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Taiwan's PC Industry, 1976–2010: The Evolution of Organizational Capabilities

Published online by Cambridge University Press:  14 August 2014

Howard H. Yu  and
Willy C. Shih
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Abstract

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The stellar growth of Taiwan's personal-computer (PC) industry over the past three decades represents a paradox. Participating in the global production system, local firms in Taiwan grew in association with established firms in the West. Despite their technical know-how, manufacturing prowess, and size, most leading Taiwanese firms did not develop their own capabilities in branding and marketing. A close examination of the historical evolution of the industry reveals that interactions with established companies in the West, in addition to local competition, decisively shaped capability development among latecomer firms. A few firms in Taiwan that eventually joined the ranks of global PC brands had been investing in marketing early, guided by a strategic vision rather than near-term economic calculation.

Type
Research Article
Information
Business History Review , Volume 88 , Issue 2 , Summer 2014 , pp. 329 - 357
Copyright
Copyright © The President and Fellows of Harvard College 2014 

References

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13 The information on Taiwan's PC industry is fragmented; many materials are written in Chinese. To develop a coherent narrative that goes beyond the existing literature, much of the data used in this article was originally published in CommonWealth magazine and DIGITIMES, the two leading business publications in the Chinese-speaking region that have covered Taiwan's PC industry continuously since the late 1970s. Moreover, we conducted sixty-eight semistructured interviews (in English or Mandarin) between 2008 and 2010 to understand the strategy process inside each firm. Informants were CEOs or corporate executives; general managers; and operating managers or functional specialists. The authors also consulted numerous books in Chinese on Acer and ASUSTek (including a book-length manuscript that is only distributed internally at the firm).

Some of the sources consulted on Acer include: 施振榮, 全球品牌大戰略: 品牌先生施振榮觀點, 台北: 天下雜誌 (2005) [Shih, Stan, Global Brand Strategy: Mr. Stan Shih Point of View (Taipei, 2005)Google Scholar]; 周正賢, 施振榮的電腦傳奇, 台北: 聯經出版公司 (1996) [Zhengxian, Zhou, Stan Shih: The Computer Legend (Taipei, 1996)Google Scholar]; 施振榮, 宏碁的世紀變革: 淡出製造、成就品牌, 台北: 天下文化 (2004) [Shih, Stan, Acer Century Change: Fade Manufacturing, Brand Success (Taipei, 2004)Google Scholar]; 施振榮, 再造宏碁 (全新增訂版): 開創、成長與挑戰, 台北: 天下文化 (2004) [Shih, Stan, Recycling Acer (New Updated Version): To Create Growth and Challenges (Taipei, 2004)Google Scholar]; 王樵一, 施振榮: 逆境再起, 台北: 新苗 (2007) [Qiao, Wang, Stan Shih: Adversity Renewed (Taipei, 2007)Google Scholar.]

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14 In 2010, Acer and ASUSTek's laptops ranked fourth and fifth respectively in global shipment volume, surpassing household names such as Sony, Samsung, and Toshiba in the PC sector. Stephen Shen, “Worldwide PC Shipments Increase 2.3% in 2Q10, Says Gartner,” DigiTimes, 15 July 2010. Ricky Morris, “Taiwan Motherboard Industry Overview,” DigiTimes (2009).

15 Nichole Huang, “The Greater Chinese Notebook PC Industry,” Market Intelligence Center (2008).

16 A motherboard is the central printed circuit board of a PC. All other components are connected to it, and its job is to relay information between them.

17 Arguably, Xerox's PARC (Palo Alto Research Center) developed the first PC in 1973, even though the firm failed to capitalize on its invention. See Smith, Douglas and Alexander, Robert, Fumbling the Future: How Xerox Invented, Then Ignored, the First Personal Computer (New York, 1988)Google Scholar. Steve Jobs famously took the graphical user interface that Xerox had pioneered and implemented it on Apple's machines, propelling Apple to a leading PC manufacturer. By the time the first IBM PC was launched in 1981, earlier incumbents such as Tandy Corporation (Radio Shack) had quickly exited the industry.

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30 CommonWealth, 1 June 1998, 146–52.

