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Is Economics Driving PC 'Innovation' Offshore?

By Stuart J. Johnston

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As the business of designing, building, and distributing PCs becomes increasingly globalized, U.S. PC vendors have exported less valuable work offshore, while keeping more valuable and innovative product development, project management and marketing and branding functions here.

However, as countries in Asia and the rest of the developing world develop sophisticated engineering talent and production capabilities, and as economies develop, centers of innovation may shift closer to PCs' ultimate consumers, especially Asia, according to a recent report.

Entitled "Globalization of Innovation: The Personal Computing Industry," the report was prepared for the National Academy of Sciences Board on Science, Technology and Economic Policy by the Sloan Foundation-sponsored Personal Computing Industry Center at UC Irvine.

The report presents a mixed bag for U.S. firms.

"An optimistic view is that U.S. firms are outsourcing and offshoring lower end manufacturing and routine engineering work, freeing resources to focus on more dynamic innovation which will sustain profitability and create new jobs in the U.S. A more pessimistic view is that innovation will follow manufacturing offshore, leaving U.S. firms uncompetitive and draining the U.S. of the innovation that drives growth and employment," the report states.

In fact, the report appears to favor the more pessimistic view, at least to an extent, stating: "It appears that once production moves to a low cost location, it will pull higher level activities to it." Additionally, designing and manufacturing PCs near the customers who will buy and use them is another factor fueling this trend.

For instance, by 2005 China was the single-largest producer of PCs and computer equipment overall in the world, the report says. "Taiwanese [manufacturers] produced 85 percent of all notebooks in the world in 2005, mostly in the Shanghai/Suzhou region of China."

Indeed, a new market report from Forrester Research seems to bear that out. It predicts there will be a billion PCs in use worldwide in 2008, and 2 billion by 2015, with most of that growth coming in areas, such as China and India.

"The emerging Brazil, Russia, India and China markets will account for more than 775 million new PCs by 2015," according to a Forrester statement. "The vast majority of growth in the PC and related industries will come from emerging markets

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