MMRCDISCUSSION PAPER SERIES
No. 307

Standardization, International Division ofLabor and Platform Business
Hirofumi Tatsumoto
School of Business Administration, University of Hyogo
Koichi Ogawa
Intellectual Asset-based Management Endorsed Chair, the University of Tokyo
Junjiro Shintaku
Graduate School of Economics, the University of Tokyo

May 2010

東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
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Standardization, International Division ofLabor and Platform Business

Hirofumi Tatsumoto, Associate Professor
School of Business Administration, University of Hyogo
Koichi Ogawa, Professor
Intellectual Asset-based Management Endorsed Chair, the University of Tokyo
Junjiro Shintaku, Associate Professor
Graduate School of Economics, the University of Tokyo

May 2010
ABSTRACTInternational standardization has become a strategic tool for competing firms since the newindustrial policies in developed countries in the 1980s, which allows firms to easily form a
consortium for setting industry-wide standards. This standardization has created many
“consensus standards” that change the distribution of added value internationally, and has
induced transformation in the international division of labor among the developed anddeveloping countries. Platform business is most influential in exploiting new international
division of labor, and firms need to adjust the scope of their knowledge and to select new
business partners for implementing it.

Keywords：consensus standard, anti trust law, open and closed areas, product architecture,platform business* This paper was first published in Japanese in Journal of Intellectual Property Association of Japan, Vol. 5, No. 2, pp.
4–11 (2008). Minor revisions are made for the English version.

11. Introduction
This paper explains the importance of international standardization for global business, and discusses
the method to establish a competitive business model using international standardization as a
strategic tool.
Standardization has been an important factor for industries, and its importance has seemingly
shown a rapid increase in recent years. For example, we have often observed that standardization has
exerted significant influence on industrial growth in the 1990s, such as on PC, digital mobile phone,and DVD industries. In the PC industry, various interface standards such as PCI and USB standards
have made great contributions to create a market for peripheral products. Standards for mobile
communication systems such as GSM and CDMA have also promoted market formationinternationally. DVD industry has enjoyed remarkable economic growth in the global market with
implementation of DVD standards. As has been demonstrated by these examples, international
standardization has the capability to rapidly form a huge global market. We observed businessmodels that make full use of standardization to first form a global market and then to profit from thatmarket. This type of business model has played a key role in global competitiveness in manyindustries since the 1990s.
What is more important is that the aforementioned standardization has a new standard setting
process, Consensus standardization. PC, digital mobile communication system, and DVD standards
are consensus standards that require formation of consensus of multiple participant companies, whilede facto standards are established only by a single company.
Consensus standards are quite different from de facto standards in terms of a business model.
With de facto standards, significant profits are promising when a company wins a standards war,
although the company has to face keen competition, and it might end up losing with significant losses.
If many companies similarly fear that one company might take control of a standard or that theymight lose the standards war, they will attempt to form a consortium and have discussions in advanceto define industry-wide standards in a cooperative manner. This type of standard setting process, thatis, consensus standardization, exposes these companies to a low risk of defeat in the competition.
However, the companies still face the problem of low profit opportunity because all of them compete
in the same field. From a business model point of view, consensus standards are complicated whilede facto standards are simple.
We also have to distinguish consensus standards from de jure standards, which promote standard
setting based on defined procedures in the well-established standard developing organization such as
2the International Organization for Standardization (ISO). A great deal of confusion exists between
consensus and de jure standardizations as they have similar standard-setting process in terms of
openness of membership. However, a consensus standard is much more flexible than a de jurestandard. In case of consensus standards, companies can form a consortium whenever they feel theneed for industry-wide standards, even before the introduction of products, and can easily define thescope of the system to be standardized in a very flexible manner. This is why we often see consensus
standards in many products.
Since the 1990s, we have frequently observed the influence of consensus standards on theindustry, as mentioned above. The strategic use of consensus standards has made great progress(Shintaku and Eto, 2008). However, it seems that many companies have been experiencing difficulty
because of their inability to establish an effective business model using consensus standards. The
purpose of this paper is to discuss the impact of consensus standardization and to explore how toestablish a business model for global competitiveness.
In the second section, we discuss the historical background regarding why consensus standards
have become influential in industries internationally. The third section explains the impact ofstandardization that changes the international division of labor. We use an architectural framework
for analysis of this change. The fourth section discusses the business model and core technology
management through standardization. The fifth section summarizes our findings and implications

