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Opinion: DVD makers face key issues
( 2002-03-21 09:40 ) (1 )

As the DVD Forum -- an association of international DVD player manufacturers -- steps up efforts to enforce DVD licences and collect DVD royalties, international electronics leaders are pressing Chinese DVD player manufacturers to pay US$20 patent fees for each DVD player they produce.

The 6C and the 3C groups, two major international electronics manufacturer blocs under the DVD Forum, threaten to ask European Union countries to block imports of unlicensed Chinese DVD players.

On the demand of Dutch electronics maker Philips, German and British customs have already detained imports of about 10,000 DVD players from China in January.

Both domestic and international DVD markets are expanding rapidly.

In 2001, international demand for the product was 30 million units, while the sales of DVD players in the domestic market are predicted at 8 million units this year. Exports of domestic DVD players are also quickly increasing.

Given this situation, it is not surprising that the 6C and 3C groups have chosen to put forward the issue of DVD royalties at this time.

Domestic industrial organizations are negotiating with the 6C and 3C groups on this issue. The block of Chinese exports, therefore, is unjustifiable, according to domestic manufacturers. More seriously, they said they respect intellectual property rights, but the fee is too high for them to afford.

Due to cut-throat domestic competition, the price of DVD players has slumped to about US$100 in recent months, which erodes the sector's profit margins.

While their reasoning may hold water, they must also draw lessons from the issue.

Having developed from workshop-like factories, many domestic DVD producers do not attach importance to the development of core technology. Instead, they resort to low-cost labour to be more competitive.

Even after the producers grow larger, the problem remains and becomes their Achilles' heel.

This problem exists not only in the DVD industry, however. The top 100 domestic electronics manufacturers, for example, invest a mere 3.6 per cent of their revenue in developing key technologies.

In a globalization era, this may continue to bring trouble for domestic firms.