- The Washington Times - Thursday, June 22, 2006

A topic of growing importance to technological businesses: The setting of standards for such things as television transmissions, operating systems, encryption, and so on.

Historically, developing countries have adopted the technical standards of the advanced countries. For example, the world uses Western standards for recording music on CDs and for television formats.

Often control of these standards leads to a lot of licensing revenue for companies, chiefly Western and Japanese, that hold the patents. China may be about to change this pattern through the sheer size of its market.

Consider: Most countries rely heavily on Microsoft’s Windows operating system. China, not unreasonably, has said that it doesn’t want to depend on foreign countries for technology, or to pay the resulting fees. It is now adopting Linux, the “open source” operating system originally written by Linus Torwalds. “Open source” means that no one owns the software. China can, perfectly legally, modify it to taste.

So can Fiji, but it wouldn’t matter. When a rapidly developing country of 1.3 billion people adopts a standard, it does matter. International companies will begin crafting their products to fit the new standard to get the sales. Smaller surrounding nations are likely to jump on the bandwagon. Soon you have a new center of gravity.

Just now a lot of Linux distributors are competing in China, as for example the Japanese firm TurboLinux. Although they can’t charge for the code itself, they can make money on maintenance. But the Chinese will soon learn to do that themselves. China can threaten Microsoft, as Fiji cannot.

China is also developing an independent standard for recording DVDs. Again, it doesn’t want to pay licensing fees. China is still a poor country, and a fee that is just a few bucks to us is a lot to Chinese consumers.

There are obstacles to acceptance of the new standard, yes. For example, a lack of movies in the format. For a market of China’s size, I suspect that Hollywood’s executives would deliver their movies in any format whatsoever, gold-plated and in velvet-lined boxes.

From C/NET News: “Several Chinese companies are making products based on so-called Enhanced Versatile Disc (EVD) technology, a format developed in China, iSuppli analyst Daniel Yang said in a report released Thursday. These products include 100,000 EVD players made early this year by Chinese company Jiangsu Shinco Electronic Group, Mr. Yang said.”

Once the movies are available (if all goes as China hopes), China predictably will sell its DVD players to Thailand and Malaysia cheaply because of its low labor costs and … presto. The West would have to license Chinese technology to stay in the market.

The increasing capacity to set standards arises partly from the size of the Chinese market but also from the ability of the government to impose standards internally. For example, the official Chinese news agency Xinhua has announced that new WiFi equipment sold there will have to use a proprietary encryption standard.

It comes down to the principle of the old joke, “What do you do when an 800-pound gorilla comes into the room?” Answer: “Anything it wants you to do.”

Right now the Chinese are busily manufacturing what the developed world wants, the way the developed world wants it. But the rapidly rising technological level of the country, plus the growing buying power of Chinese consumers and an autocratic government that can enforce its decisions — well, I suspect that we will soon see, at least in consumer tech, China playing a much more dominant role in shaping standards. Hugeness has power beyond the provision of cheap labor.

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