PLATFORM STRATEGY FOR GLOBAL MARKETS : strategic use of open standards and management of... business ecosystems

This book explains the strategic behaviors of platform firms on the global market, drawing on extensive research on the mobile communication systems, semiconductor equipment, personal computer, and automobile electronics industries. The book focuses on Ericsson, Applied Materials, Intel, and Bosch as representative global platform companies. The book’s introductory section reports on the rise of platform business and addresses the theoretical basis of their competitive edge, based on a review of prior studies on the network effect of open standards and the economic theory of strategic behavior. The platform business obviously secures a competitive advantage on the global market. Yet this theory alone does not provide sufficient explanation for why the platform business achieves competitiveness on the market. The book proposes a theoretical framework and provides rigorous supporting evidence by using case studies and empirical analysis on the global business of platform firms. This evidence reflects the variety of global ecosystems: the mobile communications system in China, the semiconductor equipment industry in East Asia, personal computers in Taiwan, and automobile electronics in China. In conclusion, the book reviews these studies and identifies the key factors of platform strategy on the global market. Given its breadth of coverage, the book will benefit all academic researchers and undergraduate students in management and economics with an interest in global competition and collaboration in the open economy. Preface Acknowledgements Contents 1 Open Standards and Rise of New Competition: Why Do Open Standards Generate New Patterns of Competition? 1.1 Impact of Open Standards 1.1.1 What is an Open Standard? Three Types of Open Standards 1.1.2 Open Strategy Using Open Standards 1.1.3 Outcomes of Open Standards 1.2 Institutional Development of Open Standards 1.2.1 US Policies Related to Open Standards 1.2.2 EU Policies Related to Open Standards 1.3 Transformation of Industrial Structures 1.3.1 Industrial Structures Turning into Business Ecosystems 1.3.2 Concept of Business Ecosystem 1.3.3 Platform Strategy: A New Type of Competition Strategy Employing Open Standards References 2 Business Ecosystems and Platform Firms: Theoretical Perspective and Analytical Framework 2.1 Business Ecosystem: Open Standard Setting and Transformation of the Industrial Ecosystem 2.1.1 Three Trade Patterns: Complementors and Platform Firms 2.1.2 From Value Chains to Business Ecosystems 2.1.3 Direct Network Effects and Indirect Network Effects 2.1.4 Platform Firm and Symbiont Firms 2.2 Competitive Strategy of Platform Firms 2.2.1 Definition of Platform Firms and Their Competitive Strategies 2.2.2 Positioning at the Hub 2.2.3 Strategic Standardization 2.2.4 Two-Sided Market Strategy 2.2.5 Bundling Strategy 2.2.6 Economic Bundling 2.2.7 Strategic Bundling 2.2.8 Conclusions 2.3 Issues Regarding Earlier Studies on Platform Firms 2.4 Fundamental Proposition 2.4.1 Fundamental Proposition and Subordinate Propositions 2.4.2 Industrial Structure Assumed in This Book 2.4.3 Criteria for Cases to be Studied 2.5 Composition of Chapters References 3 Strategic Standardization and Global Ecosystem: GSM Mobile Phone Diffusion in China 3.1 Introduction 3.2 Concept Development 3.2.1 Standardization and Establishment of Global Standards 3.2.2 Creation of Open Standards for Complex Systems: Emergence of the Consensus Standard Approach 3.2.3 Nature of the Consensus Standardization Process: Making the Open Area Larger 3.2.4 Separation of the Open and Closed Area: Impact on the Industry 3.3 Case Study 3.3.1 Data and Methodology 3.3.2 Standardization of the GSM Mobile Communications System 3.3.3 Growth of the GSM Mobile Phone Industry in China 3.3.4 Comparison Between Competition Patterns in the Open Area and the Closed Area 3.4 Discussion and Conclusions 3.4.1 Strategic Standardization as a Platform Strategy: Defining the Open and Closed Area 3.4.2 Separation Effect of the Platform: Impact of Strategic Standardization on Global Ecosystems 3.5 Summary References 4 Key Factors in the Success of Platform Strategy in Global Ecosystems: An Empirical Study on the Semiconductor Manufacturing Equipment Industry 4.1 Introduction 4.2 Previous Studies on Platform Strategy and Hypothesis Building 4.2.1 Previous Studies on Platform Strategy 4.2.2 Research Design 4.2.3 Research Subjects and Hypothesis Building 4.2.4 Hypothesis Building 4.3 Empirical Analysis 4.3.1 Data 4.3.2 Variables 4.4 Results 4.4.1 Results of the Regression Models (Linear Additive Models) 4.4.2 Results of the Regression Models (Regression Models with Interaction Effects) 4.5 Network Analysis 4.5.1 Details of the Transaction Network 4.5.2 Changes in Communities Over the Years 4.5.3 Positioning of Manufacturing Equipment Providers in Transaction Networks 4.6 Conclusions and Implications Appendix 1: Betweenness Centrality Appendix 2: Interaction Model Appendix 3: Functional Cartography Method Appendix 4: Process Analysis (Analysis of