The Impact of Convergence on the Competitiveness of the European Consumer Electronics Industry
First Monday

The Impact of Convergence on the Competitiveness of the European Consumer Electronics Industry

Consumer Electronics (CE) encompass all electronic hardware and software products and systems, fixed or mobile, intended for purchase by large numbers of private consumers, enabling them access to services, functions and content at their discretion.

Today, the CE industry, as it goes rapidly digital, is in the midst of a new wave of change. The different worlds of television, telephone and data processing are beginning to share similar technologies and are starting to develop overlaps. This technological "convergence" spurs an array of other convergence moves in products, markets and businesses.

This leaves industrial, commercial and public policy makers in Europe with three major questions:

  • How is the CE product spectrum changing, with regard to services, usage and markets?
  • How is the global structure of the CE industry changing and what effect could this have on corporate strategies in the European Union?
  • Which public policies could be important in this context and what underlying research is needed?

This article is constructed as to give an answer on the last question by means of answering the first two. In doing so, it offers state of the art knowledge, but the authors would like to stress that during their research one of the main problems they found is the lack of research on this topic.

Contents

Introduction: CE, The Wider Picture
Consumer Electronics in Europe: State of the Art
The Impact of Convergence on CE Products and Services
Impact on the CE Industry Structure
Conclusion

++++++++++

Introduction: CE, The Wider Picture

Consumer Electronics (CE) encompass all electronic hardware and software products and systems, fixed or mobile, intended for purchase by large numbers of private consumers, enabling them access to services, functions and content at their discretion. As such CE can be viewed as a series of products and services resulting from a consumer-oriented value chain as opposed to, or complementary to a business-oriented one.

The CE business is a global business and the European CE industry therefore mainly consists of global players. An "educated guess" puts the total CE market in Western Europe at about 50 B EURO, of which Europe produces 35 B EURO [1]. In 1999, some 29 M people were employed full-time in the manufacturing sector in the EU. Of these, about 0.8 M were employed in the radio, television and communication equipment and apparatus manufacturing industries, or about 2.8% of the total.

Country

1992Q2

1993Q2

1994Q2

1995Q2

1996Q2

1997Q2

1998Q2

1999Q2

AT

n.a.

n.a.

n.a.

19

17

19

25

26

BE

n.a.

25

19

25

20

22

16

13

DE

n.a.

n.a.

n.a.

215

230

204

223

220

DK

n.a.

7

6

12

13

8

10

12

ES

n.a.

34

36

37

24

30

30

28

FI

n.a.

n.a.

n.a.

21

26

25

29

32

FR

n.a.

110

115

125

124

130

136

119

GR

n.a.

3

2

3

2

3

2

(est.) 2

IE

n.a.

2

3

4

5

6

20

19

IT

67

76

97

97

80

80

78

72

LU

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

NL

n.a.

84

81

43

48

48

42

45

PT

n.a.

14

16

19

14

11

14

14

SE

n.a.

n.a.

n.a.

32

41

44

47

41

UK

n.a.

291

117

148

150

153

169

159

EU total

67

646

493

799

795

785

841

804

Figure 1: Full-time employment in the manufacture of radio, television and communication equipment (thousands; EU, 1995 to 1999)

The extent to which CE industries accounted for total full-time employment in manufacturing industries, however, is quite different when individual member states are examined. For example, in 1999, Finnish CE industries accounted for more than 7% of the full-time employment in manufacturing and has been on the rise since 1997. In countries like Spain and Portugal, CE industries accounted for only around 1% of full-time employment in manufacturing.

Consumer electronics are undergoing rapid change, induced by the convergence of technologies, products and markets. In Europe, these changes began some two decades ago when the personal computer began to spread. At that same time the Single Market became a European reality, ending the national constraints of many industrial operations while increasing competition. Globalisation changed manufacturing strategies and the flow of CE products around the world.

Today, the CE industry, as it becomes digital, is in the midst of a new wave of change. The different worlds of television, telephone and data processing are beginning to share similar technologies and are starting to overlap. This technological "convergence" spurs an array of other convergence moves in products, markets and businesses.

This leaves industrial, commercial and public policymakers in Europe with three major questions:

  • How is the CE product spectrum changing, with regard to services, usage and markets?
  • How is the global structure of the CE industry changing and what effect could this have on corporate strategies in the European Union?
  • Which public policies could be important in this context and what underlying research is needed?

This article is constructed to give an answer to the last question by means of answering the first two. In doing so, it offers state of the art knowledge, but the authors would like to stress that during their research one of the main problems they found is the lack of research on this topic.

++++++++++

Consumer Electronics in Europe: State of the Art

Products and technologies

By the end of the last decade, a wide range of products was on offer on the CE market. These products could be grouped into a number of distinct "technology platforms", intended to satisfy all consumers' needs for entertainment, communication and information.

  • Entertainment

- Video: television, video recorders, camcorders, DVD players, CD recordable
- Audio: radio, hi-fi, CD players, cassette recorders, Mini Disc, CD recordable
- Game Players: Dreamcast, Playstation.

