Chinese tech firms can avoid the Galapagos effect that got Japan

Updated: 2014-12-17 12:32

By Chris Davis(China Daily USA)

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Electronic gadgets should work anywhere on the planet, right?

Consider a global traveler's experience. We have agreed on 801.11B as the standard for wireless technology, or Wi-Fi, that's a wonderful global standard, according to Stephen Ezell, senior analyst at the Information Technology and Innovation Foundation, a non-partisan research and educational institute in Washington.

"With our laptops or tablets or phones, we can be in Africa or Asia or the US and all of these products can implement one common standard to enable the functionality of wireless access," he said.

When the global community comes together in a voluntary, transparent way for the collaborative development of Information and Communications Technology (ICT) standards that are applied globally, it produces win-win outcomes for producers and consumers alike, he said.Chinese tech firms can avoid the Galapagos effect that got Japan

In a new report entitled The Middle Kingdom Galapagos Island Syndrome: The Cul-De-Sac of Chinese Technology Standards, Ezell and his colleague Robert D. Atkinson note that in China "there has been a movement in some quarters to view the process of standard-setting as something that can be influenced to deliver a competitive advantage to Chinese enterprises", Ezell said.

That, he said, could be done by developing indigenous technology standards that don't mesh with the global norm, so it becomes more expensive for a foreign competitor to sell a product in China because they have to develop versions of a product that incorporate the Chinese standard, at added costs.

"It can advantage domestic producers at the expense of foreign ones by forcing foreign producers to incorporate a non-global standard," Ezell said.

The analysts suggest in their paper that it is probably not the best way to participate in the process of developing international standards.

"China should come to the table with the international technology community as an equal participant in the new types of technology that we're now bringing into the global economy, like the Internet of Things or Cloud Computing," Ezell said.

"As China is now an ever more high value-added ICT and manufacturing economy, it's going to want to be at the table in a very serious way, as it should be, and setting future standards for technologies," he said.

At risk is what he calls "The Galapagos Island Syndrome", which Japan famously fell prey to.

Japan in the 1990s and 2000s was really advanced in mobile technologies and devices. They led the world with their mobile phones, introducing email capability in 1999, camera phones and 3-G networks in 2001, full music downloads in 2002, mobile payments in 2004 and digital TV in 2005.

"Everything that's cool about our cell phones in the US, Japan was doing a good five-to-eight years before America was," Ezell said.

The problem was that a lot of their technologies were developed for use in the Japan market only, tailored to the tastes and needs of the Japanese consumer. Their 2-G and 3-G were Japan-only. Other countries around the world were not using the same standards. The technology was great, but couldn't be exported.

"So you had a fantastically evolved technology ecosystem - kind of like the fantastically evolved creatures that Darwin found on the isolated Galapagos Islands - but they were isolated from global norms and the global community and it just meant ultimately that Japanese mobile companies could never reach global markets to scale," Ezell explained.

Then at the end of the 2000s along come the Apple iPhone, Samsung, Google Android that worked on all global systems, the Japanese market got beat out badly.

"In a like manner," Ezell said, "China may be able, here and there, to have a few ICT industries it can support and shelter by shielding them from global competition through the use of isolated China-only technology standards, maybe they'll survive for a little bit; but once they have to seriously compete, like these Japanese firms did, in global markets, they may even get crushed by firms that are using global standards."

In the world of ICT, it's products that can scale in global markets that lead, and for a simple reason. Innovation-based industries have high fixed costs of initial design and development and low costs for production.

"It takes $5 billion to design a new semi-conductor and build a new semi-conductor fabrication facility," Ezell explained, "but the incremental semiconductors can be produced very cheaply. Because of that nature of the ICT industry, you have to have access to large global markets to recoup your expensive fixed costs."

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