Annals of Business Administrative Science 10 (2011) 13–26
Available at www.gbrc.jp

Online ISSN 1347-4456 Print ISSN 1347-4464©2011 Global Business Research Center

Strategic Standardization: Platform Business and the
Effect on International Division of Labor
Hirofumi TATSUMOTO,† Koichi OGAWA‡ and Junjiro SHINTAKU§

Abstract: International standardization has become a strategic tool for global firms
since new industrial policies emerged in developed countries in the 1980s, whichallow firms to easily form a consortium to set industry-wide standards. This
standardization has created many consensus standards that change the distributionof added value internationally, and has induced transformation in the international
division of labor among the developed and developing countries. Platform businessis most eminent in the resulting business ecosystem. It harnesses consensus
standards to earn global competitive advantages, based on two practices: adjusting
the scope of their knowledge and selecting new business partners who adopt thestandards.
Keywords: consensus standard, antitrust law, open and closed areas, productarchitecture, platform business

Introduction
This paper explains the strategic importance of international standardization for
global business, and discusses the method to establish a competitive business modelusing international standardization as a strategic tool.
Standardization is an important factor for industries, and its importance seems tohave increased rapidly in recent years. For example, we have often observed thatstandardization has exerted significant influence on industrial growth in the 1990s, suchas on PC, digital mobile phone, and DVD industries. In the PC industry, various
interface standards such as Peripheral Component Interconnect (PCI) and Universal
Serial Bus (USB) standards have made great contributions to create a market for
peripheral products. Standards for mobile communication systems such as GSM andCDMA have also promoted market formation internationally. The DVD industry has
enjoyed remarkable economic growth in the global market with the implementation of
DVD standards. As has been demonstrated by these examples, international
standardization has the capability to rapidly form a huge global market. We haveThis paper was first published in Japanese in the Journal of the Intellectual Property Association of Japan, Vol. 5, No. 2,
pp. 4–11 (2008). Minor revisions have been made for the English version.

† School of Business Administration, the University of Hyogo, tatsu@biz.u-hyogo.ac.jp‡ Manufacturing Management Research Center, the University of Tokyo, NAE01471@nifty.com§ Graduate School of Economics, the University of Tokyo, shintaku@e.u-tokyo.ac.jp

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Tatsumoto, Ogawa and Shintaku

observed business models that make full use of standardization, first to form a global
market and then to profit from that market. This type of business model has played a
key role in global competitiveness in many industries 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 the formation of aconsensus by multiple participant companies, while de facto standards are establishedonly by a single company.
Consensus standards are quite different from de facto standards in terms of a businessmodel. With de facto standards, significant profits are promising when a company winsa standards war, although the company has to face keen competition, and it might end
up with significant losses. If many companies similarly fear that one company mighttake control of a standard or that they might lose the standards war, they will attempt toform a consortium and have discussions in advance to define industry-wide standards
in a cooperative manner. This type of standard-setting process, that is, consensus
standardization, exposes these companies to a low risk of defeat by thecompetition. 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 while de facto standards are simple.
We also have to distinguish consensus standards from de jure standards, which
promote standard setting based on defined procedures by a well-establishedstandard-developing organization such as the International Organization forStandardization (ISO). A great deal of confusion exists between consensus and de jurestandardizations, as they have similar standard-setting processes in terms of openness ofmembership. However, a consensus standard is much more flexible than a de jurestandard. In the case of consensus standards, companies can form a consortium
whenever they feel the need for industry-wide standards, even before the introductionof products, and can easily define the scope of the system to be standardized in a very
flexible manner. This is why we often see consensus standards for many products.
Since the 1990s, we have frequently observed the influence of consensus standards on
the industry, as mentioned above. The strategic use of consensus standards has madegreat progress (Shintaku & Eto, 2008). However, it seems that many companies havebeen experiencing difficulty because of their inability to establish an effective businessmodel using consensus standards. The purpose of this paper is to discuss the impact ofconsensus standardization and to explore how to establish 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 of standardization that changes the international division oflabor. We use an architectural framework for analysis of this change. The fourth section
discusses the business model and core technology management throughstandardization. The fifth section summarizes our findings and implications.

