Competition for global IT standards intensifies...

2001-03-19 1314 words

Competition for global IT standards intensifies With markets around the world becoming more integrated, international standards have expanded. According to a report released by the OECD, 80 percent of products traded worldwide are directly or indirectly related to international standards. As such, the importance of securing products or services that become international standards has been emphasized
There are several reasons why this is important for a company.
First, the "winner-takes-all" principle means that while the company that succeeds in setting up their products or services as international standards can monopolize the related market, the one that loses that competition will either be forced out of the market or relegated to a low position on the totem pole of success. This is especially true in the IT industry, where later starters have little or no opportunity to surpass industry frontrunners. This is because consumers have trouble differentiating between IT products, and tend to stick with products they are familiar with, known as the "lock-in" phenomenon.
The second reason is that a company whose products represent international standards attracts a greater number of customers, and so production costs can be drastically reduced as it enjoys the huge economy of scale.
As Korean companies have been focusing on the task of catching up with their competitors in industrialized countries, they have not been fully aware of the importance of securing international standards. Therefore, participation in related businesses has been poor. Although there are more than 80 thousand cases of patents pending in Korea, only one or two of them have been proposed for international standards. Korea's rate of entry into the technology committees of international organizations for standard-setting such as the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) is only 35 percent. In particular, domestic companies pay high patent fees to foreign companies that hold the few basic patents related to international standards. For example, the patent fees of domestic companies for digital home electronic appliances such as DVDs or digital cameras account for more than 10 percent of the sales of those products.

<> Strategy standardization

With the rapid development of technology and networking, leading foreign companies are changing their strategies to cope with the intensifying competition surrounding international standards. The major strategies of leading foreign companies can be cited as follows.
First, leading companies merge with or take over promising technology venture companies which have products which are international standards. Cisco and Microsoft examples of companies following this pattern.
Second, leading foreign companies enter into as many strategic alliances with other companies as possible and form an allied force, thereby making it easier to preoccupy the international standard. Furthermore, they frequently cooperate with each other to compete against a company that has already secured an international standard.
Third, leading foreign companies choose promising fields in which they can discover new international standards and focus their investments in those fields.

<> Current competition

The following table presents the current state of competition among companies in the IT industry related to the development and ownership of products that are international standards. Major examples include wireless Internet, digital TVs, IMT 2000, PC-OS and DVDs.
Wireless Application Protocol (WAP), i-Mode and Mobile Explorer (ME), which are used in mobile phones to access the Internet, have been competing against each other to become the international standard. WAP has become the de facto global standard, helped by the support and participation by various companies. Since phone.com of the U.S. and Ericsson of Sweden took a leading role in developing WAP in 1997, the WAP Forum, a group of companies pushing for the adoption of WAP as the standard, has been formed, in which more than 200 companies including AT&T are currently participating. Meanwhile, NTT DoCoMo is actively doing business with its i-Mode. The operator of the i-Mode wireless Internet service has already had huge success in Japan, with 20 million subscribers as of the end of February 2001. Furthermore, NTT DoCoMo is searching for ways to advance into foreign markets. Microsoft is also planning to advance into the market with its ME, which it claims solves the weak points of WAP. As mentioned previously, WAP is in the most advantageous position to become the international standard for wireless Internet. However, when next-generation mobile phone services, including IMT-2000, begin operation in the near future, competition among companies to secure international standards will begin another round.
In the case of digital TVs, the competition is between U.S., European, and Japanese formats. Japan had invested ten years of research and marketing into making its Hi-vision practical, but failed to make it an international standard due to its weak analog format. It is now proposing a new format.
The U.S. Federal Communications Commission (FCC) declared in 1987 that it would establish a standard for next-generation TVs, and pushed companies into competition with each others. In the early 1990s, General Instrument Corp. (GI) developed a fully digital next-generation TV, proposing that it become the international standard. Since then, the U.S. has become aggressive in leading international standards.
As for Europe, it has been developing satellite broadcasting high-definition TVs (HDTV). The Digital Video Broadcasting (DVB) Forum, organized in 1993, selected the Digital Video Territorial Broadcast (DVB-T) system as the European standard in 1997. Now, fierce competition seems inevitable among the U.S., European and Japanese formats, as the International Telecommunications Union (ITU) has designated all three versions as standards.
Mobile phone services have also become varied within a short period of time. First-generation mobile phones used an analog format, which was represented by the AMPS format of the U.S. that used to enjoy more than 60 percent of the global market. Then the second-generation digital system, the European digital GMS system that currently accounts for more than 70 percent of the global market, was introduced. Now, competition is focused around the IMT-2000, or third generation, standard. There are two modes competing: the European W-CDMA mode and the American CDMA2000 mode. Although the European mode has an advantage over the U.S. mode, most countries allow domestic companies to choose freely between either.
When computer operating systems first emerged, there was no standard. In 1981, however, IBM shook up the computer market by developing the personal computer, selecting MS-DOS as the PC operating platform, which has become the operating system standard since then. Accordingly, Microsoft, which developed IBM's PC operating system, after securing the de facto global standard, leaving other competitors far behind. Later on, Microsoft posted record sales with their Windows 95 and Windows 98, thereby securing a firm position in the global PC market. Recently, however, Linux, an open-source operating system, has emerged as a challenger to Microsoft's domination of the software market.
In 1994, Sony and Philips announced the development of a "high-density multimedia CD" in order to strengthen their leading position as the CD technology standard. To rival this move, an association of seven companies from the U.S., Europe and Japan, with Toshiba and Matsushita as the nucleus, proposed a "super-density disc." However, an agreement was reached in 1995, to set up a unified DVD format as the international standard. This was because neither party could outdo the other in technology nor in the market, and film companies were strongly in favor of a compromise between the two parties.

<> Suggestions for local firms

First, domestic companies should understand the importance of securing international standards. Second, they should develop products or services that are international standards through the utilization of their own key abilities. Third, they should strengthen their global activities by actively participating in international organizations for standardization and related consortiums. Finally, the government should support companies in building strategies such as holding meetings of international organizations for standardization and other timely topics in the nation, fostering related specialists and revising domestic standards into international ones.

The writer is a research fellow at Samsung Economic Research Institute. - EdBy Ko Jeong-min