2. Historical background of the adoption of standardization as a strategic tool
Back in the 1980s, we had new industrial circumstances created by the economic growth of East
Asian emerging countries such as Japan and Newly Industrializing Economies (NIEs). Upon the riseof these emerging countries, the United States and Europe (later EU) were compelled to reorganize
their global competitiveness to launch new industrial policies, to protect the intellectual property
rights, and to relax the anti-trust law. These policies are expected to have encouraged theirinnovation.
The growing use of consensus standard is deeply associated with the relaxation of the anti-trust
law that promotes formation of a consortium of firms for joint research and development (R&D).
There are two major reasons for consortia formation. One is the development of new technologies
with strategic partners. The other is the development of industry-wide standards that solve issues
such as product compatibility and consumer safety. The development of standards in a consortium
affected industrial circumstances much more seriously than that of technologies, because standards
3have significant procompetitive effects such as increasing price competition since standard products
are more readily compared. In addition, countries that are leaders in developing standards have acompetitive advantage, and internationally accepted standards are fundamental to global
competitiveness.
For this reason, the governments of US and EU in particular have been actively involved inobserving, regulating, and promoting the standard-setting process. Below is a more specificexplanation.
We start with the US industrial policies active in the 1980s and explain the relationship between
the promotion of joint R&D and standardization. The trend of encouragement of joint R&D as anindustrial policy gained momentum in the early 1980s. The enforcement of the National Cooperative
Research Act (NCRA) of 1984 solidified this trend. Furthermore, the report of the President’s
Commission on Industrial Competitiveness in 1985 (commonly called Young Report) symbolized US
industrial policies that aimed to activate innovation through joint R&D. This report states that theissue of declining international competitiveness of US is not just due to the appreciation of US
dollars. Thus, this report suggests that public and private sectors should address the enhancement ofindustrial competitiveness in a full-fledged manner through new initiatives focusing on theencouragement of joint R&D. The National Cooperative Research Act was revised to the National
Cooperative Research and Production Act in 1993 to allow joint production by extending the sphereof joint research. Thus, US implemented industrial policies that emphasized joint R&D based on
consortia of firms.
The encouragement of joint R&D and the activation of standardization efforts are tended to beconsidered separate. In fact, however, these two phenomena are deeply interlinked. With antitrust
laws in mind, it is easy to understand the relationship between these two phenomena. Prior to 1980,
the antitrust laws hampered joint R&D in the United States. In joint research, multiple companies
develop technology in collaboration. Therefore, it is likely that participant companies monopolize thetechnology. Collaborative activities of firms that are improperly conducted can discourage or eveneliminate competition, giving rise to antitrust concerns. For this reason, joint R&D was regulated byantitrust laws and severe penalties were imposed on joint research that violated antitrust laws. For
example, if multiple companies had engaged in joint research activities (this case also includes thejoint formulation of standard specifications) with participant companies accounting for certain
amount of market share, it was possible that this joint research could have violated the antitrust laws.
The joint formulation of standard specifications by companies with a certain level of market share4was regarded as possibly exclusive corporate behavior to other market participants (Hirabayashi,1993).
However, after new industrial policies for joint R&D incentives began in the 1980s, theoperation of antitrust laws was mitigated. In 1980, the Department of Justice released the “Antitrust
Guide Concerning Research Joint Ventures” to clarify the guidelines for joint research. Most
importantly, these guidelines specified that if access of third parties to standard specifications (i.e.,
joint research results) is guaranteed, antitrust laws will not apply to the formulation of standard
specifications through joint R&D by multiple companies with even a certain level of market share.
In 1984, this policy was legislated and specified as the National Cooperative Research Act. In
other words, this has made it effectively possible to formulate standards, exerting effects similar to defacto standards, through consensus standards such as consortium before market competition is
initiated.
In Europe as well, standardization was recommended after the 1980s in the phase of policy
consultations both for reorganization of global competitiveness and for European integration in 1992.
In 1984, the European Commission adopted Regulation No. 418/85 expanding the antitrust
treatment of R&D. For firms whose total market share does not exceed 20 percent, this regulation
provides blanket exceptions for horizontal R&D agreements. In addition, under Article 85(3), theCommission is authorized to grant exemptions for cooperative efforts, including research,development, and even manufacturing and sales. Firms can easily form a consortium to collaborate
for developing industry-wide standards.
In 1985, the European Commission promulgated another important resolution, a New Approachto technical harmonization and the use of standardization. To complete the internal market at the endof 1992, the European commission proposed that the methods and procedures be revised. National
standards were established separately in each country at that time, but it was necessary to introduce a
uniform standard in the European region. For this reason, standardization initiatives wererecommended in Europe in the special form of regional standards, CEN, CENELEC, and ETSI which
are positioned between national standards and international standards. Based on New Approach, EC
encouraged that European industries join the standard setting process for the regional standards. This
concurrently accelerated standardization initiatives and reorganization of industrial capabilities. With
the objective of achieving integration of regional economies, standardization progressed in Europe.
In this process, European firms built their capability to use standardization as a strategic tool, andestablished the business model using standardization.
5