  • Communication

- Fixed Telecom: telephones, including cordless, answering machines, fax equipment
- Mobile Personal Telecom: GSM phones, SMS, Internet access, pagers, etc.

  • Information

- Desk Computing: PC's, printers, monitors, scanners, DVD players
- Mobile Computing (shared with professional electronics): laptops, palm computers, PDAs, organisers.

Figure 2: Examples of "traditional" CE products

However, new kinds of products, which did not readily fit into one of these platforms, were developed as well. They can be categorised as:

  • Set top boxes: for cable, satellite transmission, terrestrial broadcast
  • Car systems: entertainment, communication, navigation
  • Home Networks: home networks, security, tele-control and telemetry, goods with embedded terminals, distribution of audio, video and data
  • New stand-alone devices: robot pets, musical instruments
  • New Terminals: MP3 players, GPS watches, Web Pads, e-Books.

Most of the development of these new CE products has been driven by technological change due to the growing digitalisation trend of information, communication and processing. Hence, all became digital, providing the basis of technological "convergence", in particular:

  • Digital signal and picture processing techniques that allow low-cost transmission and storage of sound and video.
  • Digital integrated circuit technologies: integrated circuit technology allowed dramatically increasing complexity and speed of operation at lower cost, resulting in more powerful processors, larger memories and faster interfaces.
  • Digital telecommunication technologies: telecommunications networks began to offer digital capabilities at low cost; fixed (optical cable in backbone) as well as mobile (GSM networks).

Additional technological innovations in many other areas have been integrated into CE products. Some important areas are: functional integration, data processing improvements, software technology, flat displays for portable applications, data storage, printing technologies, interface techniques, miniaturisation, smart cards and new kinds of power storage.

Product performance improved a lot due to the introduction of new technologies. Prices fell, benefiting from learning curve effects, and production volumes increased due to the increasing popularity of CE and the conscious efforts of the manufacturers.

Enabling and inhibiting factors in CE market development

Enabling factors

New CE markets took off successfully only after certain conditions were met. Looking back, a number of success factors can be identified.

  • Portability:
    for certain products low weight and small size essential for success.
  • Content:
    availability of content in a product-compatible format a condition for use in many markets.
  • Services:
    availability of services increasingly important, in particular in Internet applications.
  • Ease of use:
    products, content and services easier to use, thanks in part to greatly improved interfaces.
  • New functions:
    products with new functions allow consumers to do traditional tasks in radically different ways and to experiment with new tasks and functions.
  • Quality when used:
    products include better image and sound, more options, faster speed.
  • Access to communication networks:
    consumers at home or on the road can easily access digital communication networks.
  • Standardisation:
    essential in most markets before products, services and content were accepted.
  • Interoperability:
    different products from different vendors need to work together.

Figure 3: Supply-related enabling factors for EC market development

The increased usage of these products by consumers increased subsequently demand, generating the success or the failure of EC products. Hence complementary demand-related factors appeared to be essential for the success or failure of these mass consumption markets.

  • Perceived usefulness:
    consumers perceived the product as useful in their everyday life, satisfying needs for information, entertainment and communication.
  • Lifestyle, fun & fashion factors:
    products had to be attractive and to add pleasure to life.
  • Cost of acquisition:
    product prices had to lower quickly to an "acceptable" price range before they were widely purchased.
  • Cost of use:
    costs of content and services had to be seen as acceptable.
  • Increasing consumer purchasing power:
    discretionary spending for luxury goods increased substantially.

Figure 4: Demand-related enabling factors for EC market development

Inhibiting factors

Several factors can be seen as having inhibited the adoption of new CE products. To a large extent these can be derived from those mentioned earlier, i.e. if "success" factors are insufficiently present. Nevertheless, there are some specific inhibiting factors such as the high cost of improvement perceived as small customer benefit; unavailability of content or software in due time; discouraging difficulty of use; insufficient standardisation or wrong standard chosen; wrong timing when new products arrive too early considering available technologies (such as weight, miniaturisation, price).

Industry structure

CE products are designed, produced and marketed by some forty globally operating companies, of which roughly half have their CE knowledge base in Europe [2].

Alcatel

Motorola

Bang & Olufsen

NEC

Blaupunkt

Nokia

Bull

Olivetti

Canon

Philips Electronics

Compaq

Psion

Dell

Sagem

Ericsson AB

Samsung

Grundig AG

Sanyo

Hewlett - Packard

Sharp Electronics

Hitachi Home Electronics

Siemens

IBM

Sony

Italtel

SUN Microsystems

Kenwood

Thomson Multimedia

Loewe Opta

Toshiba

Matsushita/Panasonic

Victor Company of Japan Ltd.

Xerox

Figure 5: Major EC companies (EU based are in italics)

Many other companies, such as personal computer makers based in Taiwan or the United States, compete on the European market, mostly via imported products.

