
 Will knowledge work follow?
 Case study of new product development in
notebook PCs illustrates factors and trends in
knowledge-intensive part of the PC industry
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UC Irvine, The Paul Merage School of Business
Leading computer producing countries
Hardware production in US$ millions and share of total global production
World region
1995
2000
2005
Value
Share
Value
3,110
1.1%
11,900
3.1%
10,156
2.9%
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US
76,284
26.5%
90,430
24.0%
61,069
17.3%
2
Japan
72,678
25.2%
65,130
17.3%
33,618
9.5%
3
Singapore
21,127
7.3%
22,209
5.9%
18,233
5.2%
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Taiwan
16,007
5.6%
27,212
7.2%
5,022
1.4%
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China
5,600
1.9%
27,500
7.3%
97,500
27.6%
1
Malaysia
5,280
1.8%
17,368
4.6%
13,161
3.7%
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S. Korea
6,795
2.4%
15,241
4.0%
20,244
5.7%
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Mexico
Share
Value
Share
Global
Rank
Source: Reed Electronics Research, Yearbook of World Electronics Data
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UC Irvine, The Paul Merage School of Business
Taiwanese companies: key link in PC
industry globalization
 Manufacturing
 #1 makers of notebook PCs, motherboards,
scanners, keyboards, add-on cards, optical drives,
monitors, some network equipment.
 Driving shift of production to China.
 New product development
 Original design manufacturers (ODMs) develop over
half the world’s notebook PCs.
 Customers include all major PC vendors.
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UC Irvine, The Paul Merage School of Business
Taiwan’s top notebook ODMs
2003 volume
(thousands)
Major OEM partners
1. Quanta
8,500
Gateway, Dell, HP, IBM, Apple,
Sharp, Sony, Fujitsu-Siemens (F/S)
2. Compal
6,000
Dell, HP, F/S Toshiba, Acer
3. Wistron
2,500
IBM, Dell, Acer, Hitachi, F/S
4. Inventa
1,800
HP, Toshiba
5. Arima
1,500
NEC, Gateway
6. FIC
1,500
NEC, Legend
7. Asus
1,500
Epson, Canon, Sony, Apple, Trigem
8. Mitac
1,100
Sharp, F/S, NEC, JVC
9. Uniwill
1,000
Clone, F/S, Actebis, Samsung
10. ECS
1,000
Apple
Total
23,900
Name
Source: Taiwan Ministry of Economic Affairs, 2003 (table provided to authors)
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UC Irvine, The Paul Merage School of Business
Notebook NPD process
Design
Concept
design
Product
planning
•Analyze need
•Business case
•Create concept
•Specifications
•Set brand image •Industrial design
•Sourcing strategy
Development
Design
review
•Mock-ups
•Electrical test
•DVT
Prototype
build
•Commercial
samples
•Integrated
system test
•EVT
Production
Pilot
production
•Production
process design
•Pilot assembly
•PVT
Mass
production
•Ramp-up
•Volume
production
•Production
testing
•Global
distribution
Sustaining
support
•Speed bump
•Component
replacement
•Technical support
•Warranty support
New product development is highly modular
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UC Irvine, The Paul Merage School of Business
Interdependencies
 Concept design and product planning are
linked by need to translate technology and
market trends into specific product designs.
 Design and development can be separated
organizationally and geographically. Product
plans are codified and can be handed off.
 Development and manufacturing are closely
linked by need for manufacturability.
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UC Irvine, The Paul Merage School of Business
Organizational forms
 Notebook NPD follows three patterns
 Inhouse design/development by PC company
(Lenovo, Toshiba).
 Joint design/development – (Dell, HP) : PC maker
does design, ODM does development and mfg.
 Pure ODM design – PC makers choose ODM
designs off-the-shelf to sell.
 Share of global market: 20% in-house; 60%
joint vendor/ODM; 20% pure ODM
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UC Irvine, The Paul Merage School of Business
Joint development model
 PC makers retain control of key decisions.
 Product management, marketing, brand image
 Architecture, standards, key components. Interact
with Intel, MS, key component makers.
 Decide on specific product features
 ODMs
 Develop products to match their mfg. processes.
 Choose suppliers of many parts, components
 Responsible for quality, support
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UC Irvine, The Paul Merage School of Business
Location factors: skill and proximity
 Concept design and product planning.
 Skill in translating market and technology trends into
product concepts. Analytical/managerial skills.
 Proximity to lead markets. Access to supplier
innovation.
 Development
 Specialized engineering skills, e.g. board design,
thermal, EMI, power management, materials,
software. Hands-on skills.
 Production engineering and sustaining support
 Process engineering skills and proximity to
production processes. Hands-on skills.
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UC Irvine, The Paul Merage School of Business
Skills and costs by location
 Characteristics
 U.S./Japan: strong analytical and management skills,
creative problem solving; leading markets
 Taiwan: specialized notebook competencies, strong hands-on
but weaker analytical and management skills
 China: mixed engineering skills, gaining hands-on
experience. Weak analytical, managerial and independent
problem solving skills.
 Average base salary for electronic engineers




U.S.: $82K
Japan: $63K
Taiwan: $20K
China: $10K
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UC Irvine, The Paul Merage School of Business
Production “pull” of NPD activities
Design
Concept
design
Development
Product
planning
Design
review
Prototype
build
• Testing equipment
can be moved to
production site for
faster prototype
testing.
Production
Pilot
production
Mass
production
Sustaining
support
•Pilot production at
manufacturing site
eliminates need for dual
assembly lines.
• Need for manufacturability links development & production.
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UC Irvine, The Paul Merage School of Business
Shifting location of NPD activities
Design
Concept
2003
Product
planning
Development
Design
review
Prototype
Mfg.
Pilot
Prod.
Mass
Prod.
Sust.
support
United States
Japan
Taiwan
China
Concept
2006
Product
planning
Design
review
Prototype
Pilot
Prod.
Mass
Prod.
Sust.
support
United States
Japan
Taiwan
China
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UC Irvine, The Paul Merage School of Business
China’s role in NPD
 Solve problems related to production process.
 Sustaining support for existing products while
new product teams move on.
 Taking over pilot production and testing, likely
to move to prototype and design review in
some cases.
 Made by Taiwan in China.
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UC Irvine, The Paul Merage School of Business
Implications for developing countries
 Production = game over?
 Landed cost more important than labor cost.
 Assembly close to major markets – Mexico, E. Euro
 Production close to use = new game.
 Operations – localization, IT, BPO, call centers
 Requires low cost, skilled labor and project managers
 Innovation – NPD in software, hardware, content
 Requires high skilled professionals, entrepreneurs, patient
capital
 Multiplier effect for support jobs
 Investment for upgrading
 Education, R&D, technology alliances, market data
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UC Irvine, The Paul Merage School of Business
Impacts of China
 Availability and cost of engineering talent
can’t be ignored. Experience will provide
hands-on skills and work out cross-cultural
management issues.
 Biggest impact on Taiwan and Japan as
development moves. U.S. has lost this
already.
 China will only take over concept design
stages if it becomes a leading market and
source of innovation.
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UC Irvine, The Paul Merage School of Business
Global knowledge networks
 Global production networks are well known and studied.
 Global knowledge networks overlay these production
networks for coordination, but they also extend beyond
for innovation.
 Innovation occurs at the edges of value networks: R&D
labs, universities, upstream suppliers, customers in
vertical markets.
 Knowledge and innovation no longer concentrated in a
few countries, but widely distributed.
 Firms create competitive advantage through organization
of knowledge networks as well as production networks.
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