For example, currently GSM is the most widespread mobile phone communication system in theworld. The GSM standard is a typical successful example of standards that have been formed throughthe new standardization process in Europe. Since 1982, the GSM Working Group of European
Conference of Postal and Telecommunications Administrations (CEPTi) had formulated standards,
however, this process in CEPT took a long time to for standard setting
In 1988, the European Telecommunications Standards Institute (ETSIii) was established and theorganization responsible for standard formulation was changed from CEPT to ETSI. This marked agreat turning point. Prior to the establishment of ETSI, in the standardization process of CEPT,
telecommunications policy officers and Postal Telecom and Telegraph (PPTiii) in each country took
the initiative in formulating standards. However, once the standardization process was transferred to
ETSI, consensus standardization was pursued with the participation of telecommunications facilities
and equipment firms although telecommunications policy officers and PPT were also involved instandardization.
With regards to analog mobile phones that were widely diffused at that time, thetelecommunications facilities and equipment industry in Europe lagged far behind those in US andJapan on the market. In the digital phone standardization process, Europe faced a sense of risk that it
might lose a huge integrated market, which would emerge as a result of standardization, to overseas
telecommunicationsindustries.

Therefore,

unliketraditional

standardization

processes,

telecommunications facilities and equipment firms participated in the standardization process. Thus,a standardization process that allowed the European telecommunications industry to exertcompetitiveness was build.
Establishment of GSM standards was completed with the influence of the telecommunications
facilities industry. For example, specifications for the GSM system are not standardized in detail inseveral areas, such as interfaces between wireless and control base stations. Hence, it is easy fortelecommunications equipment companies to differentiate themselves by leveraging their technicalknow-how. Moreover, the areas that depended on knowledge and skills possessed by operators suchas billing protocols have been standardized as a result of the necessity for international roaming. This
has enabled even those operators who have not accumulated much technology to adopt and operate
the GSM system. As a result, it has become easy to adopt the GSM system as a standard for new
operators and operators in emerging countries that tend to face entry barriers, and have notaccumulated much technology among telecommunications equipment companies. In this manner,
GSM facilitated the expansion of European telecommunications equipment firms, such as Ericsson
6and Nokia, into the global market.
There have been changes in the industrial policies in US and Europe. Consensus standardization
has been accepted in conjunction with joint research initiatives and regional economic integration. In
consensus standardization, multiple firms build consensus through initiatives such as consortium
formation and set industry-wide standards in a flexible manner. The new industrial circumstances
made standardization a strategic tool, which significantly influences corporate competition
environments. It would be easy to understand this point based on the fact that activities in which
multiple companies jointly formulated specifications were previously strictly banned by antitrustlaws.
In the next section, we will explain how consensus standards affect competitiveness.

3. Changes in product architecture due to standardization and their impact on the international
division of labor
Competitions between standards demonstrate the most significant impact of standardization. In
competition between standards, each party having defined standards struggles to acquire a certain
scale of a group of users commonly known as a critical mass. This is because the more use a standard
has, the more effective the standard becomes. Because of this network externality of standards, oncethe critical mass is surpassed, an increase in the autonomous cycle of the participants is triggered. It
is therefore important to manage the rate at which the standards are diffused before the critical massis reached.
Strategies to control the diffusion speed of standards in consensus standardization are referred toas the diffusion strategy of standards. It is assumed that the following four factors are effective inaccelerating diffusion speed: “degree of architecture openness,” “arrangement of a driving force
organization,” “step-by-step expansion,” and “building of a relationship between users and a
supplier.” The “degree of architecture openness” is particularly essential (Tatsumoto and Takanashi,2008). This is because an open architecture not only increases the diffusion speed but also causes achange in the distribution of added values of a whole system to which standard-setting is applied.
In other words, consensus standardization does not simply initiate competition between
standards, but it also changes the distribution of added values of a product to which consensus
standards are applied, triggered by the conversion of product architecture. The changes of the
distribution require a new basis for division of labor. Based on these points, consensus standards
result in a new type of competition distinct from competition for traditional de facto standards and de7

