Dell computer's tech and strategies

Dell computer's tech and strategies

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 Informationtechnology, 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 innovationbased 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 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 thecompany selling the device is making upwards of 50% of the price of the product asgross 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 innovationeven 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 andbusiness 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

(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

(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

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 pricedeclines 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 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

computer-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

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 thewidely 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

(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 continuouslyover 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)

(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, based workers, who create and utilize information, play a key role in economic activities and knowledge creating organizations like research institutes and

knowledge-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 tomarket 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 withtechnological 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 developmentand 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)

current ppp)

R&D expense/GDP (%)

(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

(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 otheradvanced 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&Dintensity 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 increaseslowed 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 ofIBM'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

4 Lenovo 7.2 Lenovo 8.1 Lenovo 9.7 Acer 11.2

5 Toshiba 4.5 Toshiba 5.1 Toshiba 5.4 ASUS 5.9

(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 atthe 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 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 multi-stage process of design, development and production that creates physical products for target markets These two processes are both very costly because this iswhen 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 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 innovationbenefits 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

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 orLenovo 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

PCs are highly customizable in features and processing power Therefore, it isimportant 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 andthe 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 provideseveral 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

Figure 5: Business Strategy Options in PC industry

Sales and distribution

Company’s structure

Any enterprise in the computer industry has to choose at least one primary andperhaps 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 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 beshipped 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 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

well-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

(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 otherpolicy 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 Scotlandand 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 thethird 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 costproduction 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&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

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 computerline-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 agenius 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

(Source: Larry Dignan – ZDNet news)

Behind such great products, Apple thrives because it has been described as a oiled machine The company has outsourced its manufacturing operations, while

well-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 formthe 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&D 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 2.1 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 Fromthe 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 innovativestrategies 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 is 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 hardwareretail 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 2010Market

share 13.3 15.2 15.0 16.4 16.8 15.9 14.3 14.3 12.2 12.9

(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 anextremely 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 helpeddevelop 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 thatjust 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 thefamous 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

1983: 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

1986: 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

1987: 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

1996: 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 supportdatabases

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

2003: 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 tops the list of "America’s Most Admired Companies" in Fortune

Magazine Furthering its commitment to the environment, Dell OptiPlex desktop line of products features a lead-free motherboard, power supply and chassis

2006: Dell is the first in the industry to offer free product recycling for consumers

worldwide This enterprise revolutionizes the way businesses connect with

customers with the launch of Direct2Dell – a blog to enable fast, direct, two-way conversations with its customers Also in this year, Dell acquires computer gaming leader Alienware to complement its high-performance systems designed for gamingenthusiasts and media content customers

2007: The Vostro series becomes Dell’s flagship line of solutions tailored to small

businesses Dell ramps up our social media efforts to connect with customers by joining Twitter, launching the first investor relations blog, and debuting

IdeaStorm.com, a destination where customers can post and share ideas Dell makesgreat strides toward its sustainability goals by launching carbon-neutral programs for consumers and corporate customers, and by joining the Carbon Disclosure Project Supply Chain Leadership

2008: Dell acquires storage leader EqualLogic, growing their original customer

base of 1,000 to 25,000 worldwide in the first two years Dell launches its first Modular Data Center — a mobile, self-contained data center optimized for cloud-computing applications Dell Studio, a new consumer product line designed for self-expression and creative living, is introduced

2009: Dell acquires Perot Systems and launch a new business called Dell Services

that gives customers end-to-end IT services to help lower their total cost of IT ownership Dell enters the smart phone market with the Mini 3i from China

Mobile Customers rank Dell x86 servers, corporate laptops and desktops No 1 in enterprise customer satisfaction Dell introduces Adamo and Latitude™ Z laptops – both the world’s thinnest laptops – for consumer and business users who demand design, innovation and functionality

2010: Dell is the No 1 healthcare information technology services provider in the

world according to Gartner, Inc and wins more than 300 industry awards in 2010 Dell accelerates its enterprise customers’ move to the cloud with Dell Virtual Integrated Systems solutions, based on open architecture solutions that focus on interoperability and extending the legacy investments of its customers Dell enters the tablet arena with the Streak, a 5-inch device designed to provide the best on-the-

go entertainment, social connection and navigation experience Newsweek names Dell the greenest company in America

2011: Dell celebrates a record-breaking fourth quarter with double-digit growth in

the strategic enterprise solutions and services space, and the largest single-year revenue increase in company history Dell acquires SecureWorks, RNA Networks and Force10 Networks, leaders in enterprise solutions and services Further proof ofits commitment to providing end-to-end IT solutions for our customers, Dell

commits $1 billion to develop Dell data and solution centers around the world and open R&D centers in Israel and the U.S

2.2 Dell computer’s technology innovation and development strategy:

2.2.1 Technology innovation: