International competitiveness in East Asia. Broadband telecommunications and interactive multimedia

Telecommunications Polic3,, Vol. 21, No. 3, pp. 235 249, 1997 (() 1997 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0308-5961/97 $17.00+0.00

Pergamon PII: S0308-5961 (97)00004-9

International competitiveness in East Asia Broadband telecommunications and interactive multimedia

John V Langdale Developed East Asian economies (Japan, South Korea, Taiwsn, Singapore and Hong Kong) have recognized that broadband telecommunications and interactive multimedia technologies, are central to their overall international competitiveness. Adoption of these technologies provides a case study of growing international competition and cooperation between East Asian and Western industrialized countries in high-technology Industries. While there is extensive rivalry between firms and between countries, cooperative agreements between firms in these technologies are also important. Other East Asian countries are also expanding their investment in these technologies, although expansion of the basic telephone network is a much higher policy priority. © 1997 Elsevier Science Ltd

Introduction The concept of the information superhighway has attracted enormous popular attention. Provision of interactive multimedia (hereafter multimedia) services to homes and businesses has the potential to facilitate major social and economic change in society. A wide range of services to the home has been envisaged: these include the provision of video-ondemand, home shopping and banking, computer-games, video-telephony and many others. These services will be delivered to homes using broadband telecommunications technologies (primarily fibre and coaxial cables). While debate exists about the relative importance of broadband telecommunications and multimedia for the home, many are optimistic about the future growth prospects of the industry. If broadband telecommunications and multimedia technologies prove to be as important in the future as many expect, their adoption will have a significant impact in shaping countries' social and economic fabric. Countries with poor access to multimedia services are likely to lag even further behind in terms of social and economic development. Furthermore, whereas major cities and prosperous regions may have access to such services, poorer regions in many developing countries may not have access even to basic telephony services.

Purpose and scope of paper The author is Senior Lecturer in Economic

Geography, School of Earth Sciences, Macquarie University, 2109 Australia (Tel: 61 2 9850 8385; fax: 61 2 9850 8428; email: jlangdal@ocsl .ocs.mq.edu.au).

The purpose of this paper is to examine the adoption of broadband telecommunications and multimedia technologies by East Asian countries in the context of their desire to improve their level of economic development and international competitiveness. The East Asian region is defined 235

Broadbound telecommunications and multimedia in East Asia: J V Langdale

as stretching from Japan in the north to Indonesia in the south and Myanmar (Burma) in the southwest. Policy and commercial interest in these technologies in the region has been stimulated by the US technological lead and policy initiatives as well as by the growing rivalry and cooperation between developed East Asian countries in high-technology industries. The perceived social and economic importance of these technologies has led to many governments' according them a high policy priority. Competition between industrialized countries to be at the forefront of new information technologies has meant that governments are encouraging rapid innovation in this area. This competition has spread to East Asia, with developed economies (Japan, Singapore, South Korea and Taiwan) viewing broadband telecommunications and multimedia technologies as central to their long-term economic growth. However, few East Asian countries have critically examined the costs versus benefits of adopting these technologies. East Asian countries also see these technologies as contributing to social goals, although these tend to be of secondary importance to economic ones. I argue that the adoption of broadband telecommunications and multimedia technologies needs to be considered in the context of both the broader technological and economic restructuring trends taking place globally and in the region as well as the unique characteristics of particular countries. Thus, while there are similarities in the adoption process across the region, each country has adopted them in a unique fashion, reflecting the social and business needs of the country. A central argument in the paper is that international rivalry between East Asian countries and between companies in multimedia technologies needs to be seen in the context of the developments in high-technology industries such as electronics, computers and telecommunications. While developed East Asian countries have initiated policies in broadband telecommunications and multimedia technologies, countries at a lower level of economic development are also expanding their investment in these areas. A further aim of this paper is to examine the nature of these countries' initiatives and the implications for their economic development. These countries face a dilemma: on the one hand, the number of telephones per 100 people is very low, particularly in rural areas; on the other hand, governments recognize that they need to enhance international competitiveness by expanding broadband telecommunications and multimedia in major cities and improving linkages to the global economy.

International competition and cooperation in high-technology industries Internationalization of production

1Mowery, D C Science and Technology Policy in Interdependent Economies Kluwer, Boston (1995) 7.

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The internationalization of production is heightening levels of competition and cooperation between companies in high-technology industries. The perceived importance of high-technology industries in the economy has led to extensive state support. The use of technology policy to improve international competitiveness has increased interdependence and tensions between the domestic technology and international trade policies in many economies.1

Broadbound telecommunications and multimedia in East Asia. J V Langdale

2Matthews, T and Ravenhill, J 'Strategic trade policy: the Northeast Asia experience' in Maclntyre A J (ed) Business and Government in Industrialising Asia Allen and Unwin, Sydney (1994) 29-90. 3OECD Technology in a Changing World Paris (1991) 113-136; Gugler, P and Dunning, J 'Technology-based crossborder alliances' in Culpan, R (ed), Multinational Strategic Alliances International Business Press, New York (1993) 123-65. 4OTA (Office of Technology Assessment) Multinationals and the National Interest: Playing by Different Rules US Congress,

Office of Technology, Washington DC (1993), 116. SMowery op cit Ref 1; Ostry, S and Nelson, R Techno-Nationalism and