Historical Background of Strategic Standardization
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 rise of these emerging countries, the United States and14

Standardization, international division of labor and platform business

Europe (later the European Union) were compelled to reorganize their global
competitiveness to launch new industrial policies, protect intellectual property rights,
and relax the antitrust law. These policies were introduced to reinforce their nationalinnovation systems in the global competition.
The growing use of consensus standards is deeply associated with the relaxation of
the antitrust law to promote the formation of consortiums of firms for joint research anddevelopment (R&D). There are two major reasons for consortia formation. One is thedevelopment of new technologies with strategic partners. The other is the developmentof industry-wide standards that solve issues such as product compatibility andconsumer safety. The development of standards in a consortium affects industrial
circumstances much more than the development of new technologies, because standards
have significant procompetitive effects, such as increasing price competition, since
standard products are more readily compared. In addition, countries that are leaders indeveloping standards have a competitive advantage, and internationally accepted
standards are fundamental to global competitiveness.
For this reason, the governments of the United States and the European Union inparticular have been actively involved in observing, regulating, and promoting thestandard-setting process. Below is a more specific explanation.
We start with the U.S. industrial policies active in the 1980s and explain therelationship between the promotion of joint R&D and standardization. The trend of
encouragement of joint R&D as an industrial 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 the Young Report) symbolized
U.S. industrial policies that aimed to activate innovation through joint R&D. This reportstated that the issue of the declining international competitiveness of the United States
was not just due to the appreciation of U.S. dollars. Thus, this report suggested thatpublic and private sectors should address the enhancement of industrial
competitiveness in a full-fledged manner through new initiatives focusing on theencouragement of joint R&D. The NCRA was revised as the National Cooperative
Research and Production Act in 1993 to allow joint production by extending the sphereof joint research. Thus, the United States implemented industrial policies thatemphasized joint R&D based on consortia of firms.
The encouragement of joint R&D and the activation of standardization efforts tend to
be considered separate. In fact, however, these two phenomena are deeplyinterlinked. With antitrust laws in mind, it is easy to understand therelationship 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 the participant companies will monopolize
the technology. Collaborative activities of firms that are improperly conducted candiscourage or even eliminate competition, giving rise to antitrust concerns. For thisreason, joint R&D was regulated by antitrust 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 the joint formulation ofstandard specifications) with participant companies accounting for a certain amount ofmarket 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 levelof market share was regarded as corporate behavior possibly exclusive to other market
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Tatsumoto, Ogawa and Shintaku

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 tostandard specifications (i.e., joint research results) was guaranteed, antitrust laws would
not apply to the formulation of standard specifications through joint R&D by multiple
companies, even with a certain level of market share.
In 1984, this policy was legislated as the National Cooperative Research Act. This has
made it effectively possible to formulate standards, exerting effects similar to de facto
standards, through consensus standards such as consortia before market competition is
initiated.
Alike the United States, EU also started to support the industry-wide standardization
after the 1980s in order to reorganize a global competitive policy. In addition, EU has its
own motivation for the industry-wide standardization to accomplish the European
integration in 1992. The integrated EU markets needed the unified standards to avoid
incompatible standards for domestic markets of EU countries acting as trade barriers.
In 1984, the European Commission adopted Regulation No. 418/85 expanding theantitrust 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), the Commission is authorized to grant exemptions forcooperative efforts, including research, development, and even manufacturing andsales. Firms can easily form a consortium to collaborate to develop industry-widestandards.
In 1985, the European Commission (EC) promulgated another important resolution, a
new approach to technical harmonization and the use of standardization. To complete
the internal market at the end of 1992, the European commission proposed that themethods and procedures be revised. National standards were established separately ineach country at that time, but it was necessary to introduce a uniform standard in theEuropean region. For this reason, standardization initiatives were recommended inEurope in the special form of the regional standards, CEN, CENELEC, and ETSI, which
are positioned between national standards and international standards. Based on the
new approach, the EC encouraged European industries to 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.
For example, currently GSM is the most widespread mobile phone communication
system in the world. The GSM standard is a typical successful example of standards thathave been formed through the new standardization process in Europe. In 1982, the GSM
Working Group of the European Conference of Postal and Telecommunications
Administrations (CEPT) began formulating standards; however, this process in CEPT
took a long time.
In 1988, ETSI was established and the organization responsible for standard
formulation was changed from CEPT to ETSI. This marked a great turning point. Prior
to the establishment of ETSI, in the standardization process of CEPT,
telecommunications policy officers and Postal Telecom and Telegraph (PPT) in each16