jure standards. We would like to explain each step in more detail.
First, at the initial stage of consensus standard formulation, related parties gather and form
consensus regarding the issue of “which area of a product (system) should be standardized.” There
are a variety of possible areas to be standardized. For example, interconnecting areas or areas thatneed reliability are desirable areas of standardization. Once standard setting is applied to thecandidate area, implicit knowledge and know-how in the area are revealed and become explicit,
although this implicit technology was used to be a source of differentiation. The standardized area isreferred to as an open area.
There is a significant impact on the company whose business domain is in the open area.
Technical know-how, implicit knowledge, or industrial contexts are all standardized and become
explicit. The open area may attract many manufacturers to join the market so that more users canpurchase products with less fear of lock-in, which may in-turn trigger rapid market growth. As
standardization becomes more detailed and specific, the entry opportunities available to newcompanies increase. Even without the knowledge of know-how and industrial contexts of the relevant
product, new companies can fully compete in the market as long as they produce components that
conform to standard specifications. If components comply with standard specifications, then products
are almost identical. Thus, new companies can compete with existing companies under the same
conditions from the beginning.
By locating themselves in the open area, existing companies lose the source of competitivenessthat they have accumulated so far. Even if standard-setting creates a huge global market, it is very
hard to differentiate in the standardized area. Fierce price competition takes place as moremanufactures join the market. In order to adapt to this change in the market environment, existing
companies are urged to reorganize their capabilities. Moreover, once product architecture becomes
open, a new vendor that supplies components for the product may emerge. In addition, it may
become easy for new distributors to handle the product. For this reason, existing supply chains andsales channels are destroyed and new industrial structures emerge.
On the contrary, new market entry is difficult in the protected closed area. Added value being
created on the market, which has been formed through standardization, converges on this area. For
existing companies, the closed area serves as a black box in which implicit knowledge andknow-how for differentiation are accumulated. Particularly, in the areas that require hightechnological capabilities such as core components, a limited number of companies enter the market.
Thus, added value converges on these closed areas while the open areas losses added value.
8This change in the distribution of added value ultimately leads to a drastic change in the divisionof international labor. To help us understand the change in the division of international labor, we
introduce the aspect of expected return. The expected return for a business in the open area isaffected by the degree of standardization. If detailed standard specifications are formulated and thesource of differentiation is eliminated, the expected return will become low. In this case, from thestandpoint of existing companies, no company wants to lower its profitability. Hence, division oflabor through the open area is not realized. However, a large number of new companies including
companies from emerging countries have established competitive advantage through low-cost
operations. Once detailed standards are formulated, these companies are given opportunities toovercome differences with existing companies in technology, know-how, and industrial context.
Standardization offers great business opportunities to new entries from emerging countries.
Generally speaking, companies in emerging countries can produce standardized components or
combine components with a standard interface to produce finished products at a lower cost than thosein developed countries. Even if these companies engage in the same activities as existing companies
at a much lower cost, they can generate sufficient profits because they are excel in efficient low-cost
operations. For this reason, companies in emerging countries welcome open area by a detailed
standardization, although open area is not hailed by existing companies. New companies in emerging
countries consider standardization to be a perfect opportunity for market entry.
On the contrary, it is difficult for companies in emerging countries to join the closed area,
because they have little technological accumulation in general. The accumulation of technology andknowledge is a barrier that stands up against new companies. The closed area serves as a black box
for accumulating technological know-how and implicit knowledge that are sources of differentiation.
In the closed area, existing companies in developed countries with a great deal of technology
accumulation are able to offer fully differentiated components, and exert competitive advantage overnew companies in emerging countries.
The difference of market entry between the open and closed area leads the difference of
expected return by which a new mechanism of international division of labor is established.
Companies in emerging countries exhibit cost advantage and engage in production in open areas suchas manufacturing standard components and assembly of finished products. In closed areas such ascore components, companies in developed countries differentiate themselves by leveraging theirtechnological accumulation and implicit knowledge. Thus, in these closed areas, existing companies
exhibit technological advantage and engage in production (Shintaku et al., 2006). Through9international division of labor between existing companies in developed countries and newcompanies in emerging countries, it will become possible to produce finished products at a cost lower
than that required when existing companies engage in both the open area and closed area.
Standardization makes it possible for a number of companies in emerging countries to produce
finished products and to create a tremendous production capacity with core components by thecompanies in developed countries. Economic growth of emerging countries accomplishes very
quickly with relations of developed countries.
The price of products drops in a short period of time because fierce price competition is repeatedin the standardized open area. Then, the product price will decline to a price level that can be
accepted in huge emerging markets in a short period of time. Through standardization, International
division of labor between developed and developing countries will create a huge global market and alarge volume of affordable products will rapidly disseminate over the world (Shintaku et al., 2006;
Ogawa, 2008).
In the next section, we will discuss how we would profit from standardization in theestablishment of a new basis for international labor division through changes in added value.