International competition between firms in high-technology industries, such as electronics, computers and telecommunications equipment, is fierce. Early entrants in such industries may benefit from a virtuous circle of innovation, economies of scale, learning by doing, and oligopolistic exploitation of technological leads, which in turn gives countries internationally competitive economies. 2 While growing competition between firms is occurring in hightechnology industries, a trend towards enhanced cooperation is also taking place. A major feature of the internationalization of hightechnology industries has been a significant growth in the number and scope of international strategic alliances. 3 Some of the reasons for the growth of these alliances are increased international competition in industries, rapidly escalating R&D costs and growing technological convergence in information industries. In addition, many states play a critical role in limiting entry of foreign firms into their countries and encouraging formation of joint ventures with domestic capital. 4 The emerging internationalization of production in high-technology industries is fuelling rivalry between countries. 5 States often support their home-country firms in order to expand exports and foreign direct investment. Governments in major industrialized countries provide extensive support for their national high-technology firms, largely because of the benefits to the country associated with early domination of such industries. This support may take a variety of forms. Many governments support pre-competitive R&D. In addition, concessional finance is provided to assist home-country transnational corporations (TNCs) to win international contracts, a factor of considerable importance in the telecommunications equipment industry. States also intervene using more indirect policies. They promote the development of innovative domestic markets, which allow domestic firms to gain experience in new technologies in local markets before expanding internationally. While governments of major industrialized countries have strongly supported their high-technology industries, it is more difficult to clearly separate out national interests in an increasingly complex global economy. This issue has arisen, particularly in the US, given the global reach of many US high-technology firms and the concern in the US government that the extent of US dominance of high-technology industries has declined in relative terms from the 1980s. Major high-technology TNCs are rapidly internationalizing their operations, and globalization of industry and technology promises to accelerate transnational integration and cross-fertilization in engineering, technology and management. 6 In addition, rapid growth in the number of international strategic alliances in high-technology industries further complicates the situation.

Techno-Globalism: Conflict and Cooperation Brookings Institution, Washington DC

East Asia

(1995). 6Lee, T and Reid, P (eds) National Inter-

Growing levels of competition and cooperation involving East Asian and major industrialized countries' companies and states are shaping their expansion in high-technology industries. Developed East Asian countries compete with each other to attract foreign investment and technology as well as to expand market share in world markets. 7 At the same time, growing cooperation between firms from different countries is also taking place. Whereas significant differences exist in these countries' economic development paths, a common thrust is to emphasize their expansion in high-technology industries.

ests in an Age of Global Technology

National Academy Press, Washington DC (1991), 45. 7Simon, F D, and Soh, C 1994 'Korea's technological development' Pacific Review (1994) 7(1) 96; Simone, V and Feraru, A T The Asian Pacific Political and Economic Development in a Global Context

Longman, White Plains, New York (1995), 317-324.

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8Hatch, W and Yamamura, K Asia in Japan's Embrace: Building a Regional Production Alliance Cambridge University Press Cambridge (1996) 27-28; Guyton, L 'Japanese FDI and the transfer of Japanese consumer electronics production to Malaysia' Far Eastern Business 1995 1 (4) 63-97 9Hobday, M Innovation in East Asia: The Challenges to Japan Edgar Elgar, Cheltenham, UK (1994); Bernard, M and Ravenhill, J 'Beyond product cycles and flying geese: regionalization, hierarchy, and the industrialization of East Asia' World Politics 1995 47 171-209 1°Hatch and Yamamura op cit Ref 8; Aoki, T 'Japanese FDI and the forming of networks in the Asia-Pacific region: experience in Malaysia and its implications' in Tokunaga, S (ed) Japan's Foreign Investment and Asian Economic Interdependence: Production, Trade and Financial Systems Tokyo University Press, Tokyo (t992) 73-110; Itoh, M and Shibata, J 'A study of the operations of Japanese firms in Asia: the electrical machinery industry' in Chert, E K Y and Drysdale, P (eds), Corporate Links and Foreign Direct Investment in Asia and the Pacific Harper Educational, Pymble (1995) 187-202. l~Guyton op cit Ref 8. ~l'aylor, M Dominance through technology: is Japan creating a yen bloc in Southeast Asia?. Foreign Affairs 1995 74(6) 14-20 ~3Hatch and Yamamura op cit Ref 8. ~4Maruko. M High-technology firms refocus on Asia. Japan Times Weekly International Edition 1995 35(19) 13 15Smith H, . Industry policy in East Asia. Asian-Pacific Economic Literature 1995 9(1) 17-39 16Matthews and Ravenhill op cit Ref 2; Simon, D F 'Globalization, regionalization and the Pacific Rim' in Simon D F (ed) The Emerging Technological Trajectory of the Pacific Rim Sharpe, Armonk and New York (1995) 3-26. 17Parker, S Trade and investment in Southeast Asian development. Journal of Northeast Asian Studies 1993 12(3) 49-65 ~SDedrick, J and Kraemer, K 'National technology policy and computer production in Asia-Pacific countries' Information Society 1995 11 29-58; O'Connor, D C, 'Technology and industrial development in the Asian NIEs: past performance and future prospects' in Simon D F (ed) The Emerging Technological Trajectory of the Pacific Rim Sharpe, Armonk, New York (1995) 55-80. 19Hou, C-M and Gee, S 'National systems supporting technical advance in industry: The case of Taiwan' in Nelson, R (ed) National Innovation System: A Comparative Analysis Oxford University Press, New York (1993) 384-413; Wong, P-K 'Singapore's technology strategy' in Simon DF (ed.) The Emerging Technological Trajectory of the Pacific Rim Sharpe, Armonk, New York (1995) 103-131.