Standardization, international division of labor and platform businesscountry took the initiative in formulating standards. However, once the standardization
process was transferred to ETSI, consensus standardization was pursued with theparticipation of telecommunications facilities and equipment firms, althoughtelecommunications policy officers and PPT were also involved in standardization.
With regards to the analog mobile phones that were widely used at that time, thetelecommunications facilities and equipment industry in Europe lagged far behind thoseon the market in the United States and Japan. 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,
unlikeintraditional
standardization
processes,
telecommunications facilities and equipment firms participated in the standardization
process. Thus, a standardization process that allowed the European telecommunicationsindustry to exert competitiveness was built.
The establishment of GSM standards was completed with the influence of thetelecommunications facilities industry. For example, specifications for the GSM system
are not standardized in detail in several areas, such as interfaces between base stations
and base station controllers. In the unstandardized areas, it is easy fortelecommunications equipment companies to differentiate themselves by leveraging
their technical know-how. By contrast, the areas that depend on knowledge and skills
possessed by operators, such as billing protocols, have been standardized as a result of
the necessity for international roaming. This has enabled those operators who have notaccumulated much technology to adopt and operate the GSM system. Even new
operators, especially those who are in emerging countries and strange to the GSM
technologies, can easily start their services by adopting the GSM standard systems
which were provided by the European telecommunications equipment companies. In
this manner, GSM facilitated the expansion of European telecommunications equipment
firms, such as Ericsson and Nokia, into the global market.
As mentioned above, there have been changes in the industrial policies in the UnitedStates and Europe. Consensus standardization has been accepted in conjunction withjoint 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. In the light of businessstrategies, what is emphatic thing in the new form of standardization is that firms can
set a consensus standard according to their own strategies and business models. This is
why consensus standardization becomes a powerful tool for strategies and severely
influences corporate competition environments.
In the next section, we will explain how consensus standards affect competitiveness.

Changes in Product Architecture Due to Standardization and
Their Impact on the International Division of Labor
Competitions between standards demonstrate the most significant impact ofstandardization. In competitions between standards, each party with defined standards
struggles to acquire a certain scale of a group of users commonly known as a criticalmass. This is because the more use a standard has, the more effective the standard
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Tatsumoto, Ogawa and Shintaku

becomes. Because of this network externality of standards, once the critical mass issurpassed, an increase in the autonomous cycle of the participants is triggered. It istherefore important to manage the rate at which the standards are diffused before thecritical mass is reached.
Strategies to control the diffusion speed of standards in consensus standardization arereferred to as the diffusion strategy of standards. It is assumed that the following four
factors are effective in accelerating 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 isparticularly essential (Tatsumoto & Takanashi, 2008). This is because an open
architecture not only increases the diffusion speed but also causes a change in the
distribution of added values of the whole system to which standard setting is applied.
In other words, consensus standardization does not simply initiate competition
between standards; it also changes the distribution of added values of a product towhich consensus standards are applied, triggered by the conversion of productarchitecture. The changes of the distribution require a new basis for division oflabor. Based on these points, consensus standards result in a new type of competition
distinct from competition for traditional de facto standards and de jure standards. We
will explain each step in more detail.
First, at the initial stage of consensus standard formulation, related parties gather andform consensus regarding the issue of which area of a product (system) should bestandardized. There are a variety of possible areas to be standardized. For example,
interconnecting areas or areas that need reliability are desirable areas ofstandardization. Once standard setting is applied to the candidate area, implicit
knowledge and know-how in the area are revealed and become explicit, although this
implicit technology used to be a source of differentiation. The standardized area isreferred to as an open area.
There is a significant impact on a company whose business domain is in the openarea. Technical know-how, implicit knowledge, or industrial contexts are allstandardized and become explicit. The open area may attract many manufacturers tojoin the market so that more users can purchase 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 new companies increase. Even without
the knowledge of know-how and industrial contexts of the relevant product, newcompanies 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 ofcompetitiveness that they had accumulated. Even if standard setting creates a huge
global market, it is very hard to differentiate in the standardized area. Fierce pricecompetition takes place as more manufacturers join the market. In order to adapt to thischange in the market environment, existing companies are urged to reorganize theircapabilities. 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 and sales
channels are destroyed and new industrial structures emerge.
However, new market entry is difficult in the protected closed area. Added value
18

