Taiwanese Players Trying to Mitigate Limited Growth
Taiwanese manufacturers will find it difficult to secure further growth in their desktop PC businesses. Chinese PC vendors possess in-house PC assembly capability and are closely familiar with the local market. Taiwanese manufacturers have thus not been able to secure full-system ODM/OEM business from the Chinese vendors, limiting the benefits that Taiwanese makers receive from the rapid growth of the Chinese market. In response, Taiwanese manufacturers are trying to break into the Chinese clone market through barebone ODM/OEM or branded production, while some manufacturers are undertaking ODM/OEM work for regional brands in China.
As Taiwanese desktop PC manufacturers' shipment volume is closely linked to the state of the global desktop PC market, Individual manufacturers often find that, because their customer portfolios are so highly concentrated, changes in the sales performance of a single cutomer can have a serious impact on shipment performance. Q-Run's shipment volume experienced a share pall when HP stopped outsourcing to the company; similarly, IBM's gradual withdrawl from the consumer PC market has caused USI to drop out of the third tier. With little prospect of any significant growth in the global PC market, Taiwanese manufacturers are aggressively seeking new customers to dillute the risk of excessively concentrated customer portfolios. Some are trying to secure ODM/OEM business from regional vendors, while others are competing or collaborating with regional system integrators and value-added resellers.
Upgrading Design Capabilities
With the intense competition brought on by slow global market growth, international vendors are exporing new niches to stimulate market growth. In October 2002 HP launched a new media center PC bundled with Microsoft Windows XP Media Center Edition, which allows the PC to be used as an entertainment center, integrating television and video recorder functions. The PC can also be used to direct the flow of information between other PCs, the user's car, watch, refrigerator, and stereo, the basic framework of the future wireless PC.
Innovation has become one of the most important means of overcoming the slow growth in the PC market. There are two basic paths that PC manufacturers will need to continue following: making computing easier to use and gaining further penetration into the home to stimulate consumer demand, or integrating different combinations of work, educational, and entertainment functions as makers improve product function design capability. With the former, key factors of integrating these different platforms will be wireless communications technology, network architecture, and application capabilities.
PC design, both industrial design and function design, is becoming ever more important. In order to concentrate resources on their core competitiveness, leading international PC vendors are progressively withdrawing from manufacturing and are transferring design to the manufacturer. The viability of the traditional EMS (Electronic Manufacturing Service) model is being challenged, and the importance of manufacturers' R&D and design capability in gaining contracts is steadily growing. Besides building one's sales, logistics management, and large-scale production capabilities, product design and R&D capability is now a key contributor to manufacturer competitiveness.
The Chinese Market: Momentous Growth, Yet Intensifying Competition
In 2002 China became the world's second largest PC market. Of the desktop PCs sold in China, approximately 90% were supplied by the top ten Chinese vendors, which are still oriented largely towards the domestic market. After slow growth in 2001, in 2002 the top ten Chinese PC vendors' combined shipment volume rose by 30% to 5.95 million PCs; the China market has performed better than any other regional market in the world.
After several years of effort, the top ten Chinese brands have gradually managed to improve product quality. With the passing of the "three guarantees", competitive pricing, and a service network covering the whole of China, Chinese vendors have been able to enjoy strong growth despite the competition from foreign vendors. However, mounting competition has engendered steep price cuts, digging deeply into profit margins. Financial management and product specifications that more precisely conform to market demands will become yet more crucial.
In 2003 the Chinese PC market is expected to grow by 16%, with the top ten vendors all enjoying steady growth. As the quality and level of service provided by the first tier and second tier vendors continues to improve, the level of concentration in the industry will further increase. Additionally, there are a number of players supplying the regional clone PC market. Although the big national brands have sales networks that cover the whole of China, there are still many localities in which they have not been able to deeply penetrate and establish sales outlets. With the growth in localized tenders and do-it-yourself demand, and with the PC penetration rate gradually increasing, the clone PC market still has considerable potential for growth. However, this market will start to come under pressure in the future as the big national brands make service networks yet more comprehensive and leverage the price advantages conferred by economies of scale.