Furthermore essential activities are handled by a rich variety of additional companies such as component suppliers. The latter includes suppliers of integrated circuits such as Philips, ST Microelectronics, Infineon (formerly Siemens), and their large U.S. and Japanese counterparts with European production sites. Also important are displays producers (Philips, Thomson), software producers (including embedded software, operating systems (Microsoft or EPOC) and application software).

"Content" becomes critical for many CE products as it holds a strategic importance in the marketing of new CE goods. It comes from sources all over the world, and Europe has in certain areas, a good position. It is delivered in various ways (i.e. broadcast, on discs, online) by many companies. Likewise, services play an increasingly important role in the CE markets.

Public policies

Numerous public policies have strongly influenced the development of the CE industry in Europe in the last decades.

  • Single Market policies:
    national markets changed into European markets, impacting virtually all aspects of CE business (inward investment by non-European companies, concentration of industrial operations, logistics).
  • Trade policies:
    national trade policies gave way to European ones while at the same time the World Trade Organisation gained strength, effectively fostering the globalisation of the CE business.
  • Deregulation of telecommunications:
    terminated the PTT monopolies, increased competition, lowered consumer prices and stimulated important markets such as the mobile market.
  • Media legislation:
    in many countries, existing media legislation was changed, resulting in the rise of commercial broadcasters, etc.
  • RTD policies:
    in particular the Eureka Program gave new options for pre-standardisation RTD (HDTV, DVB).
  • Standardisation:
    national approaches to standardisation gradually gave way to European approaches (e.g. ETSI).
  • EU product directives:
    directives at EU level began to set mandatory levels for safety, interference, etc. for CE products.
  • EU Competition Law:
    competition legislation began to influence mergers and acquisitions as well as alleged monopolistic behaviour of companies outside the EU.

Figure 6: European policies affecting CE market development

Many of these policies did not have positive effects. For example, the termination of the telecommunications monopoly may have harmed the solid technology base that existed in Europe.

++++++++++

The Impact of Convergence on CE Products and Services

Future products and services

It has been forecasted that [3]:

  • semiconductor technologies will continue to improve at about the same rate as in the past decade. The resulting computer power will be deployed in many ways, but in particular, in the improvement of the man-machine interfaces;
  • the capabilities of telecommunications networks to transport more digital information will significantly increase through better optical transmission technologies and refined use of the radio frequency spectrum; and,
  • other underlying technologies will continue to improve, promising more performance at lower cost.

To outline the panorama of possible convergence present, upcoming and future products can be categorised in terms of functional complexity: whether they are dedicated information appliances, allow command, control and communication and, if intended for mobile use, information. Below, we present a matrix depicting the evolution of CE products. They are divided into functional categories, which are shown against their status. Status refers to the state of availability in the current marketplace.

We propose four levels of status:

  • Extant (widely available today, i.e. television);
  • Existing (newly available since the last year or so with limited adoption, such as the digital terrestrial decoder for digital television);
  • Emergent (newly or being developed, prototyped or speculated, such as home networks and appliances);
  • Eventual (speculative CE for the next 10 years).

Functional categories are:

  • Information (I):
    devices that are "dumb" creators and/or providers of data/information in a basically unalterable form. Information/data can be in visual and/or audio formats.
  • Command and control (C2):
    devices that can be used to deliver instructions or control applications and are not dependent on mobile technology.
  • Command, control and communication (C3):
    devices that contain C2features and a communication capability. They too are not dependent on mobile technology.
  • Command, control, communication and information (C3I):
    devices that contain C3features and provide information, in image and audio formats, but are not dependent on mobile technology.
  • Mobile command, control, communication and information (MC3I):
    devices that contain C3features but are based on mobile technology which allows remotely operated applications and services.

The following matrix illustrates leading examples of CE categories against their status. It indicates possible technological trajectories for the emergent and eventual CE products and devices.

Status

Categories

 

I

C2

C3

C3I

MC3I

Extant

Television

Remote control units

Basic telephony devices

Personal computers

Notebook computers

 

Video recorders

Basic game players

 

Digital satellite and cable decoders

 
 

Record players

       
 

Cassette decks

       
 

CD players

       
 

Radios

       
 

Analogue satellite and cable decoders

       
 

Answer phones

       
 

Fax machines

       
 

Pagers

       
 

Camcorders

       
 

Film cameras

       
 

Early PDAs

       
 

Baby monitors

       

Existing

Digital terrestrial decoders

   

Lifestyle computers (iMac, Equium 2000)

Later PDAs

 

DVD players

   

Videophones

WAP phones

 

Mini disc players

   

Advanced game players (DreamcastTM. Sony Playstation IITM)

E-mail phones

 

Digital cameras

     

Web pads

 

GPS systems

       
 

Image intensifiers

       
 

MP3 players

       

Emergent

DVD recorders

 

Home networks

Network integrated domestic appliances

Bluetooth headsets

 

DVD audio players

 

Robotic pets (Aibo)

Car control systems

TV integrated phones

 

Digital VHS

     

Electronic books

 

Streaming video devices

       

Eventual

     

Seamless, integrated, multi-functional, interoperable home control system

Multi-functional devices integrated and interoperable with static networks

Figure 7: Matrix representing the emergence of converging consumer electronic products

Figure 8 presents transmission technologies and protocols required to achieve the intended utility and features of progressively convergent consumer electronics. It however, does not take into account operating systems that have been and are being developed for CE devices such as EPOC Symbian and the Palm platforms, as these operating systems can be considered as enablers of the products described earlier.

