As they gear up for the coming battle over digital TV, which includes high-definition as well as standard variants, Matsushita and LG--along with all the other contestants--face two serious problems. One is that China doesn't yet have a standard for over-the-air broadcasting of digital television. Although it has adopted the European standard for cable and satellite transmission of DTV, the terrestrial broadcasting standard is much more important. Without one, manufacturers can't complete the design of digital receivers and broadcasting equipment for what will be the biggest part of China's television market. "It is really, really affecting our work," says Ning Huang, an IEEE member who is manager of Matsushita's AVC China Development Center.
The other big problem, intimately related to the first, is that as Matsushita and LG seek to develop technology to meet whatever DTV standard is adopted, it will be crucial for them to keep control of their new intellectual property (IP) long enough to get and retain a lead in the market. Trying to keep too tight a lid on IP could stifle the free exchange of information, and therefore development efforts, while also poisoning relations with Chinese employees and customers. On the other hand, relaxing control too much could amount to giving away the farm.
Development of a broadcast standard is already years behind schedule. With barely three years to go until the Olympics deadline, the time normally needed to build equipment to new standards will have to be radically compressed if China's officials are to make good on their promise to broadcast the games to the world in vivid digital high-definition splendor.
China set out to develop its own standards for cable, satellite, and broadcast digital television, but for cable and satellite transmission it chose to expedite the process by adopting the European standards. The authorities, however, are so far holding fast in their determination to formulate a homegrown DTV broadcast transmission protocol.
Why are they doing that, and what's taking them so long? In other hot consumer areas--notably cellular telephony and wireless local-area networking--it's been widely suspected that the Chinese want their own standards in order to exclude or at least hobble foreign producers and promote their own manufacturers. But close observers of China's television scene say other considerations are more important.
Norio Sakamoto, executive technology officer for Panasonic Corp. of China, in Beijing, suggests some developing countries are motivated mainly by a wish to avoid having to pay licensing fees. Both the U.S. and the European digital transmission systems depend on patented technology, and while the royalties for use of that technology may seem trivial in rich countries, they are not minor in a country at China's income level.
Customizing the digital television standard to local tastes was also an important reason for the home-grown broadcast standard. For example, officials decided that, because of the country's increasingly congested traffic conditions and the growing amounts of time people spend on buses, it would be essential for them to have the possibility of being entertained by broadcast TV in real time--and in a high-definition, digital format at that. Allowing for mobile reception of digital television was not a criterion, however, in the formulation of the European and U.S. digital standards, although mobile reception of European digital broadcasts is possible.
In any case, time is growing short. In the United States, the digital television standard, including the capability of broadcasting in high definition, was finalized in 1996; limited service began in 1998 and has slowly rolled out nationwide ever since (at last count, there were several million households with digital television tuners in the United States). In Japan, the digital television standard was finalized in 1999, and nationwide service started at the end of 2003. Panasonic's Sakamoto says it takes about four years for the consumer electronics and broadcast industries to get new equipment built and installed to a new standard.
But China doesn't have four years before the Olympics. Everything, Sakamoto says, "will have to speed up." Fortunately the odds are that time will in fact speed up; everything in China, visitors are often told, is measured in "reverse dog years"--what takes seven years anywhere else takes just one here.
The breakneck efforts to roll out broadcast DTV will sorely test the ability of companies like Matsushita and LG to protect their intellectual property. For DTV development, as for countless other enterprises in China, protection of IP is a daily concern. But DTV development involves the additional challenges of being a crash program. The temptation, naturally, is to cut corners when things have to be done in a hurry, but both companies are keenly aware that they cannot afford to lose control over their IP. Protecting it is an obsession at both.
Matsushita has introduced its own information security systems, and it has physical security systems in place as well. At the end of each day, the company's researchers are expected to lock their working notes in a safe, rather than leaving them on a desk or in a drawer, as is done in a typical research laboratory.
Following the example of other high-tech companies, Matsushita now has employees sign confidentiality agreements when they're hired and again upon leaving the company, and every effort is made to enforce those agreements. Morio Iwazaki, president of Panasonic Research and Development (China) Co., said that the procedures used to protect intellectual property are more strictly followed in the China laboratories than in Japan, although Matsushita officials indicate that the policies are identical around the world.
More conventionally, Matsushita files patents in both Japan and China. Among the foreign tech companies operating in China, it filed the most patents in 2003--nearly 1800. Although patent enforcement is notoriously lax, Matsushita expects that at some point China will begin enforcing its intellectual property laws in earnest [see Steal This Software, in this issue].
The thinking is similar at LG Electronics China. It also patents all its innovations in China--about 610 in 2003--and its CEO, Sohn, expressed confidence that "the Chinese will enforce patent rights in the future." But LG's general approach to IP protection is different from Matsushita's. "We are trying a number of things," says Joo Bin Lim, chief manager of the informational appliance group at the LG Beijing R and D Center. For example, everyone who goes through the R and D Center gate, including employees, cannot carry notebook computers or storage media without potentially having their data screened.
But LG's focus is on the establishment of trust. "We are setting up an R and D-specific labor culture," Lim says. "That is, we are encouraging our engineers to see themselves as having technical careers. We are providing financial support for higher education." The point is to discourage employees from walking their research out the door and taking it to another company.
"I don't know if it will work," Lim told IEEE Spectrum.
"To speak frankly, we don't have any solution at this time, we just have worries." The risks of too much openness are obvious, but there are also risks in installing so much security that it constrains employees.
Lim says LG hasn't had to modify its management system much to adapt to Chinese expectations because the natural Korean style "is more the Chinese way." That is, promotion is based on merit, and you don't have to be a native of the headquarters country to get into the executive ranks. Thus, LG hopes its employees, as well as its customers, will feel the company really is Chinese and will want to guard its intellectual property as a simple matter of professional responsibility.
That expectation will be ever more vital as the LG engineers in China develop world-class technology. "So far," Lim says, "the R and D centers in China, India, and Russia focus on low-level products. But we do expect to make research breakthroughs that will be shared throughout the company."
Matsushita has adapted the Japanese management style to the local market. "These people expect their compensation to reflect their contribution to R and D results," Panasonic's Iwazaki said. "In Japan, our system was based on age, but that doesn't work here." About two years ago, Iwazaki dumped Japanese management ways for the two R and D operations that he manages and brought in a pay-for-performance system.
Rumors linger that Japanese firms find it hard to recruit top Chinese engineers because they are reputed to work them too hard and not promote them. Paul Liao, chief technology officer of Panasonic Technologies Inc. in Princeton, N.J., says that the company's statistics belie such talk. According to Liao, in Matsushita's China R and D operation alone, more than half of high-level management--that is, employees with the title of associate lab director or higher--are Chinese nationals, including the director of the Beijing Laboratory, the largest of the research operations. And Chinese representation in the management ranks of manufacturing operations is even higher.