By Dr. Dan Steinbock
JS3 Global Consulting
www.js3global.com
Since the late 1990s, the dizzying pace of globalization and the interdependence of market economies have given rise to new players, new value chains, and new business models. The most dramatic evidence of this has been the rise of China and India, particularly in the realm of information and communication technology (ICT). China already excels in ICT manufacturing, India in ICT software and services. Gradually, the two are joining the United States as global ICT giants.
Since global scale is now a critical factor in market success, the biggest opportunities are in the highest volume and growth markets - that is, China and India. With populations of 1.3 billion and 1 billion respectively, these two countries are by far the world's most populous (with the U.S. a distant third at 400 million). To put this into market perspective, consider that Finland, a world leader in ICT innovation and adoption, has a population of five million. In the past, Chinese mobile operators have created five million new subscribers in a single month!
In 2004, the U.S. GDP per capita (measured on purchasing power parity) was $39,500. China's corresponding figure was $5,600 and India's $3,000, that is, 14% and less than 8% of the U.S. level. However, national per capita averages are not reflective of aggregate purchasing power and, even more importantly, the potential for future growth.
Today, the U.S. economy reflects relatively solid 3.6% growth. This figure is quite modest compared with China's 10% and India's close to 8%. China has been on this trajectory since the early 1980s and India since the early 1990s. In both cases, this level of growth is expected to continue for some decades to come. In 2004, China ranked seventh in total GDP worldwide. Recently, it leapfrogged both the UK and France. Today, it is the world's fourth greatest economy and should catch up with Germany by 2008. India is following along the same path. It is easy to see why these two countries have risen so quickly in terms of global economic power and influence.
National innovative capacity is increasingly seen as one of the most important benchmarks in determining a country's world-class competitiveness and level of prosperity. At first glance, this appears to put China and India in a weak position. The World Economic Forum's most recent report on global competitiveness ranks the U.S. second (after Finland), with China (46) and India (55) far behind. A key measure of innovation, patenting, seems to confirm this. Measured by U.S. patents, America enjoys absolute superiority, with India and China following well behind. However, as in GDP, the current situation can be deceptive. There is a more forward-looking measure that contrasts annual U.S. patents per million inhabitants with the growth rate of U.S. patents. Here, the U.S. and Japan are superior in terms of absolute volume, but, measured in terms of relative growth rates, India and China are superior.
Nowhere are global opportunities as great as in the ICT sector. The explosion of mobile growth, first in China and now in India, provides a textbook example of the emerging new world of ICT superpowers.
Ever since the Italian Guglielmo Marconi left Rome and London for New York City in his quest for investment capital, the United States has dominated the wireless business, from wireless telegraphy to AM and FM communication, which provided a substantial military advantage to U.S. defense forces during the Second World War. In the postwar era, these technologies led to U.S. national advantage in the mobile industrial services and the first consumer test markets (MTS, IMTS).
The cellular concept was discovered as early as 1947 at Bell Labs, but commercialization followed only in the 1980s with analog cellular networks. These services appealed primarily to automobile drivers and corporate markets. With a singular standard (AMPS) and the world's greatest wireless operators, equipment manufacturers, products and services, the U.S. dominated mobile evolution until the eclipse of the 1G era in the mid-1990s.
Things changed with the digital transition, which was driven by the European-based standard (GSM), made mandatory by the European Commission, and pioneered by Euro-Nordic operators and vendors, such as Vodafone, Nokia and Ericsson. At the turn of the 21st century, service innovation migrated to Japan, where NTT DoCoMo pioneered user-friendly, high-speed services (i-mode, FOMA). Meanwhile, South Korea engaged in broadband innovation.
Since 2001, worldwide mobile markets have witnessed the early transition to multimedia cellular, known as UMTS in Europe and 3G in the US. At the end of 2005, more than half of the 50 million 3G users were still in Japan and more than 40 percent were in Western Europe. Due to the massive subscriber base, the transition has barely begun -the 3G penetration was barely 2.4 percent worldwide. In the 3G space, the U.S. remains a laggard - despite intense efforts to catch up.
