International standardization has been making news with increasing frequency recently. While this is a welcomed development, I am concerned that so much attention is fixated on promoting made-in-Japan standards for global proliferation that debate tends to focus on the outcome of activities at international standardization organizations. Standardization is meant to be an important business tool that enables companies to stop competing in certain aspects and allows them to expand the market, reduce costs, and maximize profits in other aspects that are not subject to it. Activities at international standardization organizations are just a part of that whole picture.
Japanese newspaper articles typically present recent developments on battery-charging systems for electric vehicles (EVs) as a rivalry between the CHAdeMO system proposed by Japan and the Combo system promoted by the United States and Europe, more specifically, the U.S.-European plug alliance obstructing Japan's efforts to promote its plug system. Indeed, Japan was the first to propose its system as an international standard in this specific case. It would not be at all unusual if other countries-such as the United States, European countries, and China-propose different systems afterward and have all of them recognized as international standards.
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Indeed, there used to be a time when international standards were determined only after certain technologies became predominant in the market and recognized as de facto standards. In those years, there was typically just one standard for each type of technology. As companies competed to set a de facto standard after putting their products on the market, losers suffered significant damage. Thus, efforts began in the 1990s to establish international standards in the pre-commercialization stage under the slogan of "from ex-post standards to ex-ante standards."
However, selecting any technology as a standard without market scrutiny and based solely on its technical quality turned out to be an impossible task. Furthermore, as each technology involves complex sets of interrelated patents, some companies began to exercise their patents in a move to impede other companies' efforts toward making their technologies as international standards. Rather than having companies fighting with each other in the course of standardization activities, the practice of allowing multiple technologies proposed by the various players as international standards emerged and has taken hold as a result of these developments.
Needless to say, there are certain areas in which a single standard covering all technologies can be established, for instance, with respect to testing methods. However, a common practice in the areas of electronics and other high-tech products is to allow multiple standards. While a cohort of those engaged in the development of certain kind of products gather at various international forums to discuss standards, manufacturers put their products on the market without waiting for the outcome of such international standardization activities. This is because it is difficult to discard technologies that are already on the market by means of discussion at an international organization.
Today, it is a common practice in the world of business to seek to increase market share while at the same time pursuing international standardization activities. In particular, China often proposes its own standards in a bid to protect the domestic market, and it is usually accepted as one of the international standards. Accordingly, it is not unusual to see three to five different methods used and competing for market share post-standardization.
Will such competition for market share eventually end with one of the standards emerging as the winner? Not necessarily. Nowadays, the pace of technology advancement is so fast that new generation technologies tend to emerge and replace old ones before any single standard is selected in the market. Under such circumstances, devoting enormous resources to promoting made-in-Japan standards around the world is a waste, and it often proves more advantageous for companies to use the standards of the respective markets, i.e., Chinese standards in the Chinese market and European standards in the European market.
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It is not that the number of made-in-Japan standards is small. Using the databases of the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC), the Japanese Industrial Standards Committee (JISC) has counted, on a trial basis, the number of international standards by proposing country, the result of which is shown in the Figure below. It shows that Japan has been taking sufficient initiative suitable to the size of its economy. However, as discussed above, a strategy seeking to establish made-in-Japan technologies as a single global standard is nearly impossible to realize. If a proposed technology is accepted as one of the international standards, it should be considered as a success.
However, such success is just the first step toward winning in the global market because standardized technologies cannot be a source of profit. Standardization is an important tool to expand markets and reduce costs. However, such market expansion is achieved because companies are assured that others will be using the same technologies as theirs. Also, parts and equipment in which costs have been reduced as a result of standardization are affordable to anyone. As such, standardization can be defined as an activity to realize market expansion and cost reductions at the sacrifice of profits.
Since competition for profits occurs in aspects that have not been standardized, companies are bound to lose out unless they offer attractive features sought by purchasers. Of course, those companies that are confident of winning in price competition can standardize everything and compete solely on prices. However, it is obvious that such strategy is no winning scenario for Japanese companies.
Indeed, the aforesaid issue concerning the shape of EV plugs may have a certain impact on costs but is not a critical problem from an overall business viewpoint. What is truly important is to develop EVs that have a distinctive appeal-one that is not available in those of other companies-and can maintain a certain level of market share. So long as companies are devoting themselves to the kind of competition that would be determined by differences in the cost of plugs, there will be no securing of profits. They need to take a look at their business from a new angle, for instance, from the viewpoint of what information can be received from and given to EVs and what types of attractive services can be provided by using such information. If a completely new kind of service-one that has not been available for EVs-is made available, it will become a major attraction of EVs, and the company that controls the market for such services will make enormous profits.
For this very reason, companies engaged in standardization efforts never reveal the types of services they intend to commercialize. However, they keep their intended services in mind and propose for standardization such data transmission methods or formats that would enable them to provide such services in the most advantageous manner.
In other words, standardization is the act of participating companies preparing the stage upon which to contest their technological capabilities. In this regard, a successful tactic for standardization activities is to set the kind of stage upon which the company can demonstrate its technological capabilities to the greatest extent without revealing them. A company whose hidden technological capabilities are overwhelmingly powerful would be able to win on any stage and thus let other companies deal with standardization. And once standardization activities are over and a suitable stage is set, all that the company needs to do is to utilize its technologies and demonstrate overwhelming appeal to win the competition. Indeed, by pursuing such a strategy, Apple Inc. of the United States has succeeded to reduce costs dramatically while demonstrating its unique appeal at the same time.
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Establishing a certain technology as an international standard quickly is not necessarily advantageous. What is important is to choose the optimal timing. Since standardization is the act of preparing the stage for technology competition, companies need to determine beforehand how to draw out the best of the technologies in which they have strengths. Standardizing a technology without defining a business model as to where and how to generate profits not only is worthless, but also may impair future business opportunities.
Once established as a standard, it cannot be withdrawn. Therefore, what is of paramount importance is to develop a sound business model and discern what should be standardized even at the cost of sacrificing short-term profits. Recently, as exemplified by DuPont's Teflon coatings and the Imabari brand of towels established by the Shikoku Towel Industrial Association, product branding has emerged and is proving to be a flourishing business model. Standardization would be meaningless unless it is based on a thorough understanding of the potential effects derived therefrom and achieved at the appropriate timing.
Standardization activities provide an opportunity for companies to obtain information on other companies in various forms. Seeking to establish proprietary technology as an international standard is important. However, what is more important is to learn the types of business other companies are intending to launch at the timing based on certain new standards. Indeed, it is critically important to obtain various information through standardization activities and utilize it to the advantage of one's own business.
* Translated by RIETI.
July 27, 2012 Nihon Keizai Shimbun
