The below is a summary of ICT-related events and announcements occurring up to late February. Topics include issues posing an impact throughout the region, such as outsourcing trends and collaboration on digital rights management by major CE players. China coverage includes R&D investment, the drive for an Asian Linux standard, and government efforts to synchronize the supply chain between domestic and foreign firms. R&D investment and IT-related exports from India are examined, as is the Korean government's 2005 budget for ICT R&D.

East Asia

Heavy CE Hitters Team Up on DRM

On January 19th Matsushita, Philips, Samsung, and Sony announced a joint effort dubbed "Marlin, a mechanism intended to facilitate sharing of digital rights-protected files across disparate household electronics produced by various makers. Intertrust Technologies, a California company jointly acquired by Sony and Philips in 2003, will be developing the standard specifications for the underlying software.

Marlin currently enjoys the participation of more major consumer electronics players than any other DRM (Digital Rights Management) system. However, it remains to be seen whether content holders will embrace the technology. Even participating member Sony has said it is too soon to decide whether it will choose Marlin over its own proprietary DRM mechanism.

Marlin differs from the earlier Coral Consortium in that the new system designates a software standard incorporated with hardware. The latter, however, was intended to promote interoperability between programs. Intertrust has expressed that the new technology will support Coral-enabled DRM mechanisms.

Asia Set to Lure More Outsourcing

The EIU (Economist Intelligence Unit) recently released the results of a survey illustrating the growing shift of outsourcing to Asia. The 500 respondents, comprised of CEOs and other senior executives, indicated that they intended to funnel more functions to Asia and Eastern Europe over the next three years; services outsourced range from IT, payroll, finance, and accounting, to logistics, manufacturing, and customer services.

Countries were evaluated on labor costs, labor skills, labor regulation, proximity to major investment sources, political or security risks, macroeconomic stability, regulatory environment, tax systems, and infrastructure. India scored the highest, with respondents citing the wealth of English-speaking graduates, low labor costs, and a mature legal system. China was rated second due to inexpensive, abundant labor and rapidly improving infrastructure; however, a paucity of English skills, cultural barriers, and a weak legal system were cited as drawbacks. In all, Asian countries occupied six of the top ten rankings.

1. 7.76 - India

2. 7.34 - China

3. 7.26 - Czech Republic

4. 7.25 - Singapore

5. 7.24 - Poland

6. 7.23 - Canada

7. 7.19 - Hong Kong

8. 7.17 - Hungary

9. 7.17 - Philippines

10. 7.16 - Thailand

China

Intel Files First IP Suit in China

Intel filed suit against Shenzhen Donjin Communication in Shenzhen on January 20th, alleging the Chinese vendor of fixed-line short-messaging services and telephone voice messaging systems had reproduced copyrighted software and distributed it to customers.

An Intel spokesperson noted that the suit was the chipmaker's first intellectual property theft lawsuit in China. The previous week, trade officials entreated intellectual property holders to test the country's latest judicial interpretation of its copyright enforcement law.

Chinese IT Market to Hits 3.4 Trillion RMB in 2005

The Ministry of Information Industry released a forecast in early February predicting that the Chinese IT market would grow to 3.4 trillion RMB (US$409.6 billion; US$1 = 8.3 RMB) in 2005, compared to 2.65 trillion RMB in 2004. Officials cited digital TV, mobile phones, and software as providing much of the fuel for growth.

Digital TVs are anticipated to generate one trillion RMB in sales. Mobile phones are projected to rack up 260 million units in production volume, with 160 million units slated for export. Meanwhile, subscriber scale is forecast to hit six to seven million. The ministry expects e-commerce to drive software, which is anticipated to grow 30% to 260 billion in 2005. IT and electronic products exports are estimated to have reached US$200 billion for 2004, a 40% increase from 2003. The Ministry of Information Industry claims that such items account for 34% of China's exports.

However, officials warned that dumping by foreign companies and intellectual property rights issues were likely to bring some downward pressure to bear on growth.

Gov't Sponsored e-Commerce Portal Launched

A coalition of China's ministries -- the Ministry of Science and Technology, the Ministry of Commerce, the Ministry of Information Industry, and the China Association of Standardization -- have been working jointly with RosettaNet China to open an e-commerce portal dubbed China B2B Hub. The portal is intended to work as a more efficient, lower-cost link between Chinese suppliers and multi-national companies to enhance supply chain synchronization.

Launched in late January, the system offers features such as inventory forecast, purchase orders, OEM management, and third-party logistics management. The software has been offered free, and various transaction services are offered through annual subscription. Officials claim that the system will cost about half of other current e-commerce platforms.

An executive from US-based E2open, which is powering the hub, has explained that the client software receives and transmits data from the enterprise's internal systems to China B2B Hub. It then is converted into a standard industry format, such as RosettaNet PIP.

RedFlag Looks to Asianux for Growth

Linux software developer RedFlag says it expects to generate 50% in revenue growth in 2005, expecting the July 2005 launch of Asianux 2.0 to be the major growth driver. The developer's 2004 revenue hit a reported US$4 million, the first time the company made a profit since its establishment in 2000. The company claims to currently control 40% of the Chinese Linux market.

Developed with Miracle Linux of Japan and HannSoft of Korea, Asianux 2.0 will be sold within each of their respective countries under their own brands. RedFlag has said they there are no plans to target other Asian markets at the present time.

Still, the alliance is attempting to build a Linux standard in Asia. The region has yet to fall under the dominance of a single Linux developer, such has been the case with Novell in North America and Europe.

Some have derided the alliance, saying the partnership will fall prey to the same internal conflicts that plagued UnitedLinux. Formed by Caldera, Conectiva, SuSE Linux, and Turbo Linux, UnitedLinux's vision of a worldwide standard fell apart as constituents began to come into direct competition with one-another as they expanded. Yet some observers point to the growing ranks of IT hardware vendors that have expressed support for Asianux, including IBM, Dell, HP, Sun, and NEC, as evidence of the partnership's potential.

Matsushita: Building China-Based R&D Talent

Matsushita announced plans to hire 2,000 engineering graduates in China by the end of fiscal 2007, which ends April 2008. The recruits are hoped to improve the company's ability to develop home electronics and software for the Chinese market, as well as other markets throughout Asia. Matsushita also indicated that it has set a target of doubling sales to one trillion yen (US$9.5 billion; US$1 = 104.8 yen) by the year ending March 2007.

Recruitment will be carried out in major cities throughout the country, including Beijing, Dalian, Guangzhou, and Shanghai. By March 2005 alone, the company plans on recruiting 450 new college graduates in China, compared to 330 in Japan.

Matsushita is also said to be taking steps to trim down its Japanese workforce. The Nihon Keizai newspaper reported that the company plans on cutting roughly 600 jobs. Matsushita has denied the figure, but the company has been looking for volunteers at some divisions to take early retirement, including its components unit. The company's audiovisual and mobile units have also been trying to help employees find new employment within or outside the company, looking to reduce the workforce by about 1,000 employees, according to the Nihon Keizai. About 4,000 employees were let go between April and October of 2004.

R&D Investment

Beckoned by the potential of China's market, total foreign investment in China hit approximately US$501. billion by the end of 2003, according to the Ministry of Commerce. Of the major investment sources, Hong Kong accounted for the highest at US$222.6 billion. US$44.1 billion issued from the US, while Japan and Taiwan had invested US$36.5 billion each. Singapore has contributed US$23.6 billion, and Korea, US$19.7 billion.

As reported by Korea's ITFIND, since 2000 over 40% of foreign investment has been directed to ICT R&D and production. Cheap labor has seemingly been effective in encouraging foreign players to build up bases in the country, and the government continues to hone regulations, set up R&D parks, and retune its tax regime to attract more R&D activities. By the end of 2003, China had roughly 400 R&D centers built by the likes of Microsoft, Oracle, and Cisco.

The Chinese government has instituted a number of incentives to encourage the establishment of R&D sites. According to the Korea IT Industry Promotion Agency, corporations within any industry that make a contribution to China's infrastructure, or that export over 70% of China-based production, may enjoy 45% saving in income taxes and a 15% savings in corporate tax. These incentives are mainly open to foreign-invested companies operating in the designated trade zones in Beijing and Shanghai.