Status

Categories

 

I

C2

C3

C3I

MC3I

Extant

Analogue magnetic storage

   

Digital magnetic storage

 

Digital optical storage

       

Existing

MP3

   

IP

 
 

Communication bus systems

       

Emergent

Narrowcasting

   

Bluetooth

WAP

       

Solid state memory cards (solid state technology)

 

Eventual

     

IP+Bluetooth

IP+ Bluetooth+ WAP

Figure 8: Matrix representing the underlying technologies and protocols for convergent CE devices

The next figure represents a matrix for transmission technologies for CE networks. The progression of these technologies from status I to C3 suggests an increasing trend to greater complexity and versatility. As will be noted below, these technologies underpin a wide array of convergent CE products through networks that allows both static and mobile applications in the home, in an interoperable and seamless fashion. In particular, this figure mirrors both the trend and development of products and applications represented in the two earlier figures.

Status

Categories

 

I

C2

C3

C3I

MC3I

Extant

Analogue broadcasting

Infrared (low bandwidth)

Basic telephony

ISDN

GSM

Existing

Digital broadcasting (terrestrial and satellite)

Power line (low bandwidth)

Dedicated bus (higher bandwidth)

Digital Subscriber Line (DSL)

 
     

Home radio frequency

   

Emergent

     

ADSL

UMTS

         

General radio packet signaling

Eventual

       

???

Figure 9: Underlying transmission technologies for CE networks.

In sum, in reviewing Figures 7-9, one quickly notes that the emergent and eventual developments of CE belong to the C3I and MC3I categories. This may not be surprising as the trend toward more storage and functionality, bundled in a miniaturised remotely operated interoperable system, seems to be a major pursuit of CE manufacturers, as evidenced by the latest CeBIT exhibition. The emphasis on mobile technologies further reinforces the trend toward miniaturisation.

Considering the pace of technological progress and the growing functional complexity of dedicated information appliances, one can predict the following technological developments and trends will underpin the future of CE products:

  • Improved functions to offer increased performance compared to today.
  • Integration of more functions into one single product of high functional complexity is the trend, allowing command, control and communication and information, for both static and mobile use.
  • Only some future products, like e-books, will offer new functions beyond existing products.
  • Existing and future products will be interconnected as new "Web-related" devices are already being developed.
  • The range of "mobile or wireless products" is expected to grow markedly thanks to new protocols and innovative techniques.

Figure 10: Expectable trends in EC products

Nevertheless some potential obstacles can be identified:

  • Adequate broadband access at an affordable price;
  • Introduction of new standards, be it through de facto actions of one or more enterprises, or through regular standardisation processes;
  • Further digitisation, with substantial sectors of the CE platforms having not yet been digitised;
  • Emergence of new technology platforms, such as the game players, which are attempting to become the heart of home networks, creating a formidable competitor to traditional video and desk computing platforms.

At the level of services, a large variety are offered to consumers through a range of CE products. In most cases, these services have a content component, which can be accessed via an integral part of the device, purchased on a separate carrier or accessed through a network.

Today, specific products still deliver targeted consumer services. Our thesis is that convergence in content is not yet here: audio-visual content is still largely dominated by the broadcasting paradigm, software content relies on PC-based representations, individual communication transits through telecom devices. Nevertheless, some developments have shown some strength as alternative potentialities: e-mail communication, MP3, "narrowcasting", information access software (Napster, Gnutella, Pointera), ad hoc mobile downloading, etc. It is thus expected that services will be made available on a much wider range of CE products, and, inversely, CE products will offer a larger variety of services.

The main building blocks will be based on functions like communication, control, information, transaction and entertainment. Each of these functions implies different general characteristics in terms of interaction and interactivity, that shape user behaviour, service offerings and product characteristics. The following matrix provides a general overview of these characteristics.

Function

Interaction

Interactivity

Information

Consultation model

Active. Rather close interaction with interface. Regular commands

Broadcast model

Passive. Limited commands.

Control

Telemetry. Man-machine, machine-man or machine-machine interaction

Limited action required

Communication

Typically one-to-one

Active. Close interaction with interface

Transaction

Information and/ or communication type of interaction with added transaction function

The added transaction function requires limited interactivity

Entertainment

Consultation model / Game playing

Active. Rather close interaction with interface. Regular commands

Broadcast model

Passive. Limited commands.

