China's influence on global standards set to transform technology sector


27-07-2004

China is no longer content with just being the world's pre-eminent manufacturer: it is increasingly active in the development of global technology standards.

In a report launched today, Deloitte predicts that China's standards initiatives will shape global competition in the technology, media and telecommunications (TMT) sector for years to come.



China's current status as the leading consumer and producer of many technology products, along with its healthy long-term growth prospects, puts it in a strong position to influence technology standards in both its own and global markets. As China's standards become more widely accepted, Chinese firms will have increasing influence in the global technology sector.



David Tansley, consulting partner for the Technology, Media & Telecommunications practice at Deloitte comments:



'Technology vendors that misjudge the impact of China's standards revolution could find themselves at a significant disadvantage, with their position in the market increasingly over-taken or encroached upon. China is able to use the lure of its massive markets and spectacular growth as leverage in the standards war. UK technology and telecommunications companies need to review China's standards initiatives and collaborate, where appropriate, with Chinese companies in standards development.'



Practically there are four approaches for technology firms to consider in the process of China's technology standards being shaped:



  • Partner with standard setters

  • Compete selectively, focusing on areas where standards are harder to mandate

  • Innovate specifically for the Chinese market

  • Seed emerging markets to encourage growth and establish early control.



    'Firms with a strong base of support among Chinese companies and consumers are in the best position to promote their own standards. Those lacking widespread support would be wise to co-operate instead of competing,' continues Tansley. 'Technology companies must carefully monitor China's actions, assess the implications of Chinese standards, and amend their strategies accordingly. Companies that don't may find themselves locked out of the world's largest and fastest growing marketplace, which is increasingly influenced by standards that originate in China.'



    'As China is the world's largest manufacturer, working with Chinese companies could allow UK generated intellectual property to be exported globally, within Chinese manufactured products. The UK technology sector has a great deal to benefit from by working with Chinese companies and government agencies on the co-development of new technology standards,' concludes Tansley.



    From operating systems and software applications, to storage media, wireless communications and satellite positioning, Chinese government agencies and companies are working to shape new technology standards for economic advantage. Deloitte expects Chinese manufacturers to begin by building critical mass of support at home, then exporting their technologies to emerging markets such as Southeast Asia and the Middle East.



    Examples highlighting China's impact on standards:



    Technology:



  • Operating systems



    The Chinese government recently announced a major commitment to Linux, tilting the balance of power in China away from proprietary operating systems. China favours Linux as it is essentially free-of-charge and may be more secure.

    Government mandate is likely to be quite effective in establishing Linux as the standard operating system in China. This Chinese software industry is still in its infancy and there is not a large installed base of proprietary systems to contend with.



    China wants to create its own software industry that is not beholden to foreign technology or licensing fees and restrictions. It also wants software to be affordable - a goal that favours a low to no-cost operating systems.



  • RFID



    China is establishing a working group to draft and develop national standards for RFID tax technology. Some reports indicate the group is adhering to international standards, while others suggest the group is planning to develop its own independent standards. An incompatible RFID standard could pitch the interests of China's emerging IT industries against the interests of major purchasers of Chinese products.



    Media:



  • EVD



    Chinese companies are trying to promote a successor to the DVD optical disk standard, called Enhanced Versatile Disc (EVD), which has better sound and picture quality than DVD.

    Chinese companies are constrained by hefty DVD royalties, which range from $15 to $22 on players that today often retail for less than $60. A consortium of China's leading makers of DVD players holds the EVD patents, and collects royalties.



    Telecommunications:



  • Mobile networks



    China has its own globally approved standard for 3G and as the world's largest market for mobile communications, is well positioned to take a lead role in defining the 4G standard.



  • Satellite positioning systems



    China recently tilted the balance of power in satellite positioning - choosing Europe's Galileo system over the US military's Global Positioning System. China's support for Galileo is a big step toward its acceptance as a global standard, and reaffirms China's interest in space technologies. China's push into satellite positioning systems has enormous commercial and geopolitical ramifications.



    About Deloitte's Technology, Media & Telecommunications (TMT) Group



    The TMT group is composed of professionals from Deloitte member firms who have a wealth of experience serving technology, media and telecommunications companies throughout the world in areas including software, semiconductors, cable, media and publishing, communication utilities, networking, wireless, computers peripherals, sports and entertainment. These specialists understand the challenges that these companies face throughout all stages of their business growth cycle and are committed to helping them succeed.
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    The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.

    Deloitte LLP