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Participating in International Standards Setting Bodies is Better than “Going it Alone”

posted by Stacy Baird on Thursday, June 24th, 2010 at 9:03 am

Through privatization and the transformation to capitalism, Chinese market conditions are evolving apace. The IT industry has experienced substantial domestic growth and foreign investment. Even so, the central government (and to some extent, provincial governments) still exercises command-and-control on industry to promote domestic producers on occasion. Indeed, the Chinese have used standards setting as a tool to impact trade and advance Chinese industry over foreign competitors in their vast potential market.

As is well known, China has tried to force domestic technologies, ‘indigenous innovation,’ into IT used in China, even imports. The goal clearly is to “level the playing field” for domestic producers. But such a standards strategy can result in competitive disadvantage for a country. Such a policy makes it difficult for a multinational corporation to build facilities in or outsource work to a country that adheres to standards that differ from globally accepted standards. Cloud computing needs will exacerbate these factors.

Rather than ‘going it alone,’ generally, a government is well advised to fully participate in the formal international standards setting processes. China is showing now that it understands this. Concurrent with ‘indigenous innovation’ declarations, China is getting its legs as a full-fledged player in the international standards setting world in the context of mobile (cellular) standards. The government opted to take this course for two major reasons.

First, it considered the cost of licensing patented technologies used in the other international mobile standards and opted to invent rather than license. They foresee being the licensor rather than the licensee.

Second, there is potentially a sufficient domestic market in China that by sheer numbers, TD-SCDMA (Time Division-Synchronous Code Division Multiple Access), the Chinese standard, could become a national standard to have put it in a position to become a de facto international standard.

Given the likelihood of success in the Chinese market (in large part because a principally government-owned telecom is deploying it), the government seized the opportunity to enter the global market for 3G technology, getting TD-SCDMA adopted as a standard by ITU. This was turning point for China. The government pushed to develop an indigenous technology that was mature enough for the international market, pursued traditional international standardization, and is now seeing international players working with them to deploy it. This is illustrative of how far China has come in its capability to develop – and pursue – a globally acceptable standard, reflective of its desire to establish itself as a standards-setting country; a much better posture than that of promoting ‘indigenous innovation’ through technology mandates.

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Stacy Baird says:

Hi Ajit:
If I understand correctly, unlike the Japanese situation, as the standard becomes more established, multi-band phones will incorporate TD-SCDMA. As a resident of Hong Kong and frequent visitor to China, I hope so.
Ajit Jaokar says:

Hi Stacy
I am also following this space and I agree that its a bell weather. But there is one obvious problem – visitors to China and Chinese visitors from China to other countries cannot use their existing phones. This is a pain and actually a hinderance to business. Same happened with Japan and Korea. In the end, this is a part of normal market dynamics in my view ie companies and countries go one way and over time the market settles down to the most useful conditions for the customer kind rgds Ajit
Stacy Baird says:

Hi Niklas: I would liken the promotion of TD-SCDMA to Europe’s mandate for GSM in some regards. Although the adoption of GSM was to unify communications across Europe, it could not have escaped regulators that a result of the action was to create a market of sufficient size that GSM could compete globally. Indeed, China’s goal was to reduce domestic costs by inventing rather than licensing, but similar to the GSM case, a ‘byproduct’ will be that the standard will be able to compete globally. They are working hard to make TD-SCDMA work, some may view the situation as one in which they have essentially ‘forced’ their way onto the international standards stage by ‘forcing’ a domestic invention and standard – but it is laudable that they chose to take this course rather than merely requiring an untested or unknown “indigenous innovation.”
Niklas Lindblom says:

Stacy, it is certainly true that China are asserting themselves as a top player in hi-tech rather than lower range manufacturing, and understandably so. The TD-SCDMA is a good example of how the strategy of using the vast internal market as a spring board into the international arena can work. However, and maybe I’m not reading you right, when you say that China “opted to invent rather than license”, I take it as China not fully participating in the international standards setting processes. Maybe technically so by actually getting the TD-SCDMA accepted internationally. But doesn’t the issue lie in how they closed in to promote TD-SCDMA on the domestic market? //Niklas

Participating in International Standards Setting Bodies is Better than “Going it Alone”

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Stacy Baird

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