|try has been defined largely by a few such gambles, such as Thomas Watson, Jr.'s decision to gamble IBM's future on the System/360, and IBM's decision to build the original IBM PC. That history is also littered with many unsuccessful gambles, so no one should underestimate the risks that go with the high potential returns of this type of competition.|
The distinction between increasing and decreasing returns markets in the computer industry is useful because it helps to identify the nature of competition in two different worlds and the strategies and capabilities needed for success. While the division is a valuable one to help managers conceptualize their business and its demands, the two worlds are not so neatly divided in reality. 7 Many companies are involved in both types of activities. For instance, Intel is a classic example of a company operating in the increasing returns business, yet it still runs factories, purchases parts, and equipment and ships products just like any commodity DRAM maker. In fact, much of Intel's success in protecting its dominant position comes from its strengths in manufacturing and process engineering, which have helped it cut costs and be able to price its new product generations competitively.
Also, we have identified several hybrid markets such as PCs, printers, and information services, in which companies have been able to apply increasing returns strategies to what appear to be decreasing returns market segments. For instance, companies such as Dell have used innovative marketing, distribution, and logistics to differentiate themselves in the commodity PC industry.
One lesson from this analysis is that execution always matters, even in innovation-driven, increasing returns businesses. Another lesson is that there are many opportunities for innovation, even in decreasing returns businesses, and such innovation often separates the winners from the losers more than size or deep pockets. While each world has its own competitive characteristics and places a premium on different capabilities, success factors from one world can also be valuable in the other.
National success in computers is usually thought of in terms of production, value added, exports, or employment. These are all important indicators of a country's competitiveness, but a more fundamental determinant of long-term success is its role in the global production system. A country that hosts a broad, deep portfolio of companies--with high-quality linkages to the global industry--and develops strong capabilities for computer production can become an indispensable part of the global production network.
National competitiveness can be achieved in a number of ways, for instance: (a) when a country controls key standards or technologies that everyone must have access to; (b) when a country has become integrated into the