CPNs and the future of competition

Wintelism and CPNs have been very important to the outcome of competition in

the electronics industry. They were the principal means by which the US

electronics industry recovered from its mid-1980s nadir in competition with

Japanese firms to re-emerge as the global technical and market leader by the

mid-1990s; they were also the enablers that permitted indigenous electronics producers to emerge and prosper in the rest of Asia. Wintelism shifted the

industry’s product market strategies away from final assembly and toward the

distinctive value-added products backed by standards strategies in which American

innovations and entrepreneurial companies were strong. Simultaneously, the

American CPNs created an alternative supply base in Asia, an alternative to

reliance on Japanese competitors for underlying component technologies and

manufacturing capabilities. By exploiting an ever more intricate and flexible

division of labor based not on cheap factor endowments but on increasing local technical specialization in Asia—a division enabled by Wintelist product strategies—CPNs helped to lower production costs and turnaround times while keeping pace with rapid technological progress and responding rapidly to unpredictable market

shifts. Also, the networks spawned Asian-based direct competitors to Japanese

firms in several of their stronghold  markets (e.g. memory chips, consumer

electronics, and displays).

Taken together, Wintelism and CPNs enabled a new generation of US firms to

pioneer a new form of competition in electronics: one that grew out of the

distinctively American market environment and was adapted to overseas

opportunities. It is a form of competition in which “core assets” are the

intellectual property and know-how associated with setting, maintaining, and

continuously evolving a de factomarket standard, a process that requires perpetual

improvements in product features, functionality, performance, costs, and quality.

And the core managerial skill has become orchestrating the CPN itself: managing

the continuously changing sets of external relationships and melding them with

the relatively more stable core of internal activities in order to access relevant

technologies, design, develop, and manufacture the products, and get them from

product concept to order fulfillment in minimal time.

For Wintelist American firms the innovations in product concept and corporate

organization appear to have fulfilled the single most important strategic imperative

of competition in high-technology markets: developing and sustaining monopoly

niches, whether through ownership and control of a de factostandard or by

maintaining a differentiated product through the ability to add performance,

functionality, features or to improve costs faster than their competitors.

Profitability and market capitalization in electronics are almost purely a function of

achieving such market structures, high where a quasi-monopoly position can be

maintained in fast-growing markets, low or non-existent everywhere else. As Intel

and Dell demonstrate in components and PC distribution, and Sony and

Symantec demonstrate in their recent struggles with content creation (Columbia

Pictures) and software, respectively, profits can be won or lost at any point in the

value-chain if the market is structured accordingly. Future competitive battles in

electronics will continue to center around the creation of and defense against a

quasi-monopoly position, as the concerted attack by Silicon Valley on Microsoft’s

position and practices demonstrates.

It is also instructive that traditionally vertically integrated assemblers like HP,

Motorola and, more recently, IBM have been the first among the traditional players to embrace the new form of competition. That fact suggests the hypothesis that in a globalizing world economy, new, epochal forms of competition like those described here will increasingly originate in a firm’s ability to exploit location-specific advantages  at its point of origin and to fill in complementary elements as necessary with relationships that exploit locationspecific advantages elsewhere. Thus, for example, the shape and character of US firm CPNs clearly reflect the advantages they derive from their point of origin in the US launch market: the setting, maintenance, and evolution of de factostandards set in the domestic US launch market was the principal instrument used by US firms to structure and preserve control over their inter-firm networks. So long as US firms maintained that role in the division of labor—by defining and executing an evolutionary path for improved performance, functionality, and cost that kept customers and licensees locked in to their standards—it was extremely difficult for other firms in the network to challenge for the lead. US networks could be relatively decentralized because control over standards enabled devolution of responsibility for significant value-added to partners without fear of losing the ability to orchestrate the network. By contrast, with control residing in their domestic-based manufacturing and core-component technologies, any significant devolution of responsibility by Japanese firms over those competencies to outside partners risked creating a direct competitor. Japanese networks had to be centralized to avoid that outcome.

For most firms, new forms of competition are initially linked to the domestic

point of origin because that is where development of new product or process

concepts and associated launch market opportunities are most developed, where

local capacities and technical specialization are still exploited most fully, where the

initial patterns of constraint and opportunity to which firms respond are first set. But, increasingly, the future of competition will lie in the ability to exploit

complementary capabilities originating elsewhere in the world, to combine them

effectively and thereby generate innovations in strategy and organization.