4. Standardization and Platform businessFirst, it should be noted that added value does not always converge on all closed areas simply
because these areas have not been standardized. If a closed area remains unchanged before and after
the architecture has been made open, the closed area does nothing more than realizing the same
added value as it had before the architecture was made open.

In order to obtain added value

dispersed from the open area and gather it into the closed area, there must be changes after someparts of architecture are converted into open areas by standardization. Being a closed area is arequisite, but not a sufficient condition.
Standardization disperses the added value of the open area. In the closed area that has not beenstandardized, it is necessary to gather and obtain dispersed added value through reorganization ofarchitecture. This strategy is referred to as positioning strategy of standards (Tatsumoto and
Takanashi, 2008) .The platform business is the most influential among positioning strategies ofstandards. The company that takes platform business is called platform leader (Gawer and Cusumano,2002).
The platform leader supplies its components as a platform to finished product manufactures. The
platform is composed of a core component and other peripherals, and has standardized interfaces.
10

Using standardization strategically, the platform leader builds industrial ecosystem internationally.
For example, in the middle of the 1990s, Intel took the initiative of standardizing each interface
in a PC. At the same time, focusing on the CPU, Intel integrated peripheral circuits as a chipset toform a platform. Then, it supplied this platform to motherboard manufacturers and notebook PC
manufactures in Taiwan in large quantities. Therefore, not only did Intel make technology open
through standardization but it also transformed its business from simply supplying CPU to supplying
platform including chipsets. It then decided to supply this platform to companies in emerging
countries, and not to existing companies. This allowed Intel to benefit from the added value, which
was brought about by the product market that had expanded through standardization (Tatsumoto et al.,2009).
Similar examples are also observed in the field of DVD players. After the standardization of
DVD specifications in the middle of the 1990s, Sanyo Electric arose from the standalone optical
pickup (OPU) business that was the core component of a DVD player. Sanyo Electric integrated
components such as an actuator, base deck, and loader to evolve into a business that supplied thisintegrated platform. Sanyo Electric supplied this platform mainly to emerging companies in countries
such as China. Similar to the example of Intel, Sanyo Electric reorganized its OPU business upon
standardization and enabling it to obtain increased added value from the product market that had
expanded through standardization.
These corporate behaviors illustrate the intrinsic and basic concept of the platform: to control
the open area from the standpoint of the closed area (Ogawa, 2008b). As is discussed above,differentiation is easier in the closed area than in open areas. However, if the closed area is not
influential over the open area, the closed is not a sustainable source of profit. In order to establish the
influence over the open area, a company makes a platform to integrate a core component with otherperipherals and establishes its own business model that gathers and obtains added value dispersed
from the open area.
Intel created influence over motherboards and notebook PCs by dealing with the platform
composed of not only core component, i.e., CPU, but also peripherals, i.e., chipset. Many new
Taiwanese companies successfully joined the market and rapidly expanded their production withIntel’s platform. Behind this example, there is a mechanism by which the incorporation of knowledge
into the platform facilitates the entry of new companies into the open area. With the use of platformsupplied by Intel, even companies with little technological knowledge accumulation such as
emerging companies in Taiwan were able to manufacture products.
11

