Chinese Standards: Who's Running the Show?

by: David Wolf

Scott Kennedy at the National Bureau of Asian Research, a U.S. think-tank, has produced a compelling paper that underscores the importance of business coalitions in standards battles in China.

Scott uses different wording, but his point echoes one that Susan Tomsett and I have been making for a very long time - what moves regulators, policy-makers, administrators, and GONGOs in China is a chorus of voices of domestic entities all pushing in one direction, with foreign voices faint if present at all.

You can download his paper here.

Scott dropped me a note and pointed out (correctly) that his paper does not suggest that foreign firms have little input in the process, but that they are more successful when Chinese speak out on the same issue.

This is absolutely the case, and the record bears growing testament to support Scott's point.

Where Scott and I perhaps diverge in our thinking is, I believe, a matter of focus. Looking at what has been successful to this point, Scott is spot-on: it has been a foreign entity taking a stand which is also supported by local voices that has historically won the day. When I was working with Qualcomm (NASDAQ:QCOM) in the late 1990s, that is essentially the tactic we used to help gain final approval for CDMA.

Looking ahead to what will be required in future efforts to move the regulatory needle in China, I frankly see the role of foreigners speaking for themselves as being in steep decline. The broader trend will be for local coalitions to assume a greater and greater role in the standards debate (and in most debates around IT policy) and for foreigners to gradually step behind the screen.

When you look at the policy direction, it is moving toward independent innovation and away from foreign investment. As the Chinese grow more uncomfortable with foreign participation in regulatory issues, you can understand why local voices will become even more important in the process. Indeed, foreigners are probably best advised to step behind the screen and counsel the locals in the process, and only step forward to provide an independent voice when appropriate.

Bottom Line
Building coalitions of influential local entities is essential in the standards process - Scott Kennedy has documented that amply. Going forward, I believe those local entities are going to become the primary drivers of policy, with foreigners playing an increasingly subordinate, supporting role.