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Developed East Asian countries recognize that they must rapidly develop their technological expertise, given rapid global technological change and the growing difficulties of accessing key technologies from Western firms. This is particularly true for large Asian electronics firms from Japan (eg NEC, Toshiba and Matsushita) and South Korea (eg Samsung and LG Electronics) who are investing heavily in their own R&D as well as forming strategic alliances with Western firms. Internationalization and regionalization of East Asian high-technology industries have been discussed using the product cycle model. East Asian countries are assumed to follow Japan's lead in such industries and shift upwards in terms of technological sophistication. The metaphor of East Asian countries being in a 'flying geese' formation behind Japan has been used either explicitly or implicitly by policy makers in the region. 8 However, such approaches have been criticized for not recognizing differences in the economic development paths followed by East Asian countries and the complex corporate networks linking global and East Asian firms together. 9 The metaphor fails to take account of more complex globalization and regionalization trends linking East Asian countries. A number of Japanese electronics firms have shifted a significant part of their operations offshore to other East Asian countries. This shift has had important impacts in the development of the electronics industry in these countries, l° However, the uniqueness of the Japanese k e i r e t s u system makes it difficult for companies from other Asian countries to enter such business relationships on an equal footing. II Japanese firms have been accused of transferring only low-technology production to East Asia. 12 In addition, it has been argued that Japanese firms have 'locked in' companies from other Asian countries into their production networks in a dependent position, with very little sophisticated Japanese technology transferred to their Asian partners. 13 However, this situation may be partially changing with the trend towards more complex globalization and regionalization patterns. 14 The role of the state in promoting economic growth in East Asia has attracted a large research literature. 15 Whereas there are significant differences in the nature of government involvement, a common thread in government policies throughout the region is a desire to accelerate the development of high-technology industries. East Asian states intervene actively to promote international competitiveness of their economies, and state-state rivalry is strong. 16 Greater competition between East Asian countries is forcing governments to keep up with their neighbours in terms of improvements in their business environment and in their physical and human infrastructure.17 Growing international competition in technology-intensive industries and the success of Japan have increased interest in the use of technology policy to enhance economic performance by East Asian countries, particularly in the information technology area.18 Whereas the nature of government intervention varies substantially from country to country, governments are improving their basic scientific infrastructure by expanding the number of students and research capabilities of universities and technical institutes. 19 In addition, countries are placing heavy emphasis on improving their physical infrastructure, with heavy investment in transport, telecommunications and energy.

Broadbound telecommunications and multimedia in East Asia: J V Langdale

Broadband telecommunications and multimedia technologies and international competitiveness Broadband and multimedia technologies are considered, by most industrialized countries to be central to their future international competitiveness. Governments have introduced policies to encourage rapid introduction and diffusion of these technologies. This section focuses on US government initiatives in the broadband telecommunications and multimedia area and responses of East Asian countries to these initiatives. Whereas national responses are unique to each country, they are being shaped by the desire to catch up with the US and other industrialized countries and by their rivalry with other East Asian countries. Other industrialized countries are also responding to the US initiatives, although they are not considered in this paper. For example, the European Community has been concerned about Europe's relatively poor performance in telecommunications and other information technologies. The Bangemann Report has recommended that Europe needs to follow the US in a private-led approach to the introduction of these technologies, with a concomitant reduction in the role of state telecommunications monopolies, z° US government policies National Information Infrastructure. The US government has outlined a

vision of a new US economy based on broadband networks and multimedia. The National Information Infrastructure (NII) is envisaged to have a central role in transforming the economy. The US and other industrialized countries are shifting into knowledge-based societies; national well-being and international competitiveness will depend on the speed with which knowledge is created and the ease with which people are able to access it. The government aims to create an information and communications network throughout the US using broadband telecommunications (primarily fibre optic cables) to connect homes and businesses as well as public institutions such as schools and hospitals. 2~

2°Bangemann, M Europe and the Global Information Socie~ Recommendations to the European Council High-Level Group on the Information Society for the

European Council, Brussels (1994) 21US Department of Commerce Competing to Win in a Global Economy

Washington DC (1994) 64 22US Office of the Vice President The Global Information Infrastructure: Agenda for Cooperation US Government Publish-

ing Office, Washington DC (1995).

The Global Information Infrastructure. The Global Information Infrastructure (GII) is an international extension of the NII concept. The GII, as envisaged by the US, will allow countries to share information and to communicate as a global community.22 The US argued that these connections will facilitate economic progress, enhance democratic trends in countries and provide better solutions to global environmental challenges. It envisaged that no country should dominate the GII and argued that the distributed intelligence of the GII will spread participatory democracy throughout the world. The plan is based on five principles: encouragement of private investment; promotion of competition; creation of a flexible regulatory framework that can keep pace with rapid technological and market changes; provision of open access to the network for all information providers; and ensuring the provision of universal service. Whereas the US argued that no country should dominate the GII, the reality of international competition in the telecommunications and multimedia services and equipment industries is quite different. International competition between companies in these industries is fierce, and their

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international expansion is strongly supported by their respective governments. US companies dominate a number of areas in broadband telecommunications and multimedia technologies and are likely to win major export markets as these technologies are adopted internationally.

Competitive rivalry

23Sharma R '"lnfobahns" in Asia: Promises and perils' IEEE Multimedia 1995 2(2) 80-85. 24Hobday op cit Ref 9. 2SSimon, D F op cit Ref 16. 26Simon, D F o p cit Ref 16; UNCTAD (United Nations Conference on Trade and Development) World Investment Report 1993: Transnational Corporations and Integrated International Production United Nations, Programme on Transnational Corporations, New York (1993). 27OTA op cit Ref 4.