Figure 11: General functions of CE services and types of interaction and interactivity

As a consequence of convergence, different services and functions are being combined into new service offerings. The functions described above thus become building blocks for new types of services that are increasingly turning into hybrid combinations of different functions. For instance, in the electronic information industry, services are being developed that are combinations of information (e.g. access to databases, push services), communication (e.g. e-mail, ICQ, newsgroups) and transaction (e.g. digital transaction systems, debit and credit services) components. This is resulting in a so-called digital loop of services, a virtual cycle in which the output of each service component provides necessary input for the next service component. The continuing rise of Internet penetration and Internet use is usually seen as the main driver behind this development.

Combinations of services are, nevertheless, limited to a certain extent by the forms of interaction and interactivity typical to the different functions. Such characteristics in part shape existing, emergent and eventual service offerings, interfaces and devices in CE and thus point to possible drivers and bottlenecks for convergence. Also, these characteristics lead to a number of subsequent functional demands to be fulfilled by the increasing technical possibilities. For instance, the close interaction between user and user interface typical of communication services, leads to functional demands such as flexibility (e.g. through speech and text input and output), customisation and mobility. Control services most of all require connectivity, robustness and alert functions in case of emergencies. Important requirements for information and entertainment services are flexibility, connectivity, quality of interface (e.g. through quality of display, customisation, search tools) for consultation type services, and quality of display and availability of a wide range of content for broadcast type services. Functional demands for transaction services are a.o. quality of information (e.g. through customisation, alert functions) and security.

An estimate of the importance of a number of functional demands and features for different services is given in the table below. Connectivity is estimated to be a very important feature for all kinds of functions. Again, overlapping or diverging functional demands point to possibilities and bottlenecks in terms of convergence.

 

Information

Control

Communication

Transaction

Entertainment

Mobility

++

+

+++

+

++

Flexibility/Customisation

++

+

+++

+++

++

Robustness/Security

+

++

++

+++

+

Connectivity

+++

+++

++

+++

++

Multimedia content

+++

+

+

++

+++

Quality of display

+++

+

+

++

+++

Figure 12: Functional demands associated with CE services

The matrices in previous provide a framework for the conceptualisation of converging CE services. However, the question of possible migration paths towards these converged services remains. Given the characteristics of CE services which we already discussed, a complete and seamless convergence in CE services is not to be expected, but rather a gradual expansion and partial overlap of existing services and products.

As a consequence, on a second level of analysis, one has to deal with contexts of use, i.e. concrete environments in which consumers use CE services. Such environments are reflected in the vision of so-called service platforms, such as central devices and network platforms that in a certain context communicate with a variety of related products providing specific sets of services. If indeed convergence in services will lead to the creation of service platforms, interoperability will become a crucial issue. In the table below, we put together six possible environments for service platforms, together with a number of related services. Domestic networks and service platforms are in fact already developing in these environments, in the SOHO (Small Office-Home Office) and home automation context.

Environments/Context of Use

Examples of Services

Personal Communication

E-mail, Fax, Paging, Fixed & Mobile Telephony, Answerphone Services, Chat, Webcam Broadcasting

SOHO

Shared Access, Data Transfer, PDA, Printing, Scanning

Home Automation

Climate Control, Lighting, Appliances, Security

E-commerce (b-t-c)

Shopping via Television, Internet or Telephone

Household/Personal Infotainment

TV, Video, Audio, Cameras, WWW, Games

Automobile

Audio, Information Services, Tracking & Tracing

Figure 13: Context of use and examples of services

Naturally, scenarios for converging services based on such ‘contexts of use’ need to be complemented further by taking into account more specific data on use and user characteristics. For instance, the ‘contexts of use’ of services of elderly people will differ significantly from those of other households. Additional research on user groups and characteristics is therefore required to complement this analysis.

Context of use: A Critical enabling factor for mass consumption of converged CE products

A new electronic device does not become successful based on its functional capability or its practical existence but by its ability to penetrate certain user situations, becoming an integral part of social practice. Cost and usability are only parts of the conditions for successful penetration; the conditioning of social norms, the establishment of an imaginary space of social accommodation of the product and the creation of fashion are as important. In this view, the penetration of new products also entails domestication: the creation of a new user configuration where consumers invest in making the product or service useful to themselves. These configurations develop over time, based on changes in social structure and culture.

A number of products have become personally useful and adopted quite rapidly, while others never made it. Certainly mobile phones and game consoles amongst youngsters and the multimedia PC in many homes are examples of technologies that were rapidly accepted. On the other hand, video telephones and integrated home-media-stations (combining television and personal computers) have never been universally adopted. What does make the difference between success and failure? And when can new technical options be considered a breakthrough for new uses and not just another step of technical achievements and change?

The process of penetration is an integrated process of introducing and marketing new technologies and products based on their pre-given (inscribed) potentials to a new group of users and into a new area of use. It is a process of creating a new user configuration where users investigate how a given device or service can be useful. This process of domestication is a re-configuration not only of the user context but also a shaping of the specific usability of the product.

Many visions of technology build on two archetypes of communication and information systems. These archetypes are not just specific technologies and services but they form complete technological systems including specialised industries, content providers and regulatory frameworks.