Incentives specific to R&D investment include exemption from business tax for foreign-invested companies setting up R&D sites, or engaging in technology transfer or technical support. Import taxes are also waived for equipment, materials, or technology imported to produce designated high-tech products. Furthermore, any foreign-invested company can save up to 15% in corporate tax if they can be classified as a high-tech firm.

India

R&D Investment

India's FIPB (Foreign Investment Promotion Board) and CFFI (Cabinet Committee on Foreign Investment) have been working to attract R&D investment, leading to an increasing concentration of activity on the subcontinent. According to a report released by ITFIND of Korea, by the end of 2002, over 100 R&D centers had been set up by Korea, surpassing the number of such centers in Japan and Israel. Bangalore is host to Sony, LG, GE, Intel, Bell Labs, Oracle, Ericsson, Motorola, Cisco, TI, and HP. Intel and Fujitsu have set up in Mumbai. Microsoft, Oracle, and Ericsson are in Hyderabad; Intel and Nokia in New Deli; Bell Labs and Fujitsu in Pune, Motorola in Gurgaon, and Adobe in Noida.

India's DST (Department of Science and Technology) set up Centers of Excellence with various countries in an effort to promote joint research. There are currently 169 Centers of Excellence covering eight major sectors, including mathematics (14), computing (8), biotechnology (38), physics (27), chemistry (29), geology (14), materials science (33), and environmental science (6).

The government has also been working to build the investment environment through adjusting restrictions, streamlining bureaucracy, establishing special economic zones, and implementing tax incentives.

IT Exports

India's Minister of Communications & Information Technology announced in early February that exports in electronics and computer software totaled US$14.3 billion during 2003 and 2004. The lion's share, US$12.6 billion, was said to be comprised of software and services. Citing unnamed studies, the ministry expects that the IT and IT-enabled services sector will generate US$50 billion in exports by 2008.

Korea

Government's 2005 R&D Plan Confirmed

On January 11th Korea's Ministry of Information and Communications passed the R&D budget for 2005, aimed chiefly at ICT related areas within the IT839 plan such as mobile communications, ubiquitous networking, SoC (System on a Chip), and embedded software. Total investment scale is expected to reach 857.6 billion won (US$854.4 million; US$1 - 1,003.7 won), with IT839-related investment accounting for 377.8 billion won (US$376.6 million).

As reported in the Digital Times of Korea, The Ministry of Information and Communications has emphasized that priority shall be extended to the support of fundamental technologies to gain a greater grasp on key patents. Core technologies would include areas such as Wibro and 100Mbps-grade 4G mobile communications. Furthermore, in order to increase interaction between handheld device makers and component suppliers, work on standard interfaces for software and hardware modules will also be guided.

In the telematics arena, the ministry expects to complete testing during 2005, in order to ensure that such systems can maintain strong signal quality under conditions of high mobility. For RFID (Radio Frequency Identification), priority is being set on RF shower technology, which is expected to increase sensor range from a few meters to dozens of meters. Other RF technologies include SAL (Smart Active Label) and smart sensor modules, which integrate sensors with battery power, as well as mobile devices with built-in readers.

R&D activities will also be funneled toward terrestrial DMB (Digital Multimedia Broadcasting) technology, as well as cable broadcasting, VoIP (Voice of Internet Protocol), VOD (Video on Demand) digital content technology integration and source technology R&D.

Patent Ambitions

In January the Korean Intellectual Property Office released a statement that the number of patents registered during 2004 was 140,176, a 17.4% increase from 2003. Growth rates remained between 2% to 3% during 2001 and 2003. ICT-related patents make up over half of all patents, with Samsung and LG topping the list of registrants.

Samsung mentioned that it plans to register 2,000 patents in 2005 as well as 2006, working up to becoming on of the top-three patent registrant in the US. After a year in which numerous conflicts have erupted in the display segment with Japanese players, LG says it intends to closely monitor its patents as the royalties the company receives are comprising an ever-larger share of its profits.