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The NII and GII initiatives in the US and other industrialized countries have stimulated developed East Asian countries' governments to introduce their own policies in these areas. These technologies are perceived as being central to the international competitiveness of their economies and closely relate to their overall goals of developing high valueadded manufacturing and service industries. 23 Japan has the most technologically-sophisticated industries in the region, although Taiwan and South Korea are also rapidly developing these industries; Japan is experiencing fiercer competition from these economies in selected areas of electronics than it is from the US or Europe. 24 However, the shift towards more technically sophisticated manufacturing and service industries is leading to growing rivalry and cooperation between developed East Asian and Western industrialized countries, as well as among East Asian countriesY East Asian countries' responses to these global developments have been to: rapidly expand nationwide fibre optic telecommunications networks built by the government and/or by private firms; increase government financing of R&D in multimedia technologies; and encourage local and foreign firms to expand the production of multimedia equipment and software. The high level of interest on the part of developed East Asian countries in broadband telecommunications and multimedia technologies needs to be related to the growing importance of internationalization and regionalization trends in their economies. More complex global and regional trade and foreign direct investment flows are integrating countries in the region. Domestic and international broadband telecommunications networks are important in facilitating such trends. Internationalization and regionalization trends are particularly apparent in high-technology manufacturing (eg electronics) and in some service industries (eg telecommunications, banking and finance). 26 Rapid expansion of developed East Asian countries in multimedia technologies appears to be similar to the 'flying geese' analogy of East Asian countries following each other into technologically sophisticated industries. However, while these countries are rapidly expanding their involvement in these technologies, each country's responses to these international developments differs quite considerably (see below). Furthermore, whereas strong rivalry exists between companies and between countries, growing cooperation in the form of strategic alliances between firms is occurring as well.

Strategic alliances Globalization is leading to a rapid growth in the number and type of international strategic alliances in high-technology industries. 27 East Asian firms are forming strategic alliances with firms from major industrialized countries (particularly from the US) in the electronics

Broadbound telecommunications and multimedia in East Asia." J V Langdale

industryfls These trends in electronics and other high-technology industries are also reflected in the broadband and multimedia area. The greatest activity is in Japan, although a number involve firms from Taiwan and South Korea. The alliances are linking East Asian firms with global firms, but are also being formed on an intra-country and an East Asian basis. Three broad types of alliances are identified here. Alliances with US firms

28Simon op cit Ref 16, 10-18. agValigra, L 'Japanese build US beachheads to tap multimedia expertise' Asian Wall Street Journal 1995 28 March 9. 3°Serapio, M G Growth of Japan-US cross-border investments in the electronics industry. Research Technology Management 1995 38(6) 42-47 31Simon and Soh, C 1994 op cit Ref 7; Wade, R 'Industrial policy in East Asia: Does it lead or follow the market' in Gereffi, G and Wyman, D (eds) Manufacturing Miracles: Paths of Industrialization in Latin America and East Asia Princeton University Press, Princeton 231-266. 3aVatikiotis, M Chickens in cyberspace. Far Eastern Economic Review 1995 158(9) 62-63

Strategic alliances with US firms are central to a number of East Asian firms' strategies in the broadband telecommunications and multimedia area because of the technological lead of the US. However, Japanese and South Korean information equipment firms also have considerable strengths in a number of key technologies, such as semiconductors and consumer electronics. Alliances between East Asian and US firms have taken a number of different forms. One is that East Asian information equipment firms (primarily Japanese, but also South Korean and Taiwanese) need to access innovative US multimedia technology, given the future importance of this technology in international information equipment markets. For example, Japanese companies such as Fujitsu, NEC and Toshiba have established operations in the US (often in Silicon Valley in California) to look for possible US partners and to stay in touch with multimedia developments, e9 This strategy is being followed by Japanese firms in a number of high-technology industries, 3° although it is often characterized by Japanese firms establishing R&D facilities in the US rather than forming strategic alliances. A similar situation exists for Korean companies. The Korean government facilitated Korean companies' early connections with US firms in Silicon Valley. The government-funded Korea Institute of Electronics Technology (KIET) established a liaison office in Silicon Valley in 1978 and assisted Korean firms obtain equipment and technology licenses, build contacts with US electronics firms and create a network among South Korean researchers working in US electronics companies. By the 1990s, a number of Korean firms have either set up their own companies or have made investments in US companies in Silicon Valley, which function as 'listening posts' on innovative developments in the US. 3~ A second type of strategic alliance illustrates the importance of technological convergence trends. Some large East Asian conglomerates are diversifying their activities as a result of opportunities arising from the convergence of information technologies and are moving into the telecommunications and multimedia areas. They are forming alliances with US telecommunications, broadcasting and computer firms to gain access to sophisticated technologies. This trend is particularly true for large Japanese trading firms (eg Sumitomo, Itochu and Mitsubishi), but is also true for large Korean and Thai conglomerates. In Thailand, the Charoen Pokphand (CP) Group, a diversified agribusiness firm, is installing a fibre optic cable network and interactive cable television in Bangkok in its TelecomAsia joint venture with Nynex, the US telecommunications firm. 32. A number of Japanese industrial conglomerates are diversifying into broadband telecommunications and multimedia by forming strategic alliances. One is the global alliance (Time Warner Entertainment)

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between two US companies (Time Warner and US West) with two Japanese firms, Itochu and Toshiba. The joint venture known as Titus is providing telephony and multimedia services and is opening cable television stations throughout Japan. Itochu, a diversified industrial conglomerate, acts as the overall coordinator of services with Toshiba, a large information equipment manufacturer, supplying the equipment. A second example is the global alliance between TeleCommunications (TCI) and Sumitomo. TCI is a global US media firm with expertise in cable television which is expanding into telecommunications, whereas Sumitomo is a large Japanese conglomerate. In both cases the Japanese firms need to access the US expertise in telecommunications, cable television and multimedia, whereas the US firms need local partners to enter the Japanese market and to gain access to capital. 33