The two basic competing technological systems are the television broadcasting system - created as a typically national mass communication system - and the PC-terminated Internet, building as an extension of telecommunications networks with data connections through telephone lines and a backbone network for high capacity digital data transmission. Both have some degree of regulatory history with a variety of established institutions; both have unique features and limitations.

Television has been dependent on a supply of programs from a limited number of broadcasters; only a limited number of new broadcasters have been able to provide complete TV programs to satisfy regulations and gain access to a limited number of channels. The nature of television centralised decisions on changes in technologies, as changes would force both broadcasters and private households to renew their installations and equipment. Hence television has been described by the not always flattering characteristic of being a centralised monopoly (or oligopoly).

Telecommunications networks were initiated as point-to-point communication networks. They are more flexible but with much more limited bandwidth to be assigned to a single communication line. On top of the telecommunications network the Internet has developed. It has become the icon for a decentralised and competition based structure, where almost everything is possible. It is perhaps dangerous to use the Internet as the single correct 'role model' and primary reference point in today's development of information technologies.

Today, other important user configurations coexist and should be taken into account to develop a better understanding of potential development paths for EC products.

++++++++++

Impact on the CE Industry Structure

Considering these technology and market trends, convergence will affect the competitiveness of the European CE industry and threaten established market positions. But new opportunities are also offered, given that European firms are also offered the opportunity to show their creativity in such circumstances.

  • Convergence trends in traditional technology platforms point to the integration of several basic functions into one product. However, for many new functions, standards have not yet properly defined, nor have standard technology implementations been developed. This obviously threatens the continuity of new products from existing manufacturers. Companies must acquire new skills and deploy them along the full industrial chain, from design to after-sales service. Of course these convergence trends also offer excellent opportunities to escape price erosion in the market by offering upscale, higher value-added products. Therefore, they present an opportunity rather than a threat to the European CE industry.
  • Serious threats to European producers arise when the traditional platform becomes more software-based and hence open to influences of de facto software standards, such as PC-based operating systems such as Windows CE migrating to digital television. The same threats do pose themselves when a given platform is split into separate functions, as in the case of set top boxes for digital television or when a platform is replaced by another platform like game players. In the first cases, European manufacturers are confronted with competitors who have excellent skills in communication, data processing or software systems, though relatively little in terms of traditional television skills. However, the option of competing in this field exists for European suppliers. In the last case, however, there is little to be done: the option of entering the games market seems non-existent for hardware makers although Europe has important content developers in this field.
  • Where emerging new products with integrated functions are concerned, European manufacturers are likely to tap into the Silicon Valley environment, certainly where Internet-related skills are required. It is important to note that many of these products will have to operate in a specific European service and user context, which may require substantial translations. This may compensate for some of the weaknesses in the somewhat less advanced position of the European CE industry in this field.
  • In the mobile telephony market, where the European industry is very strong, a number of uncertainties exist regarding the continuation of that position. These uncertainties concern the way the GSM-phone is best connected to the Internet, the operating system that will control this access and the implementation of a next-generation system. Regarding the latter issue, it is important to note the challenge that European mobile telephony service providers face in terms of ability and willingness to invest in the necessary new infrastructure.
  • Many new products will support a variety of services. These services pose a challenge to traditional CE manufacturers, who often feel uneasy in the somewhat undisciplined world of content and service providers. Nevertheless, it is essential for manufacturers to familiarise themselves with the necessary knowledge and skills and integrate these properly into their businesses.
  • With the increasing importance of content and services, players in this area will determine, more and more, the developments in the CE market. Businesses tend to integrate along the value chain, but the traditional CE industry is usually not involved. This entails the risk of becoming a low value-added supplier of boxes that are specified by others. However, in Europe a significant content industry for television has developed, and the possibility for cooperation is an important option for the European CE producers.

The CE industry is thus likely to change in the next decade and is increasingly expected to be decomposed into two, partially overlapping sectors.

On the one hand, a strongly knowledge-based CE industry will emerge focused on innovation and marketing on a global scale. Only few, very large, globally operating CE firms will survive and have the necessary broad knowledge and innovation resources, design, brand name, marketing and logistics power to keep up with the changing technologies, sales and distribution techniques and usage patterns. They will be in a position to recoup the high innovation costs in very competitive global mass markets, while providing sufficient returns to satisfy shareholders. These companies also know their customers and are able to provide user-friendly products to them. Manufacturing may be an important part of their operations, although it is not necessarily an in-house activity anymore. New entrants will certainly come into the CE market, particularly in new 'converged' product areas where the innovation rate is high. In order to reach economies of scale, alliances in some form with the large companies will usually be needed. However, since for many computer-related products key components and operating software can be bought off the shelf there is room for low-added value companies that base their strength on clever combinations of design, marketing, outsourcing and logistics. In that respect, specialist niche-market players may survive too, where a premium price can be demanded for superior design or quality. But in most other cases "innovative SMEs" will enter into alliances with larger players, either by licensing patents to the latter or having products marketed and sold through their channels.

