In-Depth

Mitigating China's Emerging Technology Standards

U.S. firms must shape—or limit the impact of—a range of Chinese technology standards. Here are four strategies to follow.

• By Stephen Swoyer
• 08/17/2004

China has traditionally taken a benign—that is, relatively disinterested—approach to technology standards. That’s starting to change, however, and China is becoming increasingly active in the development of global technology standards. The upshot, Deloitte researchers say, is that China’s standards initiatives could have a decisive impact on global competition in the technology, media and telecommunications sector.

Because China is the leading producer and consumer of technology products, however, it’s in a strong position to influence standards in its own market—and, by extrapolation, global markets. As China’s technology standards become both more prevalent and widely accepted, Deloitte researchers reason, Chinese firms will be able to shape the global technology sector.

“China is able to use the lure of its massive markets and spectacular growth as leverage in the standards war,” said Clarence Kwan, National Managing Partner of Deloitte’s Chinese Services Group. “Global technology and telecommunications companies need to review China’s standards initiatives and collaborate, where appropriate, with Chinese companies in standards development.”

For example, the Chinese government recently announced a major commitment to Linux—complete with a new “standard” designed specifically for the Chinese market that, Deloitte researchers note, could be made compulsory for all IT vendors and service providers.

Similarly, China has established a working group to develop a national standard for radio frequency identification (RFID) tag technology. Although there’s some indication that this group will adhere to existing, international standards, Deloitte researchers say that the opposite could just as well be true.

Elsewhere, Chinese companies are promoting a new optical storage technology called Enhanced Versatile Disc (EVD), which they position as a successor to the DVD standard, but with better sound and picture quality.

These are just a few of the ways in which Chinese government agencies and companies are trying to direct emerging technology standards for China’s own economic advantage. Not surprisingly, Deloitte researchers say that Chinese manufacturers will probably try to first build a critical mass of support at home, then export their own home-brewed standards to emerging markets in Southeast Asia and the Middle East. Sound familiar?

It doesn’t have to be that way, however. Deloitte says that U.S. firms can employ four practical strategies to help mitigate—or perhaps offset altogether—the competitive impact of China’s economic ascent.

For starters, U.S. companies can collaborate with Chinese standard setters, perhaps involving them in the standards process or otherwise attempting to ensure interoperability between standards.

Similarly, Deloitte says that U.S. firms should pick their battles when it comes to standards—i.e., compete selectively and focus only on areas where standards are harder to mandate. “Firms with a strong base of support among Chinese companies and consumers are in the best position to promote their own standards,” he points out. “Those lacking widespread support would be wise to co-operate instead of compete.”

Finally, U.S. companies should attempt to innovate specifically for the Chinese market, say Deloitte researchers, as well as seed emerging markets to encourage growth and establish early control.