Within-country alliances A number of within-country alliances in multimedia are being formed in East Asia, but particularly in Japan. The Japanese government has facilitated the formation of multimedia consortia. The government has traditionally operated in this way, and MITI has had considerable success in expanding Japanese firms' international competitiveness in international electronics markets with such policies. 34 For example, MITI is leading six major electronics manufacturers (Sony, Matsushita, NEC, Toshiba, Fujitsu, Hitachi and Ascii) and a computer software house in a joint company to develop and share core multimedia technologies. The joint venture Digital Vision Laboratories is 70% owned by the government and 30% by the companies. Although the companies are strong rivals, government insistence and the fear of being left behind attracted them to the venture. In general, these alliances have been formed because there is a need for coordinated Japanese government-business efforts to catch up with advanced US technologies and to alleviate the burden of heavy development costs on companies. However, the US technological lead combined with the strong rivalry among domestic Japanese firms has led to a US orientation for the major alliances in multimedia technologies.

Intra-regional alliances

33Kageki, N 'US cable-TV titan enters Japan venture' Nikkei Weekly 12 December 1994 p. 8; Nakamoto, M 'Japan and US link in cable "IV venture' Financial Times 10 January 1995 p.6. ~Anchordoguy, M Computers Inc. Harvard University Press, Cambridge, MA (1989).

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Intra-regional alliances in multimedia technologies among East Asian firms have been less common, largely because the firms lag behind their US counterparts, but also because of the competitive rivalry between Asian countries. However, Japanese information equipment firms, such as Sony and Matsushita, have been expanding their regional operations, initially in terms of low-wage assembly operations, but in recent years in technology-intensive production as well. This is leading to a growing number of alliances with firms from other East Asian countries. There are both 'push' and 'pull' factors associated with the regional expansion of Japanese information equipment firms. A major 'push' factor is the rising value of the yen, which is accelerating the shift of firms from Japan to East Asian countries. However, there is also a recognition in Japan of the rising technological sophistication of other East Asian countries. While Japanese firms are expanding their operations in these offshore locations, they are also forming complex networks of strategic

Broadbound telecommunications and multimedia in East Asia. J V Langdale

alliances with firms from other East Asian countries. 35 An alliance has been formed, researching broadband telecommunications applications between major South Korean firms (Goldstar, Samsung, Korea Telecommunications and others) and a large consortium of Japanese firms. 36

East Asian countries' strategies Limited attention has been given in East Asia to the demand for broadband telecommunications and multimedia technologies. The policy focus has tended to be driven by supply-side goals, particularly those promoting international competitiveness and shifting into hightechnology industries. This supply-side focus is risky, since little is known about the likely demand for these services in the home, business and in other areas such as education and health. The diversity of national responses to global developments depends on the level of technological development, the nature of government intervention and the strength of business enterprises in these areas. It is difficult to generalize about types of developments, but three broad categories may be recognized. Firstly, Northeast Asian economies (Japan, South Korea and Taiwan) with large export-oriented information equipment industries are rapidly developing broadband and multimedia industries because it would be very difficult for their firms to be internationally competitive without having an innovative domestic market. A second group are regionally oriented economies (Singapore and Hong Kong) that have focused on their regional headquarters' role for major foreign (mainly US) multimedia companies. The third group includes a diverse group of countries, but ranges from the near-Newly Industrializing Countries (NIEs), such as Thailand and Malaysia, to poorer countries such as China. In general, the teledensity is very low, and most of these countries are primarily concerned with expanding basic telephony services, particularly in rural areas. However, broadband and multimedia issues are attracting growing attention. Northeast Asian economies

3SMaruko op cit Ref 14; Simon, D F and Yun, Y 'Technological change, foreign investment and the new strategic thrust of Japanese firms in the Asia Pacific' in Chen, E K Y and Drysdale, P (eds) Corporate Links and Foreign Direct Investment in Asia and the Pacific Harper Educational, Pymble (1995) 203-226. 36Nikkei Weekly 'Koreans seek global allies to speed entry into multimedia' 10 October 1994 p. 24.

The international competitiveness of information equipment industries in the Northeast Asian economies of Japan, Taiwan and South Korea is an important factor underpinning their expansion in broadband and multimedia industries. Major information equipment companies, such as Sony, Toshiba and Fujitsu from Japan and Samsung and Daewoo from South Korea, are using their existing strengths in semiconductor and consumer electronics industries to expand into multimedia technologies. However, these countries have been concerned about the 'hollowing out' of their manufacturing base, as manufacturing firms shift operations to low-wage East Asian countries. In part, their NII policies represent a desire to achieve major economic restructuring of their economies and to take advantage of opportunities in new high growth information equipment and service industries. Japanese developments in broadband and multimedia technologies are of particular importance given Japan's international competitive strength in information technology industries. The US government's NII plan has attracted major interest from both Japanese firms and the government worried about the competitive threat to Japanese industry, although it is

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37West, J, Dedrick, J and Kraemer, K 'Back to the future: Japan's Nil plans' Unpublished paper delivered at a Symposium on the National and International Initiatives for Information Infrastructures, Kennedy School of Government, Harvard University, Cambridge, MA (1996). ~Telecommunications Council, Reforms toward the Intellectually Creative Society of the 21st Century Ministry of Posts and Telecommunications, Tokyo (1994). 39Morris-Suzuki, T Beyond Computopia: Information, Automation and Democracy in Japan Keegan Paul, London (1989). "°Sharma op cit Ref 23. 41ibid 42Zarit W Taiwan mapping out plans to build the superhighway to its information future. East Asian Executive Reports 1995 17(1) 8-15 43Shapiro, D 'Transforming Taiwan' Asian Business 1995 31(4) 24-28; Cheng, C-Y 'The role of the ROC in international economic and financial organizations' American Asian Review 1995 13 1-22.

