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The Rise and Decline of U.S. ICT Dominance

Dan Steinbock, Research Director, India China and America Institute
June 14, 2013
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During their recent shirt-sleeves summit in California, President Barack Obama and President Xi Jinping got closer on pressuring a nuclear North Korea and addressing climate change, but remain sharply divided over certain other issues, particularly cybersecurity.

Dan Steinbock

Dan Steinbock

According to the current wisdom in the United States, America is a victim of cyber attacks by military-linked Chinese companies – Huawei, ZTE and their more secretive counterparts – which continue to steal military and economic secrets in cyberspace. However, no unclassified, substantiated and verified evidence of such attributions has been presented in public, as of yet.

Unsurprisingly, John Suffolk, Huawei's global head of cyber security (and former CIO for the UK government), has slammed the U.S. government for attempting to implement military security in private enterprise systems – a viewpoint that is supported by the recent top-secret National Security Agency (NSA) leaks.

What may be at stake in the contemporary cybersecurity debate is the eclipse of U.S. dominance of the global information and communication technology (ICT) ecosystem.

Globalization of the ICT ecosystem

In the postwar era, American companies dominated the entire global value chain of the nascent ICT ecosystem from telecommunications (AT&T), semiconductors and the wireless (Motorola) to computers (IBM).

As Silicon Valley began to expand in the 1980s, the ICT ecosystem shifted from its old horizontal structure, in which one company (think of IBM) controlled all value-chain activities from chips and hardware to software and sales. In the new vertical structure, multiple firms competed in different stages of the value-networks, including chips, operating systems, hardware, software, and sales.

Nevertheless, even the vertical structure was initially dominated by largely U.S. based giants, particularly Microsoft and Intel, which were nicknamed “Wintel” in the 1990s because together they could still shape industry-wide standards.

After decades of intensified globalization, offshoring of production capacity and exploitation of low-cost labor in emerging economies, that era is now gone, irreversibly. With the rise of the large emerging economies, such as China, the world’s ICT factory, and India, the world’s ICT back-office, the old U.S.-dominated ICT ecosystem has not only disintegrated structurally but it has dispersed geographically.

In the 2010s, the old, rigid, one-country value chains are morphing into new, flexible, multiple-country value networks. At the same time, the old unipolar ICT dominance is surpassed by multipolar ICT dispersion.

These new realities are well known in Silicon Valley, which has embraced them for decades. However, Washington is a different story.

Unipolar politics in multipolar world

On Capitol Hill, the political debate over international trade and foreign direct investment continues to be driven by a faded view of internationalization. It is rooted in model of the international product life cycle, which was first conceptualized by Raymond Vernon and his contemporaries in the mid-1960s.

It is this half-a-century-old model that Washington still seeks to superimpose on the nascent multipolar world.

According to the model, a local manufacturer in an advanced country begins to sell a new, technologically advanced product to high-come consumers in its home market. When demand rises from consumers in other advanced-country markets, production increasingly shifts abroad. As the product matures and becomes more of a commodity, the product is produced in less developed countries.

The model reflected America’s unipolar trade and ICT dominance in the postwar era.  But today it is history.

In the nascent multipolar world, America remains a central source of inventions and innovations, but it is no longer the source for either. Like production, innovation activities – as reflected by R&D and patents – are increasingly dispersed worldwide. Demand is expanding in large emerging economies, which provide locations for production, innovation, even branding. In the case of some U.S. companies, such as Apple, the entire production has been offshored to large emerging economies, typically to Taiwan, China, or both.

In many industries – especially the ICT sector – the idea of a “one value chain in one nation” has disappeared. No one country – not to speak of a single company – can any longer dominate the full value chain. In contrast, the new paradigm highlights “multiple value networks in multiple nations.”

Four generations of ICT ecosystems

Today, the growth momentum in the ICT ecosystem is in smart phones. Indeed, the ecosystem illustrates the shift from unipolarity to multipolarity. In its analog generation (1G), it was dominated by U.S.-based operators, such as AT&T and Sprint, and equipment manufacturers, such as Motorola, from the 1970s to the mid-1990s. In the digital generation (2G), industry momentum shifted to Western Europe, which had the most capable operators (Vodafone) and equipment producers (Nokia in cell phones, Ericsson in infrastructure).

With the shift to the multimedia generation (3G), the industry went through a transformation as momentum shifted to Japan, Korea and, ultimately, to China, India, and other large emerging economies. With the transition to the broadband generation (4G), multipolar ICT giants have surpassed the advanced-country multinational leaders. Motorola is now a part of Google. AT&T has experienced several reincarnations. Nokia’s value meltdown has been stunning. Ericsson is struggling. The sales of RIM and HTC have collapsed. Sony and LGE have fallen behind. The Korean producers Samsung and LG are current leaders, but even their era is about to fade.*

According to recent estimates, some 1.5 billion smart phones will ship worldwide in 2017, to account for 73% of all mobile phone shipments. In North America and Western Europe, virtually all phones shipped will be smart phones. Even in Greater China, smart phones will represent 95% of all mobile phone shipments in 2017. Growth in the smart phone market will continue to be driven by the Android operating system for mobile devices.**

In 2012, Huawei, for the first time, passed Nokia to become the third-largest smartphone maker. By deploying Android, it took advantage of global efficiencies, hardware and scale. In the U.S., industry firms from Texas Instruments to Intel see Huawei as a fast follower that is rapidly morphing into a global innovator.

There is no longer an exclusive American industry that Washington should protect. Rather, there is an ecosystem that should be protected, but it is co-evolutionary, interdependent and global.

In the postwar era, America’s industrial leadership was predicated on its embrace of new commercial and innovation realities. Today, America’s industrial leadership is hampered by dated political doctrines that are contributing to decline rather than success.

Dr. Dan Steinbock is Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore)

 

* On the changing ICT ecosystem, see the author’s

-          Winning Across Global Markets. New York, 2010

-          “Smartphone Rivalries: Part 1-2,” The Globalist, Aug. 9-10, 2010

-          “Apple iPhone4 Success Masks Global Strategic Challenges,” Harvard Business Review Blog, June 2, 2010

-          “China as ICT Superpower” China Business Review, US China Business Council, Mar 2007

-          “The Mobile Revolution and China”, China Communications, Vol 3, No 2, Apr 2006.

-          The Mobile Revolution. London, 2005

-          Wireless Horizon, New York, 2002

-          The Nokia Revolution. New York: Amacom 2001.

** “Over 1 billion Android-based smart phones to ship in 2017,” Canalys, June 4, 2013.

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