OCTOBER 9, 2006
CEO Guide to Technology
By Brian Bremner
Radio-Frequency ID: Asian Impediments
Companies are missing out on the benefits of cutting-edge shipment-tracking technology due to hurdles in the region's biggest economies
Asia's fabled image as the workshop of the world should augur a vibrant market for radio frequency identification (RFID) systems. After all, given the region's leading role in global manufacturing, these systems that enable data to be transmitted instantly by a mobile device, or tag, could radically improve the way inventories are managed and supplies are moved from manufacturer to user. It could even be employed to track poultry in a part of the world thought vulnerable to upheaval from a sudden avian flu outbreak.
Yet, compared with the U.S., major Asian economies have been slow to adopt these systems in a big way, though that is starting to change. The RFID tag market in Japan, South Korea, and China is estimated at about $200 million and is expected to reach $469 million by 2012, according to research outfit Frost & Sullivan. In North America, this market is already $1 billion and is on track to hit $4 billion by the end of the decade.
In the U.S. and Canada, growth in this tracking technology is being powered by demand for tighter security, improved manufacturing logistics, and more efficient supply-chain management. Those same needs exist in Asia, but slow adoption of workable standards and a dearth of necessary airwaves have been a huge impediment, particularly in China, where the RFID tag market was all of $60 million in 2005.
"The development of the Chinese RFID market is being restricted by inconsistent standards of frequency allocation that have created issues of interoperability between vendors," says Parul Oswal, a senior research analyst with Frost & Sullivan. However, she sees that changing now that regional governments are waking up to the security and economic advantages of RFID technology.
HIGH-COST JAPAN. By far the most advanced market on this front is Japan. Domestic shipments of RFID tags jumped 37% to 21.7 million units in fiscal 2005 from the previous year. This figure is expected to reach 95.5 million for 2007 and 2.1 billion units in 2010, according to Tokyo-based Yano Research Institute.
These tags have been embedded into a popular smart card program called Suica by JR East Railroad for small-size fare payments and other goods and services. And "most mobile phones today are equipped with RFID tags," for payment applications and tracking the location of a cell phone user, says Koichi Sega, a marketing division chief in the RFID measuring instrument department at Tektronix Japan, a major player in this market. Hitachi (HIT) has developed chips for this market, and NEC (NIPNY) has developed reading machines. The Japanese units of IBM (IBM) and Hewlett-Packard (HPQ) are bolstering RFID tag-related businesses in the country, too.
One problem with RFID tags in Japan is cost, according Tektronix's Sega. Unit cost for RFID tags has fallen below 10 yen (or 8.5 cents) but really needs to be driven below 1 yen to be embraced in a big way. "For a 100-yen pack (85-cent) of chewing gum, more than one yen would affect the cost," he points out.
IRREGULAR STANDARDS. Another hurdle: The market for RFID reading equipment in Japan is quite fragmented and a variety of companies have developed different standards and patents that make it difficult for these machines to talk to each other even if they are using the same radio frequency band. The government is trying to rectify the problem by encouraging the industry to use recently deregulated UHF-band frequencies and develop common technology standards. In May, Fujitsu (FJTSY) employed UHF-band RFID tags to improve its supply-chain management at two Japanese plants.
Japanese and South Korean companies with advanced expertise in chip making, tag production, reading equipment, specialty software, and systems integration are eager to expand abroad, especially into China. And the same goes for U.S. tech multinationals such as Sun Microsystems (SUNW) and Oracle (ORCL).
Indeed, South Korea is aggressively pursuing RFID and aims to account for 7% of the global market by 2010. Given the economic stakes involved, the telecom ministries in South Korea, Japan, and China have been holding regular working-level meetings to address market access and standards issues since 2004.
The big issue for foreign suppliers in China is that the preferred frequency bandwidth (860 to 960 megahertz) used for RFID systems overseas has been set aside in China for wireless telecommunication, radio broadcasting, and aerospace. "Consequently, the standards of frequency allocation in China have also created the interoperability issues and nonconformity of global frequency standards," says Oswal of Frost & Sullivan.
CHINA'S CHALLENGES. Other standard hassles in China are the lack of workable standards for product coding and the interface between RFID tags and readers. Other governments in the region and the U.S. have complained that China is unwilling to adopt more user-friendly tech standards to basically keep foreign companies out of this market. As things now stand, "it must be very challenging for Japanese RFID makers to enter the Chinese market," says Tektronix's Sega.
True, China is now cooperating with overseas RFID specialists to roll out pilot programs on the mainland. Last month, Ontario-based IPICO, a maker of tags and readers, teamed up with a nongovernment organization called the China RFID Alliance to set up four test projects in the port city of Qingdao for container security and improving logistics at the local operations of Haier (HRELF), a big mainland white goods manufacturer.
This is a promising start. But for RFID technology to really live up to its promise in Asia, regional governments and companies need to get their act together on technology standards and radio bandwidth. Until then, regional economies could miss out on the transformative power and economic efficiencies of this tracking technology.
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