However, the U.S. is not out of the mobile race and there are reasons to believe that it will once again be a leader in certain mobile segments, although no longer across the board. Since the 1990s, digital convergence has provided three powerful advantages to America's mobile leaders.
- The first evolved in the early 1990s with the San Diego-based Qualcomm and its CDMA, which is now the core technology for the 3G era.
- The second wave followed in the late 1990s, when the US-based IT enablers (Microsoft, Intel, IBM, followed by Apple, RealNetworks and others) entered the business and absorbed mobile capabilities worldwide.
- The third, and most recent, wave came in the early 2000s, when US-based content providers (media and entertainment, music and record companies, publishers) established a foothold in mobility, at the dawn of mobile television.
However, the U.S. can no longer dominate the mobile business. No single nation can. When markets globalize, the business is no longer a zero-sum game. As the playground grows, there is more space for new players. Due to globalization, mobile's future now has two faces: innovation and new services in maturing markets, double-digit growth and new subscribers in emerging markets. While maturing markets remain necessary to industry growth, emerging markets - particularly China and India - are now critical to industry leadership. At the end of 2005, there were 2.1 billion mobile subscribers worldwide. The number of mobile subscribers in China was estimated at 400 million; in India, at 60 million; and in the U.S., at 195 million. In other words, some 32 percent of all mobile subscribers worldwide were in these three countries.
Currently, China's penetration is about 31 percent, India's still less than 6 percent, whereas it is already close to 65 percent in the United States. In other words, the US mobile market is rapidly maturing, whereas China's massive marketplace will continue to grow rapidly and India's mobile revolution has barely begun! And U.S.-style innovation is no longer taking off just in North America and Europe - but in China and India as well. In order to secure its position in the 3G space, China has developed its own standard (TD-SCDMA). In India, government policies have sought to stimulate rapid user transition. In the 3G space, the U.S. remains a laggard - despite intense efforts to catch up.
In China, innovation has already stunned industry observers. Before 2000, Chinese handset makers, for instance, had no market share in China. In 2003, they captured 55 percent of the market. More recently, the incumbents have managed to deter the challengers, but all players acknowledge that mobile rivalries have only begun. Furthermore, Chinese government policy has promoted a home-based 3G standard (TD-SCDMA), in order to support indigenous producers and retain IP profits in China. If American Idol pioneered the use of SMS in US broadcasting, the Supergirls did the same in China last summer. With mobile TV, however, U.S. and Chinese launches have been almost parallel. With Beijing Olympics in 2008 and Shanghai Expo in 2010, China is understandably eager to benefit from investments in mobile media. In India, success stories in innovation have emulated the nation's strengths in software and services. Only in a year or two, major industry leaders, such as Nokia, have engaged in long-term R&D strategies, while shifting from assembly plants to software and CDMA hubs in India.
In the late 19th century, Coca-Cola and Procter & Gamble pioneered mass marketing in the United States; today, they are testing SMS campaigns in China's large coastal cities. In the 1980s, Californians paced fads worldwide; today, Disney's executives are studying the mobile behavior of teenage girls in Tokyo to prepare for mobile uses in Mainstreet, USA.
Today, new designs may evolve not just in California, but also in Helsinki, Seoul, Shanghai and Chennai. New software may be developed in San Diego and Bangalore, Beijing and Hong Kong. New prototypes may be launched in New York City and London, or Guanzhou and New Delhi.
With ICT globalization, the absolute superiority of U.S. innovation has been eclipsed. It is not that American innovation has failed, as some say; in fact, U.S. innovators are thriving. Rather, new ICT players such as India and China are also thriving. This world-historical win-win opportunity has the potential of increasing prosperity in the developed and developing nations and bringing hundreds of millions of poor out from poverty worldwide.
Dan Steinbock is the ICT Research Director of the India, China and America (ICA) Institute. His most recent work is The Mobile Revolution: The Making of Mobile Services Worldwide (Kogan Page, July 2005).
JS3 Global Consulting, LLC
Atlanta, GA USA
www.js3global.com
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