Capital Investment in the Lithography Process) References 5 Ecosystem Management and Entry into Peripheral Markets: The Platform Strategy of Intel 5.1 Introduction: Research Questions 5.2 Early 1990s: A Tough Time for Intel 5.2.1 Rise of Suppliers of Compatible CPUs 5.2.2 Price Busting in the PC Market 5.2.3 Rise of RISC CPU Suppliers 5.2.4 Long-Standing Legacy Technologies 5.3 Transition to a New Generation 5.3.1 Essential Problem: Lingering of the Old Technology 5.3.2 Inside the PC: Architecture of the PC 5.3.3 First Step Toward a New Architecture: Establishment of the PCI Bus 5.3.4 Launch of the Pentium CPU and Its Delayed Diffusion 5.4 Entry into Two Peripheral Markets: Management of the Ecosystem 5.4.1 Entry into the Chipset Market 5.4.2 Entry into the Motherboard Market 5.4.3 Intel 3-2-1 Project 5.4.4 Retreat from the Motherboard Market and Standardization Efforts 5.4.5 Mass Supply of Chipsets 5.4.6 Continuous Efforts Toward Open Standardization 5.5 Establishment of the Platform Concept 5.5.1 Establishment of the Platform Concept: Open/Closed Areas 5.5.2 Closed Area: Patent Litigation and Prohibition of Pin-Compatible CPUs 5.5.3 Open Area: Expansion of Peripheral Markets and Enhancement of the Value of the CPU 5.6 Impact of the Platform Strategy 5.6.1 Trend of Average Sales Prices of the PC and Its Main Components 5.6.2 Impact on the Peripheral Industries: Growth of Taiwan’s Motherboard Industry 5.6.3 How Intel Overcame Its Difficulties in Diffusing the Pentium 5.7 Summary and Discussion 5.7.1 Findings 5.7.2 Entering Peripheral Markets and Open Standards 5.7.3 Conclusions References 6 Relationship Management with Symbiont Firms: Case Analysis of Intel and Taiwanese ODM Vendors 6.1 Introduction 6.2 Literature Survey 6.2.1 Types of Product Architecture and Patterns of Cross-Boundary Problem-Solving 6.2.2 Knowledge Scope and Business Task Scope 6.2.3 Inter-firm Networks 6.2.4 Dilemma of Core Networking 6.3 Case Study 6.3.1 Research Subject and Method 6.3.2 Findings from the Field Study 6.4 Discussion 6.4.1 Dilemma of Core Networking and Construction of Inter-firm Networks 6.4.2 Point of Transition to an Ecosystem-Type Industry 6.5 Conclusions References 7 Management of the Relationship with User Firms: A Comparative Case Study of Bosch and Denso 7.1 Management of Relations with User Firms: Two Communication Patterns 7.2 Data 7.3 Automobile Architecture and the Role of the ECU 7.3.1 Engine ECU: The Control Device for the Engine 7.3.2 Development and Calibration of Engine ECUs 7.3.3 Engine ECU and Integrated Control 7.3.4 Engine ECU and Open Standards 7.4 Engine ECU Market in China 7.4.1 Background to the Introduction of Engine ECUs in China 7.4.2 Engine ECU Business in China 7.5 Background and Current Situation of Entry into the Chinese Market by Bosch and Denso 7.5.1 ECU Business of the World’s Two Largest Suppliers in China 7.5.2 Bosch’s ECU Business in China 7.5.3 Denso’s Business in China 7.5.4 Business Policies and Main Customers 7.5.5 Localization of Management 7.5.6 Division of Labor with Home Country 7.5.7 Market Performance of the ECU Business in China 7.6 Future Trend of the Chinese Automobile Industry 7.6.1 Technological Accumulation of the Chinese Automobile Industry: Two Future Visions 7.6.2 Pros and Cons of the Two Approaches 7.7 Conclusions Appendix: About the AUTOSAR Standard References 8 Establishment of a Global Ecosystem and Its Expansion: Does the Platform Strategy Trigger a Transformation in the Structure of the International Division of Labor? 8.1 Fundamental Proposition and Subordinate Propositions 8.1.1 Ecosystems Discussed in This Book 8.1.2 Framework for Examination 8.1.3 Options for the Platform Firm’s Strategy 8.1.4 Move at the Inflection Point: Difference Between Simple Standardization and Strategic Standardization 8.2 Strategic Levers of Platform Firms: Subordinate Propositions (1)–(3) 8.2.1 Strategic Levers 8.2.2 Subordinate Proposition (1): Strategic Standardization 8.2.3 Subordinate Proposition (2): Positioning at the Hub 8.2.4 Subordinate Proposition (3): Management of the Value Network 8.2.5 Mechanism of Action: Discussion of Subordinate Propositions (1)–(3) 8.3 Secondary Effects of the Platform Strategy: Subordinate Proposition (4) 8.3.1 Prevalence of Open Standards and Formation of Global Ecosystems 8.3.2 Subordinate Proposition (4): Transformation of the Structure of the International Division of Labor 8.4 Surprising Similarity in the Evolution of Ecosystems: Platform Firms, Open and Closed Areas and the International Division of Labor Between Developed and Developing Countries 8.5 Conclusions References 9 Conclusions 9.1 Summary 9.2 Academic Contributions 9.3 Business Implications 9.4 Contemporary Significance of This Book: Expansion of Ecosystem-Type Industries 9.4.1 Significance for Traditional Product Manufacturers 9.4.2 New Sources of Network Effects: Emergence of IoT/Big Data/AI and Data-Driven Industrial Structures 9.5 Challenges and Visions Appendix 1: Architecture Research What is Architecture Research Architecture of Complex Artifacts Direction of Future Architecture Studies Appendix 2: Interview List References