31 TechVantage (July 2001): 94–100.

32 For Intel to double the number of transistors on integrated circuits approximately every two years, technical breakthrough was not sufficient. Intel had to induce (or even coerce) its partners within the PC industry to commercialize its technologies. See Gawer, Annabelle and Henderson, Rebecca, “Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel,” Journal of Economics and Management Strategy 16 (Spring 2007)CrossRefGoogle Scholar.

33 Microsoft's rapid product upgrades met the increase of PC computer power propelled by Intel. Microsoft relied on upgrades to drive profits: Between 1989 and 1994, roughly 32 percent of Microsoft's customers opted to upgrade on interim releases (e.g., 2.0 to 2.1), while nearly 75 percent upgraded on major releases (e.g., 2.0 to 3.0). Windows 3.1, Windows 95, and Windows NT cost millions of dollars each to develop, but the marginal cost of each new copy was just a few dollars. Meanwhile, as more users adopted Windows and more software developers wrote applications for Windows, the marginal value of each new copy of Windows actually grew.

34 ASUSTek's average profit margin was around 23 percent during the period; “Growing Influence,” TechVantage (July 2001): 94–100.

35 In 1986, former Sony engineer Joseph Hsu, along with four other colleagues, set up MSI. In 1989, four former engineers from Acer started ASUSTek. Three years later, Jonney Shih, who had also been working at Acer, joined ASUSTek as CEO and has stayed with the company ever since. At Gigabyte, CEO Danny Yeh and four other founders of the company were engineers by training.

36 伍忠賢, 華碩馬步心法: 施崇棠的策略雄心, 台灣: 達人館 (2006), 90 [Wu, Z. X., Asus Strategy: Jonney Shih Strategic Ambitions (Taiwan, 2006)Google Scholar, 90].

37 Chen, Chyong Ling Judy and Belcher, Susan Margaret, “The Importance of Absorptive Capacity in the Road to Becoming a Giant Lion: ASUSTek Computer, Inc.,” Global Economic Review 39, no. 3 (2010): 291–315CrossRefGoogle Scholar.

38 Interview with Joe Hsieh, General Manager, Motherboard Business Unit, ASUSTek Computer, Inc., 13 Jan. 2009.

39 CommonWealth, 5 June 1996, 72–74.

40 CommonWealth, 1 Dec. 2001, 64–71.

41 CommonWealth, 1 Feb. 1998, 60–70.

42 CommonWealth, 1 Dec. 2001, 64–71.

43 CommonWealth, 5 June 1996, 72–74.

44 Interview with Joe Hsieh.

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46 “Taiwan Mainboard Makers Increasing Production in China,” DigiTimes, 18 Oct. 2000.

47 “Motherboard Makers Accelerate the ‘Designed in Taiwan and Made in China’ Trend,” DigiTimes, 4 Jan. 2001.

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49 “Analysis of Merger Trend among Second-Tier Motherboard Makers,” DigiTimes, 29 Nov. 2000, and “First-Tier Motherboard Makers Battle among Themselves for Market Share,” DigiTimes, 8 May 2001.

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61 今周刊, 退休、紅酒、枕邊人 面板鐵嘴陳瑞聰的三十年職涯夢 4 May 2008 [“Retirement, Red Wine, Three Decades of Dreams,” Business Today, 4 May 2008].

62 Interview with Ted Chang, Executive Assistant to the Chairman and CEO, Planning and Program Office, Quanta Research Institute, Quanta Computer, Inc., 15 Sept. 2010.

63 Wistron was a contract manufacturer spun off by Acer. The subject is covered in the following section. “Taiwan Notebook Industry Overview,” DigiTimes, 11 Jan. 2005.

64 Breznitz, Innovation and the State, 113. Joseph Tsai, “Taiwan Notebook Industry Overview,” DigiTimes, 25 Aug. 2009.

65 Dell, for example, went so far as to send in its corporate consultants to work with Compal for over eighteen months. According to the local managers, “Dell was into our pants the whole time.” Interview with Steve Kung, CTO, Senior Vice President, Compal Electronics, 10 June 2010.

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72 “Taiwanese Notebook Makers Find Home in Europe,” DigiTimes, 7 Feb. 2001.

73 CommonWealth, 25 Oct. 2004, 118.

74 施振榮, 再造宏碁: 開創成長與挑戰, 台北: 天下文化 (1996) [Shih, Stan, Recycling Acer: Creating Growth and Challenge (Taipei, 1996)Google Scholar].

