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1
Challenges for Standards and Innovation Policies in the Emerging Global Knowledge Economy
Dieter Ernst,East-West Center, Honolulu
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1. Argument
1. Changes in the international standardization landscape pose new challenges for standards and innovation policy:
The economic importance of standards has dramatically increased.
At the same time, standards development has become more complicated and difficult to manage.
2. Standards development now is a highly contested field of corporate strategy, but increasingly also of public policy:
Standards and innovation policy Standards and competition policy
© Dieter Ernst
3
Why does this matter? Claim: Market-led system of standardization is
working well no need for policy adjustments (really?)
Crisis shows - markets work best when there is a strong regulatory framework.
Challenges for standardization are real: established approaches to standards development
are under pressure there are serious gaps in the governance of
standards development. It is time for stakeholders in standardization
(both in the private and public sector) to search for new institutional arrangements and policy responses.
© Dieter Ernst
4
2. Explanation – Technological complexity
multiple standards complex standardization process - system
versus component specification demanding performance requirements for
electronic systems modular design system integration on a chip multiple layers of standardization Complexity of applications requires
standardization of hardware, operating system and network
© Dieter Ernst
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Multiple standards
Seller Buyer
Quality Reliability
PrivacySafety
Performance Environment
SecurityInteroperability
Market Interface
© Dieter Ernst
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Layers of IT standardization
Applications Network Operating
system Hardware
Applications Network Operating
system Hardware
1 2
3
1= standardization starts with CPU, memory, storage & communication gear2= standardization moves down from applications to hardware3= enhance interoperability between systems at various layers
© Dieter Ernst
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Complexity of applications requires standardization of hardware, operating system and network
Time
Com
plex
ity
Application LayerHardware Layer
Network Layer
OS Layer
Hardware Operating System Network Applications
Source: Lord, 2007 © Dieter Ernst
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Interoperability standards in the ICT industry Wireless interface standards - ensure non-
interfering use of radio spectrum; Interoperability within a system
ensure that various parts of the computer, radio and network systems function together
ensure compatibility of equipment produced by various vendors;
Portability - permits software to work with heterogeneous systems
Data exchange among different systems
© Dieter Ernst
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3. Standards for global corporate networks Reliable and secure communication of
sensitive information within and across networks
Interfaces (middleware) among proprietary information systems
Data formats to enable transmission and interpretation of data
Efficient methods for updating standards to accommodate new technologies
© Dieter Ernst
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FLAGSHIP
Independentsuppliers
Independent
subcontractorsDistribution channels
Cooperativeagreements(standards
consortia,etc)
Joint ventures
Subsidiaries& affiliates
R&Dalliances
Inter-firm
Intra-firm
THE NODES OF A GLOBAL PRODUCTION NETWORK
© Dieter Ernst
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FLAGSHIP
Independentsuppliers
Independent
subcontractorsDistribution channels
Cooperativeagreements(standards
consortia,etc)
Joint ventures
Subsidiaries& affiliates
R&Dalliances
Inter-firm
Intra-firm
THE NODES OF A GLOBAL PRODUCTION NETWORK
Multiple standards
© Dieter Ernst
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4. China’s Rise – can US adjust to interdependence? Global Knowledge Economy eroding US
leadership in manufacturing, trade, finance, technology and research.
The US may have less influence than in the past to determine international standards development.
New players: standards are important instruments for industrial and
economic development. move from being standards-takers to standards-
co-shapers and ultimately to standards-setters.
© Dieter Ernst
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Countries differ in standardization policies
Innovators (with high IP producers)
• Laws and trade policies protect IP owners• “openness” subordinated to IP protection
Manufacturers (primarily IP users)
•Focus on social good (“development”) and sharing of IP• “openness” subordinated to national development
© Dieter Ernst
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US and Chinese standardization systems differ
US China
Distributed, driven by private sector
Centralized, driven by the State (industrial policy; security)
Pragmatic, flexible, bottom-up
Systematic, bureaucratic, top-down
Reactive, responding to specific needs
Anticipatory and strategic
International standards often only guides
Tension between national & international standards
Intense rivalry among SDOs & consortia
Intense intra-agency rivalry
Foreign participation welcome
Limited foreign participation
© Dieter Ernst
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5. Implications for public governanceIs it appropriate to conclude that the old-style top down government
intervention won’t do the trick any longer on its own?
new forms of public governance are necessary to cope with the new standardization challenges?
