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Sunday, September 29 • 9:35am - 10:10am
Globalization, Indigenous Innovation and National Strategy: Comparing China and India's Wireless Standardization

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This comparative case study investigates the contrasting approaches adopted to 3G standard setting by two leading developing countries, China and India. Despite facing comparable challenges in terms of meeting consumer demand and fostering industrial development, the two countries adopted adopted sharply different standards strategies, with China investing heavily in a homegrown TD-SCDMA standard, and India allowing 3G licensees to provide service utilizing any type of international standard. In this paper, we trace the antecedents of this divergence to the different policy approaches the two countries adopted to their respective electronics industries in the early to mid-1990s. We demonstrate that the standard-setting policies of the two countries are embedded in their trade strategies, innovation policies and manufacturing sector policies.

Though standards play a critical role in the development of telecommunications markets, there is no consensus in the theoretical literature or empirical literature about the most advantageous standard-setting strategies, especially in developing markets. While emerging economies have utilized indigenous standards to catch up with their more technologically advanced competitors and build their national innovation systems, national standards also run the risk of lock-in into an inferior standard, and discouraging technological innovation in the long run. Market-based standard-setting on the other hand may initially slow the growth of markets; deprive manufacturers of potential scale economies; and also disadvantage domestic firms in competition with better-established international players. Contrasting approaches to standard-setting in China and India, both striving to become the next technological powerhouse, provide an ideal case to compare different models of standard-setting and technological innovation.

However, we argue in this paper that solely the merits and demerits of competing standard-setting and innovation models are insufficient to understand the contrasting paths to 3G standard-setting adopted in China and India. Instead, we also focus on the industry structure of the domestic electronics manufacturing industries in the two countries. This industry structure is the result of the liberalization process initiated in China in the 1980s, and in India roughly a decade later. These policies and subsequent growth resulted in an electronics manufacturing sector in China many times larger than in India. The Chinese sector is also more concentrated, marked by a few large manufacturing firms closely affiliated to the state through ownership, management and industrial policy. In India in contrast, late liberalization resulted in a much smaller electronics manufacturing sector composed of in general smaller firms. Also, Indian electronic firms tend to specialize in one or two electronics manufacturing sectors unlike Chinese firms with their multi-sector expertise.

When mobile standardization became a policy priority in the two countries with market expansion, the choice menu in terms of standard-setting strategy was constrained by among other factors, the prevailing structure of the electronics industry. In China, we argue that the close affiliation between the dominant mobile providers and the state, as well as the presence of large manufacturing firms, made a national standard both feasible and attractive. In contrast, India?s manufacturing sector is at least a decade behind China?s, and its contract manufacturing experience is more limited than China?s. The larger number of players made standards consensus more difficult to achieve, and the limited market share provided less scope for scale economies. India decided to allow its 3G licensees to provide service by utilizing any international standard. Though theory suggests that open standards competition will give greater incentive to innovation, China appears to be winning the patents race as well, because the larger size of Chinese manufacturing firms provides greater resources for R&D investments.

In conclusion, we summarize how each country?s 3G standard-setting strategy is derivative of and constrained by its past trade strategy, innovation policies, and manufacturing sector policies. Though China appears to have secured the advantage at the present time, it is possible that standards competition in India might provide greater scope for innovation going forward, provided India is able to devote greater resources to R&D. We also speculate on the relative merits of each country?s strategy to promote innovation in a fast-growing telecommunications industry.


Krishna Jayakar

Penn State University

Sunday September 29, 2013 9:35am - 10:10am
GMUSL Room 221

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