75 Kim, Linsu and Nelson, Richard R., Technology, Learning, and Innovation: Experiences of Newly Industrializing Economies (New York, 2000)Google Scholar, 148.

76 Up to 40 percent of Acer's output was sold under contract manufacturing.

77 Christopher A. Bartlett and Anthony St. George, “Acer America: Development of the Aspire,” Harvard Business School Case 399-011, 1998.

78 Christopher A. Bartlett and Anthony St. George, “Acer, Inc.: Taiwan's Rampaging Dragon,” Harvard Business School Case 399-010, 1998.

79 “Emerging Markets: The Winners in a Losing Year,” BusinessWeek, international edition, 1 July 1998.

80 Interview with Tony Chen, COO and NB BU General Manager, ASUSTek Computer, Inc., 7 Jan. 2009.

81 Wu, Asus Strategy, 94–95.

82 Arik Hesseldahl, “Acer's Gateway to the U.S. Market,” BusinessWeek, 28 Aug. 2007.

83 Interview with Joe Hsieh.

84 CommonWealth, 1 Mar. 1994, 102–10.

85 In the early 1990s, Microsoft's most important investment was Windows 95, which was designed as a replacement for DOS and Windows 3.1 and only worked with Intel architecture microprocessors. It created a standard that allowed diverse applications to interact simultaneously without crashing and bundled programs such as networking software and Microsoft Mail that previously had been kept separate.

86 Jamie Beckett, “The Business of Bidding: Reinventing Auctions for Better Results,” http://www.hpl.hp.com/news/2005/jul-sep/auctions.html (accessed on 15 May 2009).

87 CommonWealth, 1 Sept. 2003, 160–65. In a high-profile dispute in 2003, ASUSTek refused to fulfill all of the orders from a previous bidding. It was reported that the bid price per motherboard was $7 to $10 lower than the average production cost.

88 “Dell Aims to Establish a New Model for Notebook Procurement,” DigiTimes, 1 Dec. 2003.

89 “HP's Fiorina Upsets Taiwan Suppliers,” DigiTimes, 11 June 2003.

90 Interview with Steve Kung, 22 Dec. 2009.

91 Interview with Ken Kan, Vice President, Notebook Engineering, FlexComputing, 9 July 2009.

92 Interview with Peter Ju, General Manager, NB Vertical Sales and Marketing, FlexComputing, 9 July 2009.

93 “Quanta to Market Own-Brand Notebook PCs in Taiwan,” Taiwan Economic News, 4 Nov. 1999.

94 Quincy Liang, “Quanta Aims for Top Spot in Notebook PC Industry in 4Q,” DigiTimes, 11 Oct. 2000.

95 Samson Yu, “Noah Sauve,” DigiTimes, 30 Oct. 2000.

96 CommonWealth, 15 July 2003, 114–16.

97 Sarah Chang, “Quanta Continues Growth Spurt, Other Taiwan First-Tier Notebook Makers Post ‘Reasonable’ March Revenues,” DigiTimes, 15 Apr. 2003.

98 “Arima to Sell Its Notebook and Server Businesses to Flextronics,” DigiTimes, 13 Nov. 2007.

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101 Acer also progressively reduced its equity holding in Wistron, signaling to the market that the two firms were truly operating as separate entities. “Acer to Release 70 Million Shares in Wistron,” DigiTimes, 2 Jan. 2007.

102 Willy Shih, Howard Yu, and Hung-Chang Chiu, “Transforming ASUSTek: Breaking from the Past,” Harvard Business School Case 610-041, 27 Jan. 2010.

103 Interview with Samson Hu, General Manager, EPC Business Unit, ASUSTek Computer, Inc., 13 Jan. 2007.

104 Interview with Zing Chen, Deputy Director Product Planning & Management Div. EPC Business Unit, AOOP Business Group, ASUSTek Computer, Inc., 13 Jan. 2007. Interview with Jerry Shen, CEO, ASUSTek Computer, Inc., 13 Jan. 2007.

105 Suzanne Nam, “The Jonney Machine: How Taiwan's ASUSTek Built Its Cheap Laptop for Grown-Ups,” Forbes.com, 12 Nov. 2007.