We would like to summarize the aforementioned examples from the viewpoint of profiting fromtechnology. “Controlling the open area from the closed area” can be divided into the following two
factors: “exclusive possession of the closed area” and “selection of partner companies in the openarea.”
Exclusive possession of the closed area is to prevent the entry of any other companies into theclosed area, which is a business domain of the company. Implicit knowledge and intellectual property
play an important role in exclusively possessing the closed area (Teece, 1986). In the aforementioned
examples, in addition to core components, Intel and Sanyo Electric also integrated peripheral areas toexpand the area of implicit knowledge. Interface information between core components andperipheral components is originally explicit information. However, if peripheral components areintegrated into core components, this explicit information of interface changes to implicit information.
Furthermore, upon integration, dependency occurs between elements. This dependency informationis also accumulated as implicit information in the company that supplies the platform. This type of
implicit knowledge is made available to another company only if it pays a tremendous cost to thecompany providing the platform. Companies providing platforms can build an entry barrier to theclosed area with integration of core and peripherals.
Similarly, intellectual property, and particularly patents that are accumulated in the platform,
create a barrier against new companies. For example, Qualcomm made a great contribution to thedevelopment of the CDMA system of the digital mobile phone, and possesses a number of essential
patents. Qualcomm has integrated baseband processing, power management processing, andencoding processing that are necessary for the CDMA method into ICs. Qualcomm offers thisintegrated IC as a platform. The platform that is built with the chipset of Qualcomm contains a
multitude of essential patents has set up a major barrier against other companies that attempt to offer
chipsets for the CDMA system. In other words, intellectual property has greatly enhanced thepossibility of proprietary possession.
Next, we explain “selection of partner companies in the open area.” It is necessary to create
demand for this type of an established platform. In other words, it is necessary for the company thatbuilt the platform to find a new partner company in the open area that will use platform provided by
the platform leader. Partner companies in the open area tend to be new companies, including
companies in emerging country, rather than existing companies for the following two reasons.
First, companies with high technological capabilities do not utilize the platform. Instead,companies with little technological accumulation utilize the platform. Companies with high12technological capabilities dislike the provision of a platform. Companies with capabilities tend to
dislike components in the black box, which contain a great deal of implicit knowledge such as aplatform, and refuse to use a platform that is provided by external companies. This is because the useof black-box components exposes them to a risk of the loss of their technological advantage.
However, new companies with little technological accumulation do not have this idea.

These

companies regard the platform as a convenient mode for using new technologies. For this reason, inmany cases, new companies with little technical accumulation become partners of the platform
companies in the open area to use the platform. Companies in emerging country often fully exploit
this opportunity.
Second, profitability in the open area is low. As is discussed above, new entry is easier in the
open area than in the closed area and this often makes profitability low. Hence, new companies inemerging countries tend to be the main partners of the company that provides the platform because
new companies can manage low profitability through low-cost operations.
From the viewpoint of international division of labor, companies in emerging countries tend to
be main partners of platforms with their superior low-cost operations. Moreover, in many emerging
countries, institutional promotion measures are implemented to access the platform (Tatsumoto,2009) and this makes low-cost operations feasible. For these reasons, partnership between companies
in developed countries and those in emerging countries has been built through the platform in various
fields such as PCs, DVD players, and the CDMA system.

5. Summary and implications
The platform business is a typical business model that utilizes consensus standards as we havementioned above. Behind this business, there exists an international division of labor between
companies in developed countries that are responsible for advanced technological development andthose in emerging countries that aspire for growth. This is why this business model is robust anduniversal. We suggest two implications in this paper: “adjustment of the knowledge and businessscope” and the “selection of partners in the open area.”
Adjustment of the knowledge and business scope: Consensus standardization divides a productinto open and closed areas. For developed country companies that promote standardization, it iscritical to establish a business model for the new environment caused by standardization. They haveto focus their business on closed area and reduce their business in open area. The business strategy
for these companies is to boost its influence of the closed area over the open area by widening the13knowledge scope rather than the business scope (Ogawa, 2008b; Tatsumoto and Takanashi, 2008).
For example, Intel has paid a tremendous cost to run Intel Architecture Laboratory (IAL) to gain
knowledge of whole systems, PCs, even though its business has been focusing on just only supplying
core components, CPUs(Gawer and Cusumano, 2002). Exploiting knowledge of systems, Intel has
been bringing innovations to PCs through its CPU business. If PCs need to play music, Intel
incorporates multimedia functions into its CPUs and sells them to all PC manufactures. If morebattery life is needed for notebook PCs, Intel develops battery management solution with the mostuse of CPU functions and provides it as a turn-key solution. It is a key for competitive edge to covera wider scope of knowledge than that of business.
In case of fully integrated companies, the reorganization means that they have to reorganize
their business scope from a whole system to a core component with keeping their knowledge scope
covers the whole system. Fully integrated companies contain complete knowledge about the entire
product including core components.