On the other hand a CE manufacturing industry will emerge partly knowledge driven - thus concentrated in a few knowledge intensive regions of the world - and partly, with regard to the commodity aspects, cost driven. This kind of manufacturing shifts quickly to the most attractive regions, with the lowest sum of production and transportation costs. In addition, the manufacturing sector includes the producers of key components, of parts and additional components (from moulds and plastic parts to fully mounted printed circuit boards), software makers (in particular "embedded software") and service companies.

This leads to three possible directions for the future of the European CE industry.

  • Innovation based on a strong position in research and design, of highly complex hardware-software products that will be needed on the European CE market, in particular by the large players.
  • Knowledge-intensive manufacturing often related to locally present key component suppliers, by a variety of companies, also in the new member states.
  • The emergence of a "European Silicon Valley" for innovative SMEs in the new, ICT-related, product sectors.

Figure 14: The Future of the European CE Industry

++++++++++

Conclusion: Convergence, Competitiveness and Public Policy

The competitiveness of the European CE industry is very strongly influenced by convergence.

  • Convergence impacts existing products and accelerates the introduction of new products. A different technology base will often be required, new customers must be understood, other market approaches are needed. Companies must acquire new knowledge and skills and hence have to become more agile and responsive.
  • Convergence creates new competitors. New entrants often introduce new products. Sales methods and channels may change fast. For existing companies there is no guaranteed future, new entrants face enormous risks.
  • Convergence introduces new relations between CE producers, content owners and service providers. Collaborations or alliances must be revisited. Mergers and acquisitions take place, changing the rules of the game. CE companies' proven strategies may not be adequate tomorrow, or even today.
  • Convergence creates new consumers. Especially around the Internet, a new "community" came into being, where unexpected usage and related behaviour are being developed. Similar trends are seen around GSM or game stations. "Traditional" CE makers may have a difficult time understanding and satisfying such consumer groups.
  • Convergence thrives on the existence of high-quality networks, with lively markets for content and services, and used by informed and interested consumers. The competitiveness of the European CE industry is critically dependent on the "health" of these environments, of which Internet is the most influential.
  • Convergence affects industrial operations and structures. Different branches of the CE industry use different innovation models and have different approaches to manufacturing and use different approaches to sales. Each company must assess its strengths and weaknesses, not only with respect to its existing competitors but in particular with a view on new ones.
  • Convergence creates a wealth of opportunities for small and medium-sized companies. Markets are created for new products and new services - independently offered or in an alliance with larger companies, directly to the consumer market or as supplier - and have a very large potential. Fast growth in case of success is essential, taking advantage of Europe's high-quality labour market.
  • Convergence increases the pressure on EU enterprises to attract and maintain highly skilled personnel who are increasingly mobile and in demand in a global marketplace.

It is in the first place the task of industry to identify the threats and opportunities and to chart its course towards the future. However, in view of the importance of the CE industry for the science and technology base and the quality of employment in Europe, a wider circle of stakeholders must understand the issues.

Public policy in Europe should therefore be focussed on an aggressive strategy to make the Union an attractive place for industry to be - not only with sales, but also for innovation and production. The following key areas are suggested.

Policies should stimulate:

  • an innovation-minded, educated European consumer base;
  • Internet usage, by enterprises as well by consumers;
  • fixed and wireless telecommunication and broadcasting infrastructures<;/LI>
  • standardisation processes in Europe;
  • creation and transfer of CE-related knowledge;
  • collaborative R&D, targeted on CE applications across Europe;
  • start-up and growth of small innovative companies;
  • high-value added manufacturing;
  • collaborations between the service, content and CE sectors; and
  • industrial collaboration and restructuring.

Proper policy measures in each of these areas will help to draw the CE industry to Europe and create an innovative environment and new employment.End of article

About the Authors

Nicolaas (Nico) Hazewindus studied physics at Delft University of Technology in The Netherlands, where he also obtained his Ph.D. in 1964. Dr. Hazewindus worked for Philips Electronics from 1964 until 1997. His last position was Director of Corporate Product Development Coordination, in which capacity he interacted extensively with the European Union's RTD programmes. After his retirement from Philips Dr. Hazewindus founded a consultancy firm, International Technology Policy Consulting.

Pieter Ballon is researcher and consultant at the Institute for Strategy, Technology and Policy of the Dutch research company TNO. He previously worked as contract researcher on projects dealing with telecommunications policy at the Free University of Brussels and the University of Amsterdam. At TNO, he specializes in research on future mobile services and market structures in the telecomms and internet sector.

