I. The Hypercompetitive Environment of the Chip Industry
The fundamental nature of competition in many of the world’s industries is changing. The pace of this change is relentless and is increasing. Conventional sources of competitive advantage such as economies of scale and huge advertising budgets are not as effective as they once were. Moreover, the traditional managerial mind-set is unlikely to lead a firm to strategic competitiveness. Managers must adopt a new mind-set that values flexibility, speed, innovation, integration, and the challenges that evolve from constantly changing conditions. The conditions of the competitive landscape result in a perilous business world, one where the investments required to compete on a global scale are enormous and the consequences of failure are severe. The chip industry is intensely competitive, particularly between the two largest chip manufacturers - Intel (who holds the industry's top position and sets desktop processor standards) and AMD (who is beginning to successfully challenge Intel's leadership position). Contracts with major computer manufacturers and other significant customers can cause an immediate swing in the chip makers' market shares. Growing demand for electronics and rapid technological advancements characterize this industry that obliterates the company that stands still. Hypercompetition describes the realities of the competitive landscape for semiconductor producers. In this industry, the notion of market stability is replaced by an assumption of inherent instability and change. Hypercompetition results from the dynamics of constant strategic maneuvering among innovative, global combatants. Rapidly escalating competition results from price-quality positioning, the frantic race to beat competitors to the market with innovative products and technology to establish a first-mover advantage (however short-lived it might be), and competition to protect or invade established product or geographic markets. In the chip industry, competitors are aggressively challenging each other in the hopes of improving their competitive position and ultimately their performance. Several factors create hypercompetitive environments and influence the nature of the current competitive landscape. The two primary drivers are the emergence of a global economy and technology, specifically rapid technological change.
II. Technology Diffusion and Disruptive Technologies
Rapid technological change is significantly altering the nature of competition and contributing to unstable competitive environments as a result of doing so. The rate of technology diffusion - the speed at which new technologies become available and are used - has increased substantially over the past 15 to 20 years. Perpetual innovation describes how rapidly and consistently new, information-intensive technologies replace previous ones. Shorter product life cycles result from these rapid diffusions of new technologies. Therefore, a competitive premium is placed on the ability to quickly introduce new, innovative goods and services into the marketplace. In fact, when products become somewhat indistinguishable because of the widespread and rapid diffusion of technologies, speed to market with innovative products may be the primary source of competitive advantage. An indicator of constant innovation and rapid technology diffusion is that it now may take only 12 to 18 months for firms to gather information about their competitors’ research and development and product decisions. In the global economy, competitors can sometimes imitate a firm’s successful competitive actions within a few days. Once a source of competitive advantage, the protection firms previously possessed through their patents has been stifled by the current rate of technological diffusion. Indeed, many firms competing in the electronics industry no longer apply for patents to prevent...