Title of the paper

Industry Convergence and the Transformation of the Mobile Telecommunications System of Innovation
Elmar Gerum, Insa Sjurts, Nils Stieglitz
Prof. Dr. Elmar Gerum, Philipps-University Marburg, Department of Business Administration, Universitaetsstr. 24, 35032 Marburg, Germany

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Prof. Dr. Insa Sjurts, HMS Hamburg Media School, Finkenau 35, 22081 Hamburg, Germany

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Dr. Nils Stieglitz, Philipps-University Marburg, Department of Business Administration and Economics, Universitaetsstrasse 24, 35032 Marburg

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Keywords

Our paper analyzes the structural transformation of the mobile telecommunications system of innovation¹ since the mid-1990s and its impact on business strategy of major players in the industry. We identify the convergence of telecommunication, information technology, and multimedia online services as a key driver of innovation in mobile communications.²

While industry convergence is an frequently-used concept to describe industry dynamics in telecommunications and other industries, it is very often not well defined, leaving its meaning quite vague. We draw on a taxonomy developed by Stieglitz who argues that different types of technological and product-based convergence have to be distinguished.³ The convergence types shape innovative dynamics and business strategy in different ways. The diffusion of a general-purpose technology characterizes industry convergence through ‘technology substitution’ and it results in the vertical disintegration of established industries. Since the late 1960s, semiconductor technology increasingly influenced innovative dynamics in telecommunications⁴, leading to a process of vertical disintegration of the telecommunications value chain⁵.

The recent diffusion of 3rd generation mobile telecommunications standards and of competing technologies like Bluetooth and Wi-Fi, which emanated from the computer networking industry, brings about a process of industry convergence through ‘product complementarity’. Mobile communications networks, multimedia online services, and mobile access devices like cellular phones, PDAs, and laptop computers form a new value net⁶, sharply increasing the potential for value creation. At the same time, we witness the emergence of hybrid mobile devices (‘smart phones’) that incorporate formerly distinct product features of industries like digital imaging, PDAs, music, or video gaming. This case of industry convergence through ‘product substitution’ is characterized by new competitive threats and indirect market entries of incumbents with different industry backgrounds.

We explain how this unique constellation of convergence types transforms the technological opportunities, the rate and direction of innovations, the cumulativeness of the competence base, the sources and accessibility of new knowledge, and the appropriability of innovative rents in the mobile telecommunications system of innovation. Collective strategies⁷ formed by corporate players from different industries are found to be a dominant strategic response to this structural transformation. We identify two important reasons for the formation of collective strategies, the sharing of resources and the need to coordinate increasingly interdependent innovative activities across the new value net.

References

[1] A.M. Brandenburger, B.J. Nalebuff, “The Right Game: Use Game Theory to Shape Strategy” Harvard Business Review, Vol. 64, July-August, pp. 57-71, 1995

[2] G. Duyster, “The Dynamics of Technical Innovation”, Edward Elgar, 1996.

[3] C. Edquist, C. (ed.), “The Internet and Mobile Telecommunications System of Innovation”, Edward Elgar, 2003.

[4] E. Gerum, I. Sjurts, N. Stieglitz, “Der Mobilfunkmarkt im Umbruch”, DUV, 2003.

[5] P.M. Rao, “Structural Change and Innovation in U.S. Telecommunications”, Economics of Innovation and New Technology, Vol. 10, pp. 169-197, 2001.

[6] N. Stieglitz, “Digital Dynamics and Types of Industry Convergence: The Evolution of the Handheld Computers Market”, in: J.F. Christensen, P. Maskell (eds.): The Industrial Dynamics of the New Digital Economy, Edward Elgar, pp. 179-208, 2003.

[7] I. Sjurts, “Kollektive Unternehmensstrategie”, DUV, 2000.

1 C. Edquist (ed.), “The Internet and Mobile Telecommunications System of Innovation”, Edward Elgar, 2003

2 E. Gerum, I. Sjurts, I., N. Stieglitz, “Der Mobilfunkmarkt im Umbruch“, DUV, 2003.

3 N. Stieglitz, “Digital Dynamics and Types of Industry Convergence: The Evolution of the Handheld Computers Market”, in: J.F. Christensen, P. Maskell, P. (eds.), “The Industrial Dynamics of the New Digital Economy”, Edward Elgar, 2003, pp. 179-208.

4 G. Duyster, “The Dynamics of Technical Innovation”, Edward Elgar, 1996.

5 P.M. Rao, “Structural Change and Innovation in U.S. Telecommunications”, Economics of Innovation and New Technology, Vol. 10, 2001, pp. 169-197.

6 A.M. Brandenburger, B.J. Nalebuff, “The Right Game: Use Game Theory to Shape Strategy”, Harvard Business Review, Vol. 64, July-August 1995, pp. 57-71.

7 I. Sjurts, „Kollektive Unternehmensstrategie“, DUV, 2000.