© Dieter Ernst
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Global innovation networks – a taxonomyI. Global companies “offshore” stages of
innovation to Asian affiliates intra-firm networks
II. Global firms “outsource” stages of innovation to specialized Asian suppliers
inter-firm networks
III. Asian firms construct their own (mostly intra-firm) networks
IV. International public-corporate R&D consortia
V. Informal social networks (students, knowledge workers)
© Dieter Ernst
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New Players: Huawei
Kista/Stockholm, Sweden base station architecture and system design; analog-
mixed signal design (RF); algorithms; 3GPP (standards)Moscow, Russia algorithms; analog-mixed signal design (RF) Bangalore, India embedded SW and platformsPlano/Texas (Dallas telecom corridor) total solutions for CDMA; G3 UMTS; CDMA Mobile
Intelligent Networks; mobile data service; optical; VoIPJoint R&D labs with Vodafone, British Telecom, Telecom Italia, France
Telecom, Telefonica, Deutsche Telekom
© Dieter Ernst
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Global Chip Design Network - multiple interfaces require multiple standards
EMS
IP Licensors IDM Fabless
Tool System Company Designvendors support
services Chip assembly Foundry
ODM
Adapted from: Ernst, D., 2005a, Complexity and Internationalisation of Innovation, IJIM, March
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5. Adjustments are necessary in standards & innovation policies
Standardization is an integral part of innovation policy
Flexibility & rapid response to changes in technology, markets & market structure
Combine pragmatic, flexible and bottom-up approach with systematic, strategic and top-down approach
Open standards are essential (not redundant) competition policy needs to be integrated with standards policy
© Dieter Ernst
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The Elusive Nature of Open Standards “All vendors pay lip service to open systems, but
agreement ends here. The computer industry needs as many words for “open” as Eskimos need for snow.”
“Market leaders are rarely friendly to open standards when they dominate and eager to see them when they do not.” * *
“Market leaders are friendly to standards in layers above and below them so as to use the competition among others to increase choices, lower costs, and broaden the market.” * *
* Libicki (1995); * * Libicki, RAND study, 2000
© Dieter Ernst
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Standards strategies for latecomers
Leader deploy technology and then initiate standards based upon the deployed technology
Participant deploy existing international standard in current and future products
Fast follower
get existing standard as quickly as possible so that products with the standard’s technology can be deployed quickly
© Dieter Ernst
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Criteria for Evaluating Standards Policy
Cultural consistency (history matters!) Standards differ across sectors Capability for evaluation & foresight Cost effective solutions require legitimacy
from diverse stakeholders Incentives to promote positive-sum games
through “integrative bargaining” Equivalency with international norms &
procedures (not blind compliance) Robust competition law & enforcement
OTA 1992 © Dieter Ernst
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Pragmatic standards policy –guiding principles Collect a small group of vendors; Write a small, simple specification that covers
the important functions and omits non-essentials;
Leave room for both new technologies and possible backtracking;
Identify real-world test-beds for the standard Get the standard out of the door as soon as
possible
Libicki, 1995 © Dieter Ernst
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Pragmatic standards policy –key questions What problem needs to be solved by
standardization? Who are the key players that must be involved?
What are appropriate approaches to incentives and conflict gaming?
Can the problem be solved domestically? Or must it be solved internationally?
What is the smallest solution? And can it be broken into manageable chunks?
What are the best policy tools (e.g. imprimatur, R&D, targeted purchases, regulation) to promote compliance with the standard that also permit backing off if the standard fails?
Should a domestic solution be exported?Libicki, 1995 © Dieter Ernst
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Coordination – national (US)
Interagency USTR, DoC (standards in trade agreements) FTC, DoJ, FTC (standards and antitrust policies) ANSI – NIST- USPTO – DoD- DoE- DoA- DoH, etc Which USG agency coordinates definition of strategy and
implementation? Broad dialogues among multiple stakeholders
Public-private Role of SMEs Consumers With international SDOs and SSOs
© Dieter Ernst
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Coordination – national (China)
Interagency Standardization Administration of China (SAC) China Association for Standardization (CAS) China Communications Standards Association (CCSA) MIIT vs SARFT MOFCOM (standards in trade agreements) ?? (standards and antitrust policies) Which agency coordinates definition of strategy and
implementation? CCP –Central Organization Department (Zhongzubu)?
Broad dialogues among multiple stakeholders Public-private Role of SMEs Consumers With international SDOs and SSOs
© Dieter Ernst
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Coordination - international
No ‘institutionalization” that is comparable to IPR (e.g. TRIPS)
Increasing balkanization Diverse models of SSOs intense competition Links between SDOs and SSOs in flux Which agency coordinates definition of governance
and implementation? (analog to IMF; BIS) How to establish broad dialogues among multiple
stakeholders? Public-private; Role of SMEs; consumers IETF; UN-IGF; DCOS; A2K; ..?
© Dieter Ernst