Standardization, international division of labor and platform businessbeing 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 inwhich implicit knowledge and know-how for differentiation are accumulated. The blackbox works as a entry barrier against new entrants. Particularly, in the areas that require
high technological capabilities such as core components, a limited number of companies
can enter the market. Thus, added value converges on these closed areas while the open
areas lose added value.
This change in the distribution of added value ultimately leads to a drastic change inthe division of international labor. To help us understand the change in the division ofinternational labor, we introduce the aspect of expected return. The expected return fora business in the open area is affected by the degree of standardization. If detailed
standard specifications are formulated and the source of differentiation is eliminated,the expected return will become low. In this case, from the standpoint of existing
companies, no company wants to lower its profitability. Hence, division of laborthrough 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 to overcome 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 finishedproducts at a lower cost than those in developed countries. Even if these companies
engage in the same activities as existing companies at a much lower cost, they cangenerate sufficient profits because they excel in efficient, low-cost operations. For thisreason, companies in emerging countries welcome open-area detailed standardization,although the open area is not hailed by existing companies. New companies in emerging
countries consider standardization to be a perfect opportunity for market entry.
Conversely, it is difficult for companies in emerging countries to join the closed area,
because they have little technological accumulation in general. The accumulation oftechnology and knowledge 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 indeveloped countries with a great deal of technology accumulation are able to offer fully
differentiated components, and exert competitive advantage over new companies inemerging countries.
The difference of market entry between the open and closed area leads to thedifference of expected return by which a new mechanism of international division oflabor is established. Companies in emerging countries exhibit cost advantage andengage in production in open areas such as manufacturing standard components andassembly of finished products. In closed areas such as core components, companies indeveloped countries differentiate themselves by leveraging their technologicalaccumulation and implicit knowledge. Thus, in these closed areas, existing companies
exhibit technological advantage and engage in production (Shintaku, Ogawa, &Yoshimoto, 2006). Through international division of labor between existing companies
in developed countries and new companies 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.
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Tatsumoto, Ogawa and Shintaku

Standardization makes it possible for a number of companies in emerging countries to
produce finished products and to create tremendous production capacity with corecomponents made by companies in developed countries. The economic growth of
emerging countries is accomplished very quickly through relationships with developed
countries.
The price of products drops in a short period of time because fierce price competition
is repeated in the standardized open area. The product price declines to a price level thatcan be accepted in huge emerging markets in a short period of time. Throughstandardization, the international division of labor between developed and developing
countries will create a huge global market, and a large volume of affordable products
will rapidly disseminate across the world (Ogawa, 2008b; Shintaku et al., 2006).
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.

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 doesnothing more than realize the same added value as it had before the architecture wasmade open. In order to obtain added value dispersed from the open area and gather it
into the closed area, there must be changes after some parts of the architecture areconverted into open areas through standardization. Being a closed area is a requisite,
but not sufficient, condition.
Standardization disperses the added value of the open area. In the closed area that has
not been standardized, it is necessary to gather and obtain dispersed added value
through reorganization of architecture. This strategy is referred to as the positioning
strategy of standards (Tatsumoto & Takanashi, 2008). The platform business is the mostinfluential among positioning strategies of standards. The company that takes theplatform business is called the platform leader (Gawer & Cusumano, 2002).
The platform leader supplies its components as a platform to finished productmanufactures. The platform is composed of a core component and other peripherals,
and has standardized interfaces. Using standardization strategically, the platform leader
builds an international industrial ecosystem.
For example, in the middle of the 1990s, Intel took the initiative of standardizing eachinterface in a PC. At the same time, focusing on the CPU, Intel integrated peripheral
circuits as a chipset to form a platform. Then, it supplied this platform to motherboard
manufacturers and notebook PC manufacturers in Taiwan in large quantities. Therefore,
not only did Intel make technology open through standardization; it also transformed its
business from simply supplying CPUs to supplying platforms, including chipsets. It
then decided to supply these platforms to companies in emerging countries, and not toexisting companies. This allowed Intel to benefit from the added value, which was
brought about by the product market that had expanded through standardization(Tatsumoto, Ogawa, & Fujimoto, 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 steppedup from the standalone optical pickup (OPU) business that was the core component of20