Jean-Claude Burgelman is full professor in communication technology policy at the Department of Communication Studies at the Free University in Brussels (VUB) where he directs the research centre Studies on Media, Information and Telecommunications (SMIT). He has a degrees in social sciences and science and technology policy. At the end of 1999 he joined the Institute for Prospective Technological Studies (Directorate Joint research Centre of the EU) in Sevilla as a visiting scientist. His main research activities concern the socio-economic impacts of information society technologies. He has a great deal of experience in Belgian and European media and communication policy research.
E-mail: jean-claude.burgelman@chello.be

Finn Hansen is now working as a computer and IT specialist at ComputerWorld magazine in Denmark. He has conducted research in the new media technologies and HDTV at the Department for Technology and Social Sciences at Technical University of Denmark. Following this he was engaged in an EU project on Social Learning in Multimedia (SLIM) together with a number of researchers from other universities.
E-mail: f-hansen@image.dk

W. K. Hansen moved in 1997 from her position of Senior Policy Analyst, S&T (Department of Industry, Government of Canada) to Senior Research Associate, MERIT. At MERIT, Ms. Hansen's work focuses on techology and employment, with emphasis on S&T skills and the transition of the work force. In 2000, she was named as a Research Fellow with the newly formed Instititute of Infonomics (www.infonomics.nl) where her work focuses on ICTs and employment.

Ulrik Jørgensen is an Associate Professor at the Technology Analysis Unit at the Department for Technology and Social Sciences at the Technical University of Denmark. He was trained as an electronics engineer (master), and has a Ph.D. in innovation economics. His research has recently concentrated on technology policy and technology studies with emphasis on media and consumer electronics, transport systems, cleaner technology and wind turbines. He is engaged in Danish and European activities concerning technology assessment and technology foresight.
E-mail: uj@its.dtu.dk

Gerard J. Nauwelaerts was born in Brussels 1945. He earned a doctorate-at-law from the University of Louvain in 1970 and additionally has a Masters in European Law and Institutions from the College of Europe, Bruges with a major paper on the extra-territorial effect of EU antitrust law. From a Brussels-based U.S. law firm early in his career, he moved on as an international legal practitioner in corporate legal departments of large U.S. based multinationals active in the chemical, automotive, consumer and IT manufacturing business. Before becoming the first secretary-general of the European Association of Consumer Electronics Manufacturers (EACEM, 1990-1999) he was Senior Legal Counsel and Director of European Union Affairs with Digital Equipment Corporation (1984-1990) combining 15 years of experience in the manufacturing, distribution and consumer sides of IT. He is now established as a free lance consultant and knowledge broker in EU affairs and industrial co-operation.
E-mail: G.J.N@Village.uunet.be

Alain Puissochet, currently director of studies in the "Media Economics" department, manages the techno-economic monitoring at IDATE. He is responsible for managing and conducting published and client-specific research on strategic aspects of new technologies and equipment for the development of information highways. He is particularly interested in the economics of high-tech applications (Internet, electronic commerce) and terminals (set-top boxes, digital TV, flat panel displays, etc.). He developed several multi client studies, including "Set top boxes for interactive TV in the US" and "Digital TV Receivers and Video Terminals in 2005", and is managing a permanent follow-up of related techno-economics evolutions.

Dr. Puay Tang is a political scientist with a Ph.D in International Relations from the Johns Hopkins University. With five years of experience as a Research Fellow at SPRU, her research focuses on the management of intellectual property rights, and application and development of new information and communication technologies. Dr. Tang also works on electronic commerce and its implications for regulatory issues and business activities, as well as in evaluation of science and technology policy. She has undertaken projects for the U.K. Economic and Social Research Council and Engineering and Physical Sciences Research Council, U.K. Department of Trade and Industry, European Commission, European Parliament, Organisation for Economic and Cultural Development and Dutch Ministry of Economic Affairs. She is on the editorial board of the journal iCS, published by Routledge and has advised the U.K. Parliamentary Office on Science and Technology on 'electronic government.'

Tim Venables is a research officer at SPRU, Science and Technology Policy Research, based at the University of Sussex. His research covers innovation in housing both in the U.K. and overseas. At the same time he is conducting his doctoral research into the diffusion of information and communication technologies into the structure of the home.

Notes

1. Based on Reed Electronics Research (2000). The Global Electronics Market Information Resource (CD ROM).

2. The list has been drawn from on the membership of the European industry organisations EACEM (European Association of Consumer Electronics Manufactures) and EICTA (European Information and Communication Technology Association) and a few non-member companies.

3. See E. Cahill and F. Scapolo (1999) Technology Map. Futures Project series 11. IPTS, Seville and K. Ducatel, J.C. Burgelman et.al (1999) Information and Communication Technologies and the Information Society, Futures Report Series 03, IPTS, Seville.

Editorial history

Paper received 15 September 2000; accepted 27 November 2000.


Contents Index

Copyright ©2000, First Monday

The Impact of Convergence on the Competitiveness of the European Consumer Electronics Industry
by N. Hazewindus, P. Ballon, M. Bogdanowicz, J.C. Burgelman, U. Jørgensen, W.K. Hansen, F. Hansen, G. J. Nauwelaerts, A. Puissochet, P. Tang, and T. Venables
First Monday, volume 5, number 12 (December 2000),
URL: http://firstmonday.org/issues/issue5_12/hazewindus/index.html





A Great Cities Initiative of the University of Illinois at Chicago University Library.

© First Monday, 1995-2017. ISSN 1396-0466.