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likely that some groups in Japan have 'played up' the US threat in order to bring about a more unified Japanese responses The Japanese government has given broadband and multimedia technologies a high priority. A report to the Ministry of Posts and Telecommunications (MPT) argued that Japan needed to expand information-based industries and that a nationwide fibre optic network should be a core component of Japan's new information society. 38 However, the development of an Nil in Japan is complicated by a number of factors. One is that there is considerable uncertainty over Japanese telecommunications policy: the government has introduced some competition and has indicated that it plans to extend its role, but the details are still unclear. A second complicating factor is that the introduction of these technologies is influenced by on-going 'turf wars' between government departments, particularly the MPT and the Ministry of International Trade and Industry (MITI). 39 Both ministries are attempting to take control of the policy agenda in broadband telecommunications and multimedia. Little attention in Japan has been given to the likely demand in the home for broadband telecommunications and multimedia services. There are parallels between the current enthusiasm for the Nil on the part of NTT and the government with a similar set of developments in the 1980s. NTT initially introduced its Information Network System (INS) in the 1980s, which linked the provision of telephony, data and audiovisual information using fibre optic cable networks. It was envisaged that the INS would provide fibre to the home and would be in place by 1995; however, demand from domestic users was not high. It is now proposed that the Nil would provide fibre to the home by 2010, although it is not clear if demand from consumers will support such services. 4° South Korea and Taiwan have strong information technology industries and, in some areas, are technologically comparable with Japan. 41 The Korean and Taiwanese governments are playing a prominent role in building nationwide fibre optic networks in their respective countries, although private enterprise in Taiwan is also developing a number of network products and services. An important factor behind Taiwan's plans to develop a Nil is that it expects such a strategy to assist its information equipment and software industries. Although Taiwan is already one of the world's leading manufacturers of computer hardware, its telecommunications equipment and software industries will have to expand dramatically if Taiwan is to be a world competitor. Taiwan's information equipment industry accounted for over 30% of the island's exports in 1993. The government sees the NII as a means of expanding the computer industry, despite shifts of its manufacturing base offshore to lower cost sites. 42 Another factor underpinning Taiwan's development of its NII is its desire to develop as an Asia-Pacific Regional Operations Centre (APROC) for technology-intensive manufacturing, air and sea transshipment, finance, telecommunications and the media. 43 A world- class Nil is necessary to develop Taiwan's international competitiveness in its APROC strategy. The deregulation of Taiwan's telecommunications industry and the government's approval of the entry of foreign carriers (albeit in a minority equity position) is related to this strategy. However, the slow pace of these changes means that Taiwan is unlikely to pose a significant competitive threat to Singapore and Hong Kong in regional headquarters activities.

Broadbound telecommunications and multimedia in East Asia. J V Langdale Rivalry in regional multimedia services

Singapore and Hong Kong are major regional services cities for the Asia-Pacific region. Both are actively competing in regional services markets, such as banking and finance and freight and passenger transportation, and have attracted regional headquarters (RHQs) of major firms operating in the region. The rivalry has expanded in recent years into information-based industries, such as communications satellite uplinking, film and video production and regional telecommunications hubs for large firms. While Singapore and Hong Kong dominate the regional services market, other countries (Australia, Malaysia, Taiwan and Thailand) are emerging as competitors. Broadband telecommunications and multimedia provide a new component to this competition in regional services. Hong Kong and Singapore have adopted very different approaches to these areas. Hong Kong has a market-driven approach, whereas Singapore's is dominated by the government. Hong Kong's regional role has suffered in recent years. It is now one of the most expensive cities in the world, and some firms have relocated part or all of their operations to other Asia-Pacific cities to reduce COSTS.44 Perhaps more importantly has been the uncertainty associated with the takeover by China of the Colony in 1997. In particular, uncertainty about the attitude of the Chinese government to the introduction of competition in Hong Kong's telecommunications and to the city's regional role in broadcasting and multimedia industries has harmed its ability to operate as a regional hub. Hong Kong's regional competitive strength has been that it is the traditional hub of offshore business in East Asia and has regionallyoriented banking and finance, telecommunications and transport industries. Close economic and cultural linkages with the booming southern China region have given its economy a major boost. In addition, Hong Kong's media industry has well-developed export markets for Chinese language films and television series throughout Southeast Asia. 45 Competition between Hongkong Telecom, the monopoly telecommunications carrier, and Wharf Cable, the cable television operator, in the interactive cable television market is shaping the growth and direction of Hong Kong's broadband and multimedia technologies. Hongkong Telecom plans to start an interactive service in 1997, that will provide video-on-demand services as well as banking, retail, information and community services. Wharf Cable is providing a conventional cable television service at present, but expansion of its hybrid fibre and coaxial cable network to homes will provide it with the capability of providing telephony and multimedia services. While competition is looming as a result of convergence, it is not clear that the demand for interactive services will be large at least in the next 5 years. 44Business Asia 'Costs: the tale of two The Singapore government has targetted telecommunications, broadcities' 23 May 1994 1-3. casting and information technology industries as being critical for its "SLangdale, J V 'East Asian broadcasting industries: Global, regional and national economy; the development of a world-class telecommunications infraperspectives' Economic Geography forth- structure is a high national priority along with transport and utilities. 46 coming 1997; Godard, F 'Hong Kong aims The government views broadband telecommunications and multimedia to be programming powerhouse' Broadcasting & Cable International December technologies as providing a key infrastructure for the transformation of Singapore into an 'Intelligent Island'; they are envisaged to provide a 16 1995. a6Wong, P-K op cit Ref 19. wide range of business and social functions. 47 4rSingapore IT2OOO~A Vision Of An IntelSingapore is facing growing competition from other countries. This ligent Island National Computer Board, competition comes from other NIEs in the development of highSingapore (1992).