Standardization, international division of labor and platform businessDVD players. Sanyo Electric integrated components such as an actuator, base deck, andloader to evolve into a business that supplied this integrated 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, 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: tocontrol the open area from the standpoint of the closed area (Ogawa, 2008b). As isdiscussed 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 area is not a sustainablesource of profit. In order to establish influence over the open area, a company makes aplatform to integrate a core component with other peripherals and establishes its own
business model that gathers and obtains the added value dispersed from the open area.
Intel created influence over motherboards and notebook PCs by dealing with aplatform composed not only of the core component, i.e., the CPU, but also peripherals,i.e., the chipset. Many new Taiwanese companies successfully joined the market andrapidly expanded their production with Intel’s platform. Behind this example, there is amechanism by which the incorporation of knowledge into the platform facilitates theentry of new companies into the open area. With the use of the platform supplied byIntel, even companies with little technological knowledge accumulation, such as
emerging companies in Taiwan, were able to manufacture products.
We would like to summarize the aforementioned examples from the viewpoint of
profiting from technology. Controlling the open area from the closed area can bedivided into the following two factors: exclusive possession of the closed area andselection of partner companies in the open area.
Exclusive possession of the closed area is to prevent the entry of any other companies
into the closed 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 to expand the area of implicit
knowledge. Interface information between core components and peripheral components
is originally explicit information. However, if peripheral components are integrated into
core components, this explicit information of interface changes to implicit
information. Furthermore, upon integration, dependency occurs between elements. Thisdependency information is also accumulated as implicit information in the company
that supplies the platform. This type of implicit knowledge is made available to anothercompany only if it pays a tremendous cost to the company providing theplatform. Companies providing platforms can build an entry barrier to the closed areawith the integration of core components and peripherals.
Similarly, intellectual property and, in particular, patents that are accumulated in theplatform, create a barrier against new companies. For example, Qualcomm made a great
contribution to the development of the CDMA system of the digital mobile phone, andpossesses a number of essential patents. Qualcomm has integrated baseband processing,power management processing, and encoding processing that are necessary for theCDMA method into ICs. Qualcomm offers this integrated IC as a platform. The platformthat is built with Qualcomm’s chipset contains a multitude of essential patents and has
set up a major barrier against other companies that attempt to offer chipsets for theCDMA system. In other words, intellectual property has greatly enhanced the21Tatsumoto, Ogawa and Shintaku

possibility of proprietary possession.
Next, we explain the selection of partner companies in the open area. It is necessary tocreate demand for this type of an established platform. In other words, it is necessary forthe company that built the platform to find a new partner company in the open area thatwill use platform provided by the platform leader. Partner companies in the open area
tend to be new companies, including companies in emerging countries, rather thanexisting companies, for the following two reasons.
First, companies with high technological capabilities do not utilize theplatform. Instead, companies with little technological accumulation utilize theplatform. Companies with high technological capabilities dislike the provision of aplatform. Companies with capabilities tend to dislike components in the black box,
which contain a great deal of implicit knowledge such as a platform, and refuse to use aplatform that is provided by external companies. This is because the use of vacuum
components exposes them to the risk of the loss of their technologicaladvantage. However, new companies with little technological accumulation do not havethis idea. These companies regard the platform as a convenient mode for using newtechnologies. For this reason, in many cases, new companies with little technicalaccumulation become partners of the platform companies in the open area to use theplatform. Companies in emerging countries often fully exploit this opportunity.
Second, profitability in the open area is low. As discussed above, new entry is easierin the open area than in the closed area, and this often makes profitability low. Hence,
new companies in emerging countries tend to be the main partners of the company thatprovides the platform because new companies can manage low profitability throughlow-cost operations.
From the viewpoint of international division of labor, companies in emerging
countries tend to be the 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 invarious fields such as PCs, DVD players, and the CDMA system.

Summary and Implications
The platform business is a typical business model that utilizes consensus standards, as
we have shown above. Behind this business, there exists an international division oflabor between companies in developed countries that are responsible for advanced
technological development and those in emerging countries that aspire for growth. This
is why this business model is robust and universal. We suggest two implications in thispaper: adjustment of the knowledge and business scope, and the selection of partners in
the open area.
Adjustment of the knowledge and business scope
Consensus standardization divides a product into open and closed areas. For
developed-country companies that promote standardization, it is critical to establish abusiness model for the new environment caused by standardization. They have to focus
their business on the closed area and reduce their business in the open area. The
22

