and then made the United States look weak when it has backed down at the last minute or had to make further threats to enforce existing agreements. Quiet persuasion might be more useful in helping China's decision-makers see some of the potential benefits from reducing trade barriers and protecting intellectual property, such as developing a domestic software industry and realizing the benefits of computer use. At the same time, it would be helpful for both the U.S. government and U.S. businesses to maintain a realistic view of the potential of the Chinese market. China will not be the world's largest computer market for a long time, and companies should not be willing to make reckless concessions to get into that market. Nor should the U.S. government allow fear of retaliation against U.S. companies weaken its resolve when important issues are at stake.
The phrase " Asia's Computer Challenge" carries two interpretations for the network era and beyond. The first is Asia's challenge to the United States in the computer industry. The message of this book in this regard is that Asia presents a continuing challenge to the U.S. industry. By creating a decentralized, horizontally segmented industry structure, the PC revolution opened the door for Asian countries to compete successfully in large segments of the industry. For the most part, the relationship has been complementary, with Asia taking over the decreasing returns work while U.S. companies focused on the increasing returns side of the business. But Asia competes directly with U.S. companies in a number of segments and will compete in emerging hardware products such as information appliances. So while Asia is a valuable partner and a large market for U.S. companies, it remains a threat as well. In the long run, Asia may become a leading market as it continues to grow and gain experience as a user, and Asian companies are likely to challenge the United States even in the increasing returns side of the industry.
The other interpretation of Asia's computer challenge refers to the challenges facing the Asian countries themselves. If Asia is unable to move beyond hardware and develop competitive software, services, and content industries, it will be relegated to the large but brutally competitive decreasing returns segments of the industry. Asia will enjoy continued job growth, but its companies will find it difficult to eke out profits and will be subject to the boombust cycles of commodity markets. The key to getting out of this trap is a fundamental reversal of the perspective that values production over use, hardware over software, and tangibles over intangibles. Asian governments are starting to move in this direction, as evidenced by the emphasis on NII initiatives and support for small business in many countries. Some Asian companies are likewise shifting their focus toward software and services. But, with a few exceptions, change is incremental and lagging behind the accelerated pace of "Internet time." Without more radical change, much of Asia faces the prospect of missing out on the vast potential of the network era.