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Broadbound telecommunications and multimedia in East Asia: J V Langdale

technology industries, such as electronics and computers. These NIEs (Taiwan and South Korea) have their own plans to develop broadband and multimedia technologies. Countries such as Malaysia and Thailand, which are developing rapidly, also pose an increasing competitive threat to Singapore. Furthermore, finns from industrialized countries are increasingly reluctant to transfer key technologies to East Asian countries given that they see the region posing a growing challenge to their competitiveness .48 Broadband telecommunications and multimedia technologies are important in terms of the government's long-term international competitiveness plans. Given Singapore's small size and lack of large innovative local companies, the government has attempted to attract foreign multimedia firms on the basis of two complementary policy directions. Firstly, the government aims to develop the country as an innovative multimedia market. It plans to build a fibre optic cable infrastructure throughout Singapore by 2000 and to promote the adoption of these technologies in schools, colleges and government offices as a part of its Information Technology Plan. The government is encouraging foreign firms to locate in Singapore to help design and provide software for this infrastructure. Singapore has to be a leading-edge user of multimedia if the government is to succeed here. Singapore's strengths are its very well-developed business infrastructure, excellent transport and communications networks and pro-business attitude of the government. The difficulty with its strategy is that other developed East Asian countries are moving quickly to develop these industries and have the attraction of much bigger domestic markets. The second and complementary part of the Singapore government's strategy is to encourage foreign multimedia firms to use Singapore as the R H Q for their expansion in Southeast Asian multimedia markets. Singapore's attraction for these RHQs is its overall efficient business operations. In particular, it is attempting to attract RHQs of US multimedia firms. Singapore already serves as a base for satellite uplinking, media financing and post-production services. 49 It has achieved some success in attracting a number of foreign multimedia production firms. Other East Asian countries

4eWong op cit Ref 19. 49Lim, S 'Singapore' Movie/'l'V Marketing 25 July 1994 p. 11.

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While most NII activity has taken place in developed East Asian countries, significant interest is present in other Asian countries as well. However, NII developments in these countries are less advanced; other issues, such as the low level of telecommunications development as well as the introduction of competition and privatization of telecommunications carriers, have been of greater policy importance. Less developed East Asian countries have very low teledensities (Table 1). However, countries such as Thailand which are developing rapidly are making a major effort to expand the current low levels of telecommunications development: the government is aiming to expand the telephone penetration rate to 10 main lines per 100 people by 1997. Introduction of the NII raises a policy dilemma in telecommunications services for many countries. On the one hand, governments of poorer East Asian countries want to expand the geographical coverage of the telephone network to all citizens (the universal service goal), while on the other hand introducing advanced business telecommunications services in major cities in order to enhance firms' connections to global information

Broadbound telecommunieations and multimedia in East Asia." J V Langdale Table 1. Number of telephone lines per 100 inhabitants in East Asian countries, 1994.

Source: International Telecommunications Union, World TelecommunicationDevelopment Report, Geneva (1995).

S°Asian Wall Street Journal 'US West enters media venture with Binariang' 27 February 1995 p. 22.

Country Cambodia China Hong Kong Indonesia Japan Laos Malaysia Myanmar Philippines Singapore South Korea Taiwan Thailand Vietnam

Total lines 0.05 2.29 53.99 1.33 47.98 0.30 14.69 0.29 1.68 47.26 39.70 40.00 4.69 0.61

Lines in largest city 0.57 5.49 53.99 7.68 42.66 1.30 14.31 1.82 8.64 47.26 52.86 62.10 25.52 1.46

sources. The primary goal of introducing the NII in these countries is to improve international competitiveness. Despite the avowed adoption of universal service principles by many countries, non-metropolitan areas in East Asian countries are poorly provided with telephony services. Telephone penetration rates are much lower outside major cities (Table 1). Broadband telecommunications and multimedia services tend to be introduced in major cities rather than in non-metropolitan areas. However, extension of the universal service principle to broadband services would be prohibitively expensive at a stage when demand for them is in its infancy. Furthermore, cross-subsidization from city to rural subscribers would discourage adoption of them in cities and make the services economically unviable. On the other hand, if these services are as important to society as many have argued, then the lack of access for people living in rural regions will reinforce existing regional inequalities. Rapid diffusion of cable television throughout these countries would reduce the locational inequalities in access to information. However, cable television is still in its infancy in most East Asian countries and it will be years before rural areas obtain access to such services. Countries that are moving towards NIE status, such as Malaysia and Thailand, are introducing broadband and multimedia technologies. While their strategies in these technologies areas are still being developed, they are viewed as being important in their shift to developed country status. However, the situation is complicated by the rapid restructuring taking place in telecommunications. Malaysia is introducing more competition, allowing limited entry of foreign carriers, and has partially privatized Telekom Malaysia. US West, the large US telecommunications carrier, has taken a 20% shareholding in Binariang, the largest Malaysian competitive carrier. The Malaysian company was interested in accessing the multimedia expertise of the US company. 5° Telekom Malaysia is planning to develop a national broadband network to support multimedia applications. The government argues that Malaysia needs to have telecommunications services comparable to other industrialized countries. Malaysia is planning to develop a multimedia corridor linking Kuala Lumpur with the new administrative capital, Putrajaya, and the new international airport. The government will provide tax concessions to approved multimedia companies and allow foreign firms to bring in skilled foreign workers. However, the plan will reinforce the geographical centralization of Malaysia's economy around Kuala Lumpur.