These integrated companies have a potential to get a strong

competitive advantage by selling their core components to other companies that manufacture thefinished product.

Their knowledge of a finished product must contribute to the success of their corecomponent business.

However the finished product business and the core component sales businessare incompatible for most integrated firms.

The core component department would like to sell themost advanced component to their customers. In contrast the finished product department should
oppose that business because the most advanced core component is the source of their competitive
advantage and the customers of component business are also their competitors of finished productbusiness. Thus, the integrated company encounters the dilemma (Sakakibara, 2005).

This hascreated a barrier that discourages integrated companies from launching the platform business.
We can learn from Sanyo Electric how fully integrated firms reorganize the knowledge andbusiness scope. Forming a platform focusing on OPU in the DVD player, Sanyo Electric has thelarge-scale core component business, OPU, that manages the small-scale finished product business of
DVD players. Based on the knowledge of finished products, Sanyo Electric has completed theplatform in which peripheral components are integrated into OPU, and has successfully establishedthe platform business to supply the platform to Chinese firms. This strategy shows that the platformbusiness needs the capability to manage the knowledge flow from finished products to corecomponents and to keep a good balance of multi-business function of finished products and corecomponents.
Selection of partners in the open area: In the platform business, the scope of knowledge that is14

necessary for the platform greatly depends on the technological accumulation of partner companies
in the open area. Companies in emerging countries are not selected as partners simply because thesecompanies are good at low-cost operations.
For example, in the competition for standards for the second-generation mobile communication
system, the GSM system was adopted by China and the CDMA system was adopted by Korea.
Europeantelecommunications

equipment

companies

aimed

to

integratetheoveralltelecommunications system that enabled the GSM communication system into the platform and toprovide the platform. In this case, industrial situations in China were appropriate for the launching ofa fully integrated platform. In 1994 when the adoption of the GSM system was decided upon, nomature company existed that could develop and produce reliable telecommunication equipment in
China. Therefore, it was necessary for European telecommunications equipment companies toprovide the platform of telecommunications equipment that encompassed the entire communication
system. This enabled China Mobile, the world’s largest operator, to utilize the platform provided by
European telecommunications equipment companies to launch digital mobile communication
services as early as in 1995.
On the other hand, Korea introduced the CDMA system. Korea lacked only radio technology inmobile communication after it implemented the digital switching facility in the domestic production
project of 1988. Qualcomm, which provided the CDMA method, was originally a radio
communication company. Qualcomm did not have experience in public communication facilities andlagged behind in digital switching technology. For Qualcomm, the Korean industries were perfect
partners. Equipped with radio technology for the CDMA system, Qualcomm provided a platform thatconsisted of chipsets, which incorporated various technologies such as baseband processing. In thismanner, Korea has currently become the world’s largest CDMA handset exporting country. As isdemonstrated by the fact that Samsung and LG rank second and fourth in the world handset market
respectively, Korea has achieved an amazing success using the platform provided by Qualcomm.
Thus, it is necessary for platform companies to not only focus on emerging countries but also
select partners or platforms to be provided depending on the level of the technological accumulationof the partner. In future, advanced industrial countries may provide platforms to industries incountries with much lower technological accumulation rather than to countries in which technology
has already been accumulated such as China, Korea, and Taiwan.
Standardization creates a huge global market, promotes international division of labor, andcontributes to economies in developing as well as developed countries for the welfare of human15beings. New industrial circumstances of US and EU in 1980s proposed the new type ofstandardization, Consensus standardization, and raised the importance of standardization as a
strategic tool. Companies who want to acquire global competitiveness cannot do their businesswithout standardization.
From the global economy viewpoint, studies on standardization are not yet sufficient withrespect to both theory and practice. Companies are strongly urged for the global competitiveness toestablish organizational capabilities to deeply incorporate international standardization as businessstrategies into a practical business. We would be pleased if this paper contributes to this purpose.

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NoteiEuropean Conference of Postal and Telecommunications Administration.
ii
European Telecommunications Standards Institute.
iii
Postal Telecom and Telegraph.

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