Chinese standards face off against market forces

In recent years, the Chinese government has made no secret of its desire to take a greater role in the development and setting of the technology standards that govern broad segments of the IT industry. But Chinese efforts to set standards must meet the demands of wider market forces if they are to prove successful, according to an analyst at Deloitte Research.

"It may be the case that manufacturing can do better -- certainly in the short term -- working to foreign standards, rather than to your homegrown standards," said Paul Lee, director of technology, media and telecommunications at Deloitte Research, in a telephone interview.

"For a Chinese manufacturer, your aim is to maximize volumes, to maximize margins, and if by going to a local standard you don't sell as much, then you would prefer to go to developing and manufacturing products based upon foreign standards," Lee said.

Over the long term, however, Chinese companies will play an increasing role in the development of global technology standards over the next 10 years to 20 years, said Lee, who is a co-author of a recent Deloitte report on China's growing standard-development efforts and their impact on companies around the world.

China's standard-development efforts are currently in the early stages and will gain influence and momentum as time passes, Lee said, noting that current efforts to set standards are achieving important successes even as they are not widely deployed or adopted, such as TD-SCDMA (Time Division Synchronous Code Division Multiple Access), China's homegrown 3G (third-generation) mobile standard.

"TD-SCMDA is late to the game relative to other 3G standards and that will undoubtedly handicap its ability to succeed as a global standard," Lee said, comparing the technology to rival 3G standards CDMA2000 and WCDMA (Wideband CDMA).

"So, if we were to look ahead a year forward, I would expect TD-SCDMA to be ... the weakest of the 3G standards, but that shouldn't be regarded as a failure," Lee said, explaining that TD-SCDMA is a success because China demonstrated the ability to create its own 3G standard, something no other country has been able to do on its own.

"What is more significant about what China's done with 3G is that for the next-generation standards, China will be in a very strong position to influence what happens and it is already working with Korean and Japanese authorities and vendors on the development of a next-generation standard," Lee said.

Modest successes such as this are an important first step for China. Standards are a long-term game and Chinese companies are just starting to play a role in a range of areas, including mobile communications, wireless networking, operating-system software, optical disc formats and audio-visual compression technology, Lee said.

"If China is being very smart, then this is the learning phase, this is where they make mistakes, learn from them. The second phase and the third phase is where they really exploit what they've learned and exploit the other, natural advantages they have, such as the large size of the market, to their benefit," Lee said.

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