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Considerable tension exists in China between the goal of ensuring economic development in all regions (locational equity) and promoting rapid economic growth in the Eastern coastal regions. 51 The bulk of foreign direct investment in China has been attracted to the exportoriented coastal regions, whereas inland regions have lagged significantly behind. A similar tension exists in telecommunications, with most interest focused on building fibre optic networks in the rapidly growing eastern regions. 52 Telecommunications development is very low in China: in 1992, it had just under one telephone per hundred people. While this figure had risen to three by 1995, the five major cities in the country have a density of 25% or greater. 53 It seems likely that the main policy focus in China for the foreseeable future will be in expanding the number of telephones and the geographical extent of the network. The role of broadband telecommunications will be to connect primarily major cities. In addition, the rapidly growing East Coast regions such as Yangtze delta region (near Shanghai) and Guangdong province have ambitious plans to expand broadband networks. China is also initiating projects in the multimedia area, although they tend to be located in major cities.

Conclusions

5~Fan, C C Of belts and ladders: State policy and uneven regional development in post-Mao China. Annals of the Association of American Geographers 1995 85(3) 421-449 S2Tan, Z 'China's information superhighway'. Telecommunications Policy 1995 19(9) 721-731 53Tan, P L, McClelland, S China: Telecommunications' inscrutable giant. Telecommunications 1995 29(1 O) 150-152 r~O'Connor op cit Ref 18.

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The East Asian broadband telecommunications and multimedia case study illustrates broader international competition and cooperation issues in high-technology industries. This case study illustrates that the disputes between the US and Japan and other developed East Asian countries need to be examined in the context of broader internationalization and regionalization trends. New patterns of competition and cooperation are taking place between firms and governments. Strong rivalry among these countries coexists with growing complementarities in their economies. O'Connor argued that Asian NIEs and industrialized countries have been targetting similar high-technology industries. 54 This is likely to lead to several possible outcomes. Firstly, not all countries will succeed. Secondly, a global and regional division of production will emerge in these industries. It is difficult to speculate as to the likely 'winners' and 'losers' in East Asia in the broadband telecommunications and multimedia technology area. The electronics industry has shown that the Asian NIEs have been very successful in capturing an increasing share of world markets. However, the NII is only partly about manufacturing; apart from Hong Kong and Singapore, most East Asian countries do not have internationally competitive service industries. As a result strategic alliances between Asian and the US and other industrialized countries' firms in the entertainment, multimedia and telecommunications areas are likely to expand rapidly in the future. O'Connor's second conclusion is also important. The existing technological expertise of Japan, South Korea and Taiwan in electronics is likely to shape their long-term international competitive strengths in the NII and GII. Similarly, the existing regional hub role of Singapore and Hong Kong admirably suits these cities' future position as RHQs for TNCs' East Asian operations, although Taiwan has also targetted this area with its APROC strategy. It is less clear as to what the international competitive strengths of countries, such as China, Malaysia and Thailand are likely to be in these areas. The huge size of the Chinese market combined

Broadbound telecommunications and multimedia in East Asia." J V Langdale

55West, Dedrick and Kraemer Ref 37. ~6Morris-Suzuki op cit Ref 39.

op cit

with rapidly rising affluence in the major cities along its East coast suggests that its domestic market may be a future springboard for Chinese-language multimedia software for the worldwide Chinese diaspora, much as the Hong Kong-based broadcaster Television Broadcasts (TVB) has been able to forge in international television markets. A high degree of uncertainty exists about the size of demand for broadband telecommunications and multimedia services in the home. Early multimedia trials in the US and other industrialized countries have indicated that a high level of demand does not exist for these services; consequently, many commercial developments have been delayed. Similar delays are affecting the implementation of these services in East Asia. Clearly, the size and nature of demand for multimedia services to the home are critical factors in the spread of these services. It is difficult to examine in the broadband and multimedia area separately from broader policy issues in telecommunications, since governments have conflicting goals in this area. On universal service and economic grounds, developing East Asian countries need to rapidly expand the geographical extent of the telephone network to all regions; this task will require a massive capital investment given the low level of telephone penetration in many countries. At the same time, most East Asian countries are introducing some competition in the provision of telecommunications services and are also privatizing government-owned carriers. A shift towards increased market orientation in telecommunications is occurring, although the state retains strong control over the industry. Inherently, tensions exist between the goal of promoting rapid economic growth in a market-oriented telecommunications industry and the social equity principles underlying the universal service goal. This policy dilemma is important in shaping the role of broadband telecommunications and multimedia in East Asia. A key task facing developing East Asian countries is to expand their telephone network to all citizens. While broadband telecommunications will be used on intercity routes in developing countries, it is unlikely that they will be used in the foreseeable future in the home. In contrast, developed East Asian countries have already provided basic telephone services to most citizens, although telephone penetration rates in Taiwan and South Korea lag behind those of industrialized countries. Given the uncertainty in the economics of connecting fibre to the home, it is unclear at this stage as to how quickly the network will spread geographically throughout developed East Asian countries. Even in Japan considerable scepticism exists about the proposed 2010 deadline for connecting all homes to the fibre optic network, 55 especially as it was forecast in the late-1970s that all homes would be connected to the fibre optic network by 1995,56 Broadband telecommunications and multimedia are likely to play a central role in East Asian countries' economic and social development and are an important component of these countries' high-technology policies. However, their role is likely to be evolutionary rather than revolutionary. Proponents of the NII and the GII have overestimated the benefits and underestimated the difficulties of building broadband telecommunications networks and introducing multimedia services that are likely to be in demand.

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