Networks are always on the frontline of geopolitics. This was the case for rails during the Cold War. Soviet track gauges (the width between rails) had different measurements than Western Europe. It meant Soviet trains could not operate in Western Europe and vice versa. It’s only recently that efforts have been made to standardize rails.
Today, our most important networks are in the tech space. Yet growing tensions between the US & China risk the creation of isolated ecosystems. Executives need to understand what is happening and how to navigate what is likely to be one of the most important economic and business fault lines of the 21st century.
Balkanization of tech
The risk we’re facing is increasing Balkanization of tech ecosystems around the world. The situation has become more urgent as telecoms and tech companies build out 5G capabilities. 5G will be the bedrock upon which future tech innovations will be built upon, including AI, the Internet of Things (IoT), and autonomous robotics.
5G is especially relevant for industrial applications, as Michael Miller argues in PCMag. Many telecoms, sensing the opportunity, are racing to roll out 5G networks. In a recent survey of CTOs directly engaged in 5G rollout, their top strategic objective for rolling out 5G was to achieve network leadership against competitors. However, the rollout is likely to be stymied by growing geopolitical tensions. And this is especially important for executives trying to take advantage of the promise of 5G.
Growing trade tensions between China and the US, especially in the tech sector, has fueled much of this. And it makes sense. Take the nature of 5G and the growing digitization of the economy. It means that, as more devices become connected and automated, there is a greater risk those devices can be hacked. The risk becomes amplified as our devices and the networks they rely on become as foundational as electricity.
On the other hand, the nature of tech is such that dominance reaps tremendous benefits to the winner – an entire economy can be fueled by the success of a handful of tech giants.
For China, the ambition is to be nothing less than the leading tech superpower. China’s “New Generation Artificial Intelligence Development Plan” outlines a $150 billion investment initiative to achieve dominance in AI by 2030. In 2013, the government established the International Mobile Telecommunication Union–2020 5G working group, bringing together government and industry players to ensure 5G standards currently being negotiated meet China’s interests. And China has built its own portfolio of tech giants such as Huawei, China Telecom, and Tencent to quickly adopt and leverage the technology.
China’s ambition has not gone unnoticed in the US. The Eurasia Group reports, “For the US, they have consistently raised concerns about growing Chinese market share especially in Western markets, applying strong pressure on allies not to adopt Chinese 5G tech.” A recent White House executive order gave extensive powers to regulatory agencies to block foreign investments in US tech firms. And the adoption of the Foreign Investment Risk Review Modernization Act subjects foreign investors to greater regulatory scrutiny, potentially placing further obstacles to innovation.
What options do global organizations have?
First, these tensions are unlikely to subside anytime soon. Geopolitical considerations should be a core part of decision making. Procurement has already become a key issue in which these risks are being played out. Tech companies such as Google and ARM have pulled out of certain contracts because they wanted to avoid US regulatory scrutiny.
Second, executives will need to find ways to cope with growing pressure to adopt multiple standards and technology. Growing tensions could result in a variety of standards depending on which region of the world they’re operating in. This will add further complications for any company with significant global operations.
However, there is still space for optimism.
Discussions are underway to set standards through the 3rd Generation Partnership Project under the auspices of the International Telecommunications Union. Despite tensions, governments have been able to set standards on a number of key issues allowing networks to collaborate together. From developing agreements ensuring easy dispatch of physical mail across borders, telephone standards, and even to standards on shipping containers, governments have historically found ways to develop frameworks of cooperation. Given the benefits that it enables, in time this should be the case for 5G as well.