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Challenges for Standards and Innovation Policies in the Emerging Global Knowledge Economy Dieter Ernst, East-West Center PowerPoint Presentation
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Challenges for Standards and Innovation Policies in the Emerging Global Knowledge Economy Dieter Ernst, East-West Center, Honolulu. 1. Argument. Changes in the international standardization landscape pose new challenges for standards and innovation policy:

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Challenges for Standards and Innovation Policies in the Emerging Global Knowledge EconomyDieter Ernst,East-West Center, Honolulu
1 argument
1. Argument
  • 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.
  • 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

why does this matter
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

2 explanation technological complexity
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

multiple standards
Multiple standards

Quality

Reliability

Privacy

Safety

Seller

Buyer

Market Interface

Interoperability

Security

Performance

Environment

© Dieter Ernst

apple iphone 3g
Apple iPhone 3G

© Dieter Ernst

layers of it standardization
Applications

Network

Operating system

Hardware

Applications

Network

Operating

system

Hardware

Layers of IT standardization

1

2

3

1= standardization starts with CPU, memory, storage &

communication gear

2= standardization moves down from applications to hardware

3= enhance interoperability between systems at various layers

© Dieter Ernst

complexity of applications requires standardization of hardware operating system and network

Complexity of applications requires standardization of hardware, operating system and network

Network Layer

OS Layer

Application Layer

Hardware Layer

Complexity

Time

Operating System

Network

Applications

Hardware

Source: Lord, 2007

© Dieter Ernst

interoperability standards in the ict industry
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

3 standards for global corporate networks
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

the nodes of a global production network
THE NODES OF A GLOBAL PRODUCTION NETWORK

Inter-firm

Independent

subcontractors

Distribution

channels

Independent

suppliers

FLAG

SHIP

Cooperative

agreements

(standards

consortia,etc)

R&D

alliances

Joint

ventures

Subsidiaries

& affiliates

Intra-firm

© Dieter Ernst

the nodes of a global production network1
THE NODES OF A GLOBAL PRODUCTION NETWORK

Inter-firm

Independent

subcontractors

Distribution

channels

Independent

suppliers

Multiple standards

FLAG

SHIP

Cooperative

agreements

(standards

consortia,etc)

R&D

alliances

Joint

ventures

Subsidiaries

& affiliates

Intra-firm

© Dieter Ernst

4 china s rise can us adjust to interdependence
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

5 implications for public governance
5. Implications for public governance

Is 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

global innovation networks a taxonomy
Global innovation networks – a taxonomy
  • Global companies “offshore” stages of innovation to Asian affiliates
    • intra-firmnetworks
  • Global firms “outsource” stages of innovation to specialized Asian suppliers
    • inter-firm networks
  • Asian firms construct their own (mostly intra-firm) networks
  • International public-corporate R&D consortia
  • Informal social networks (students, knowledge workers)

© Dieter Ernst

new players huawei
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 platforms

Plano/Texas (Dallas telecom corridor)

  • total solutions for CDMA; G3 UMTS; CDMA Mobile Intelligent Networks; mobile data service; optical; VoIP

Joint R&D labs with

  • Vodafone, British Telecom, Telecom Italia, France Telecom, Telefonica, Deutsche Telekom

© Dieter Ernst

global chip design network multiple interfaces require multiple standards
Global Chip Design Network - multiple interfaces require multiple standards

EMS

IP Licensors

IDM Fabless

ToolSystem CompanyDesign

vendorssupport

services

Chip assembly Foundry

ODM

Adapted from: Ernst, D., 2005a, Complexity and Internationalisation of Innovation, IJIM, March

5 adjustments are necessary in standards innovation policies
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

the elusive nature of open standards
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

criteria for evaluating standards policy
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

pragmatic standards policy guiding principles
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

pragmatic standards policy key questions
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

coordination national us
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

coordination national china
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

coordination international
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