Challenges for Standards and
Innovation Policies in the Emerging
Global Knowledge Economy
Dieter Ernst,
East-West Center, Honolulu
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1. Argument
Changes in the international standardization
landscape pose new challenges for standards
and innovation policy:
1.

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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:
2.


Standards and innovation policy
Standards and competition policy
© Dieter Ernst
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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
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2. Explanation – Technological complexity

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
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
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Multiple standards
Quality
Reliability
Privacy
Safety
Seller
Market Interface
Interoperability
Performance
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Buyer
Security
Environment
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Apple iPhone 3G
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Layers of IT standardization

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Applications
Network
1
Operating
system
Hardware

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
3

Applications
Network
Operating
system
Hardware
2
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
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Complexity
Complexity of applications requires standardization of
hardware, operating system and network
Hardware
Time
Operating System
Source: Lord, 2007
Network
Applications
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Interoperability standards in the ICT industry

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Wireless interface standards - ensure noninterfering use of radio spectrum;
Interoperability within a system

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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
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3. Standards for global corporate networks

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
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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
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Inter-firm
THE NODES OF A GLOBAL PRODUCTION
NETWORK
Independent
suppliers
Independent
subcontractors
Cooperative
agreements
(standards
consortia,etc)
FLAG
SHIP
R&D
alliances
Subsidiaries
& affiliates
Intra-firm
Distribution
channels
Joint
ventures
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© Dieter Ernst
Inter-firm
THE NODES OF A GLOBAL PRODUCTION
NETWORK
Independent
suppliers
Independent
subcontractors
Distribution
channels
Multiple standards
Subsidiaries
& affiliates
Intra-firm
Cooperative
agreements
(standards
consortia,etc)
FLAG
SHIP
R&D
alliances
Joint
ventures
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© Dieter Ernst
4. China’s Rise – can US adjust to interdependence?

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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 standardsco-shapers and ultimately to standards-setters.
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Countries differ in standardization policies
Innovators (with high • Laws and trade policies
IP producers)
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
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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 Anticipatory and strategic
specific needs
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
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© Dieter Ernst
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?
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Q&A
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Global innovation networks – a taxonomy
Global companies “offshore” stages of
innovation to Asian affiliates
I.

Global firms “outsource” stages of innovation
to specialized Asian suppliers
II.

III.
IV.
V.
intra-firm networks
inter-firm networks
Asian firms construct their own (mostly intrafirm) networks
International public-corporate R&D consortia
Informal social networks (students,
knowledge workers)
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New Players: Huawei
Kista/Stockholm, Sweden
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base station architecture and system design; analogmixed signal design (RF); algorithms; 3GPP (standards)
Moscow, Russia

algorithms; analog-mixed signal design (RF)
Bangalore, India
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embedded SW and platforms
Plano/Texas (Dallas telecom corridor)
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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
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Global Chip Design Network - multiple interfaces
require multiple standards
EMS
IDM
Tool
vendors
IP Licensors
Fabless
System Company
Chip assembly
Design
support
services
Foundry
ODM
Adapted from: Ernst, D., 2005a, Complexity and Internationalisation of Innovation, IJIM, March20
5. Adjustments are necessary in standards &
innovation policies
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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 topdown approach
Open standards are essential (not
redundant)  competition policy needs to
be integrated with standards policy
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The Elusive Nature of Open Standards
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“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
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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
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Criteria for Evaluating Standards Policy
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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
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Pragmatic standards policy –guiding principles
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Collect a small group of vendors;
Write a small, simple specification that covers
the important functions and omits nonessentials;
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
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Pragmatic standards policy –key questions
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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
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Coordination – national (US)
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Interagency
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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
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With international SDOs and SSOs
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
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Coordination – national (China)
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Interagency
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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
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
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Public-private
Role of SMEs
Consumers
With international SDOs and SSOs
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Coordination - international
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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?
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Public-private; Role of SMEs; consumers
IETF; UN-IGF; DCOS; A2K; ..?
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