Governments in East Asia have pursued aggressive industrial policies to develop national computer industries that could compete with the U.S. Japan began targeting computer production in the 1960s, employing a range of policy instruments to prevent IBM from dominating the Japanese computer market and develop national competitors to IBM. During the 1960s and 1970s, Japan was the only country to successfully challenge IBM's control of the market for mainframe computers. In the 1980s, three East Asian newly industrialized countries (NICs) introduced their own information technology policies aimed at promoting domestic computer production and use. Korea, Taiwan and Singapore each took advantage of opportunities provided by the personal computer revolution to become important producers of computer systems and components. Hong Kong's government took a hands-off approach, yet Hong Kong's entrepreneurs took advantage of their proximity to China to develop assembly operations for computers and components. In the 1990s, the fortunes of these five countries diverged. Taiwan and Singapore continued to grow into major international centers of production for PC-related hardware, while Japan and Korea experienced downturns in production and exports of computer products. Hong Kong saw much of its production move to China, and finally began to abandon its laissez faire approach to technology development.

The experiences of these five countries' computer industries raises important questions about the factors that determine success and failure in high-technology industries such as computer production. The academic debate has mostly focused on the issue of industrial policy and whether government promotion is important or even desirable in such industries. The answer to this question is not apparent from the historical evidence. For instance, Japan's government coordinated approach to computers seems to have been highly successful for over twenty years (1965-1985), but has failed to respond to changes in the market in the past decade. Korea, Taiwan and Singapore seemed to be following similar paths to success with strong government support and guidance in the 1980s, yet in the 1990s Korea's computer industry has floundered while Taiwan and Singapore have flourished. Finally, Hong Kong's laissez faire strategy seemed adequate in the 1980s, but the government has found it necessary to take steps to improve the colony's technological capabilities and support its entrepreneurs in the 1990s.

How does one explain the relative success of these countries, and what does it portend for the future? Clearly, the old dichotomy of plan versus market orientation is inadequate to cope with the issues that are raised by developments in the computer industry in Asia and elsewhere in the world. This research develops an analytical framework that explains why countries succeed or fail as producers and users of computers at different times and under different circumstances. This framework embodies a number of factors at the national level which are organized broadly into the categories of business and government strategy. This analytical framework is placed in the context of the evolution of computer technologies and the international computer industry. The computer industry underwent a revolutionary change in structure in the 1980s. The old vertically integrated industry structure that prevailed in the mainframe computer industry was replaced by a horizontally segmented industry structure in the personal computer industry. This radical restructuring completely overturned the industry's power structure in a short time, humbling giants and enabling recent start-ups to dominate key segments of the industry. To understand the ups and downs of the Asian countries, it is necessary to understand the structure of the computer industry and the nature of the changes that have taken place. Based on this understanding, we can explain the performance of different countries at different times by looking at their industry structures and industrial policies.

The focal point of the analysis is the interaction between the structure and evolution of the international computer industry on the one hand, and the industry structures and government policies of individual countries on the other. Seen in this context, we can understand why a particular form of industry structure, such as the Japanese keiretsu, might have been effective at one time and not at another. We can also understand why such a structure might be effective in producing one type of product, such as flat-panel displays, and not another, such as packaged software applications. In addition, we can better explain why a certain policy approach might have been effective in developing a mainframe computer industry, but be counterproductive in personal computers. Looking at each country's unique characteristics, such as domestic market size, we can see why market protection might have been effective in Japan, but was unrealistic in Korea. We can also see how Hong Kong's position, vis-a-vis China, gave it opportunities as an intermediary and repackager of PCs, but also encouraged its companies to move production to the mainland rather than upgrading their own technological capabilities.

Focusing on the interaction between the global industry structure, national industry structure and government policy in five major participants in such a dynamic industry, we can gain useful insights into several issues. First, we can understand better the geographical evolution of computer production, i.e., why products are developed, produced and sold where they are. Second, we can understand why different industry structures might be conducive to different types of production, and whether existing industry structures can adapt to changes in technology, markets and production systems. Third, we can understand what types of policy approaches are likely to work for different countries based on their own industry structures and the changing international environment. Thus, we consider the lessons of the East Asian countries and their relevance to U.S. and European policymakers, as well as to developing countries who are beginning to design their own information technology policies. In addition, we consider the ramifications of our findings for competitiveness of the U.S. computer industry. U.S. companies have played an important role in stimulating the growth of computer production in Asia through their investment in offshore production and through sourcing from Asian suppliers. This global production strategy has helped them to reduce costs and concentrate on their own "core competencies." In the long run, however, such a strategy could result in loss of manufacturing capabilities, while continuing technology transfer could create strong competitors. Taiwan's Acer is an original equipment manufacturer to U.S. companies, but its own name brand PCs now rank tenth in the U.S. market. We look at what strategies U.S. companies might employ to continue to gain the benefits of globalization while strengthening their own competitive positions.

Finally, we use our conclusions about the past and present evolution of the industry as a basis for looking to the future. The computer industry is still evolving rapidly. Technological and market developments are causing a convergence of computing and communications, as seen in the explosive growth of the Internet and various private information networks. Boundaries between industries are being blurred by mergers, acquisitions, joint ventures and creation of new products and services. Countries are developing plans for huge investments in national information infrastructures (NII) to facilitate the growth of new information-based industries. These developments have the potential to incite a revolution even more profound than the personal computer revolution of the 1980s. This revolution is only in its infancy, and its long-term consequences are impossible to predict from our present perspective. However, we can speak with some confidence about likely developments in the next few years and consider how those developments will resound in the five countries being discussed. Each of these countries is making plans for the future as they see it. We review those plans and look at how well-suited each countries' industry structure is for the evolving industry and market structures of the networked computing era. Finally, we assess the implications for the U.S. computer industry and U.S. government policy.

"Competing in Computers: Business and Government Strategy in East Asia", Kenneth L. Kraemer and Jason Dedrick ©1997