Standardization, international division of labor and platform businessbusiness strategy for these companies is to boost their influence of the closed area over
the open area by widening their knowledge scope rather than their business scope(Ogawa, 2008b; Tatsumoto & 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 only on supplying core components—CPUs (Gawer & Cusumano,2002). Exploiting its 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 more battery life isneeded for notebook PCs, Intel develops a battery management solution with the mostuse of CPU functions and provides it as a turnkey solution. It is the key for acompetitive edge to cover a wider scope of knowledge than business.
In the case of fully integrated companies, the reorganization means that they have toreorganize their business scope from a whole system to a core component while
ensuring their knowledge scope covers the whole system. Fully integrated companies
contain complete knowledge about the entire product including core components. These
integrated companies have the potential to gain a strong competitive advantage by
selling their core components to other companies that manufacture the finishedproduct. Their knowledge of the finished product must contribute to the success of theircore component business. However, the finished-product business and thecore-component sales business are incompatible for most integrated firms. The corecomponent department wants to sell the most advanced component to theircustomers. In contrast, the finished-product department should oppose that businessbecause the most advanced core component is the source of their competitive advantage,
and the customers of the component business are also their competitors in thefinished-product business. Thus, the integrated company encounters a dilemma(Sakakibara, 2005). This has created a barrier that discourages integrated companies
from launching platform businesses.
We can learn from Sanyo Electric how fully integrated firms reorganize theirknowledge and business scope. Forming a platform focusing on the OPU in DVD
players, Sanyo Electric has developed a large-scale core-component business—building
OPUs—that manages the small-scale finished-product business of DVD players. Basedon its knowledge of finished products, Sanyo Electric has completed a platform in whichperipheral components are integrated into OPUs, and has successfully established theplatform business to supply the platform to Chinese firms. This strategy shows that theplatform business needs the capability to manage the knowledge flow from finishedproducts to core components and to keep a good balance of the multiple business
functions of finished products and core components.
Selection of partners in the open area
In the platform business, the scope of knowledge that is necessary for the platform
greatly depends on the technological accumulation of partner companies in the openarea. 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. European telecommunications equipment companies aimed to23

Tatsumoto, Ogawa and Shintaku

integrate the overall telecommunications system that enabled the GSM communication
system into the platform and to provide the platform. In this case, the industrial
situation in China was appropriate for the launching of a fully integrated platform. In
1994, when the adoption of the GSM system was decided upon, no mature company
existed that could develop and produce reliable telecommunications equipment in
China. Therefore, it was necessary for European telecommunications equipment
companies to provide 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 1995.
On the other hand, Korea introduced the CDMA system. Korea lacked only radio
technology in mobile communication after it implemented the digital switching facility
in the domestic production project of 1988. Qualcomm, which provided the CDMAmethod, was originally a radio communication company. Qualcomm did not haveexperience in public communication facilities and lagged behind in digital switching
technology. For Qualcomm, the Korean industries were perfect partners. Equipped withradio technology for the CDMA system, Qualcomm provided a platform that consistedof chipsets, which incorporated various technologies, such as baseband processing. In
this manner, Korea has currently become the world’s largest CDMA handset exporting
country. As is demonstrated by the fact that Samsung and LG rank second and fourth in
the world handset market respectively, Korea has achieved amazing success using theplatform provided by Qualcomm.
Thus, it is necessary for platform companies not only to focus on emerging countries,
but also to select partners or platforms to be provided depending on the level of thetechnological accumulation of the partner. In future, advanced industrial countries may
provide platforms to industries in countries with much lower technologicalaccumulation rather than to countries in which technology has already been
accumulated such as China, Korea, and Taiwan.
Standardization creates a huge global market, promotes the international division oflabor, and contributes to economies in developing as well as developed countries for thewelfare of human beings. The new industrial circumstances of the United States and theEuropean Union in the 1980s proposed a new type of standardization, consensus
standardization, and raised the importance of standardization as a strategic
tool. Companies who want to acquire global competitiveness cannot do businesswithout standardization.
From the global economy viewpoint, studies on standardization are not yet sufficientwith respect to both theory and practice. To ensure global competitiveness, companies
are strongly urged to establish organizational capabilities to deeply incorporate
international standardization as a business strategy. We would be pleased if this paper
contributes to this purpose.

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Tatsumoto, Ogawa and Shintaku

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ABAS: Annals of Business Administrative ScienceVol. 10 December 2011

CHIEF EDITOR

Junjiro Shintaku, the University of TokyoEDITORIAL BOARD

Makoto Abe, the University of Tokyo
Takahiro Fujimoto, the University of Tokyo
Makoto Kasuya, the University of Tokyo
Nobuo Takahashi, the University of Tokyo
Technical Editor: Maki Nishida, Global Business Research Center

ABAS: Annals of Business Administrative Science is published annually by Global
Business Research Center, Hongo, Bunkyo-ku, Tokyo, JAPAN. http://www.gbrc.jp