STRATFOR ANALYSIS

The geopolitical impact of consumer electronics

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AN estimated 175,000 people gathered in Las Vegas from Jan. 6-9 for the annual International Consumer Electronics Show (CES), the premier conference of the consumer electronics industry. Some of the world’s largest firms useD the show to debut and feature new products and to showcase experimental and conceptual projects they are working on.

While Stratfor typically doesn’t track the latest iPhone model, the most dazzling 4K Ultra HD television or the highest resolution camera, the implications of the products themselves — and the innovative research behind them — can fundamentally change how countries interact with their citizens and with one another.

Then and now

Consumer electronics have only existed for about 100 years — since the advent of radio communications receivers — but their impact on geopolitics cannot be overstated.
Personal computers, cellphones and countless other products have revolutionized human life. Technological progress during the last century might equal that of the previous 1,000 or even 10,000 years, and consumer electronics have emerged as a major force behind that rapid advancement. Moreover, the pace of development is accelerating, and technologies that were unrelated 10 years ago — such as washing machines and the Internet — are now converging. This union of inertia and integration is a cornerstone of technological progress.


At the 2006 CES, everyone was looking at the latest flip phones, portable MP3 players, GPS-enabled navigation systems, e-readers and personal media players. The iPhone — which Apple introduced in 2007 — can perform the functions of all of those devices combined. Five years ago, tablets began emerging as smartphones kept getting larger and laptops and netbooks continued getting smaller. Last year, Microsoft released a combination of a tablet and a laptop called the Surface Book.

This year’s CES featured breathtaking curved 4K television sets alongside the debuts of other exciting projects. Google and Ford have already announced a joint venture in which Ford will build autonomous vehicles expanding on Google’s research in the field.

Unmanned aerial systems — drones — will be another centerpiece, with some models using hydrogen fuel cells to extend their ranges. Additive manufacturing, nanotech-based electronics, robotics, artificial intelligence and machine-learning technologies are all likely to be on display as well.

Although the products themselves have the ability to alter the world, it is the research involved in developing them that is truly groundbreaking. Historically, most research in the electronics industry grew out of government-led, public-private initiatives which involved the military more often than not. These days, consumer and industry demands are the leading force in the development of new technology. The demand for faster, more powerful and longer-lasting smartphones, tablets and laptops is driving research into new battery technology, investments into keeping up with Moore’s Law and most other research in the field.

The increasing demand for smart devices, the rise of smart grids and the convergence of these devices and the Internet — the so-called Internet of Things — will shape the way that machines communicate with each other and the way entire electric grids are designed.

Battery technology

2016 marks the 25th anniversary of Sony’s commercialization of the rechargeable lithium-ion battery. The battery has matured alongside the digital revolution, powering cellphones, laptops and almost every other device that needs a rechargeable battery. This has forced battery producers to invest in lithium-ion batteries to make them safer, smaller and capable of storing more energy. Though the humble battery has been slow to develop, its most profound geopolitical impact may be yet to come.

Tesla in the United States, LG Chem in South Korea and BYD in China are all building gigafactories to mass produce lithium-ion batteries for electric cars. This means that the specific technology that was pioneered, commercialized and then improved upon because of demands from the consumer electronics industry could strike a critical blow to oil’s monopoly as a transportation fuel. Ironically, it was Exxon that developed rechargeable lithium batteries in the 1970s, though they were never economical and were not lithium-ion.

Though lithium-ion batteries are not the only energy storage technology in development, they will dominate the small battery market for at least the next decade. This includes batteries used in electric vehicles, which are considered consumer electronics themselves.

Processing power

Consumer electronics have long driven advances in computing and processing power. True, much of the initial research and development of computers during the 1950s and early 1960s was funded by selling technology to the military. But since then the consumer electronics market has largely driven research, creating breakthroughs in the field.
The geopolitical, economic and military benefits of improvements in computing power are well documented: Heavily specialized supercomputers provide the foundation for research-intensive industries such as the health care sector, the oil and gas industry and defense. Increases in computing power resulted in smaller, more powerful computer chips, in turn enabling the digital revolution of the last five decades. And these advances are continuing unabated.

Now that consumer electronics have become the major force behind developments in processing power, maintaining Moore’s Law has become all the more important for chipmakers. As the personal computer market matured and consumer interest in laptops grew, promoting innovation in that field remained paramount. Now that the market has shifted toward smartphones and tablets, consumer demand for these gadgets will eventually taper off, raising the question of what, if anything, will take their place as the impetus for innovation.

This year’s CES offered a glimpse of some potential catalysts. Improvements in artificial intelligence, whether for robots or computers, require upgrades in computing power and algorithm complexity. Machine-learning algorithms and different means of direct human-machine interaction are expected to be among the major themes at CES this year. Of course, the next breakthrough in the field might be something different altogether. It could be the automation of vehicles, or some sort of virtual reality devices that turn everything we have now into high-definition lifelike projections. The possibilities are vast.

Conversely, it could be that the next growth engine for electronics does not require increased computing power. As machine-to-machine communication and the Internet of Things become more common, the proliferation of smart objects may not justify the expense of maintaining Moore’s Law. If consumer demand slows down, that could be geopolitically significant too — especially if the acceleration of digital innovation seen in the last 50 years slows with it.

Geopolitics and electronics

Consumer electronics is now one of the biggest markets in the world. Though US companies were early pioneers in the field, the Japanese soon caught up and by the 1980s rivaled the expertise of their US counterparts. Taiwan, Singapore and South Korea followed soon after. Each of these countries used consumer electronics as a springboard to move from low-end manufacturing into middle and high-end manufacturing. While these countries were often aided by foreign companies bringing in business operations to take advantage of low labor costs, they eventually developed their own indigenous capabilities.

This process is currently taking place in China. As of now, most of China’s electronics industry is either foreign-led or is licensing foreign technology. But Beijing’s priority is to foster a domestic capability in the industry and to eventually be able to compete with foreign electronics sectors. BYD, Xiaomi, Alibaba, Huawei, and Baidu are among the Chinese companies already making their mark on the global electronics scene. Over the coming years, China’s showing at electronics expos, including CES, will indicate its companies’ progress compared to the established industry giants in the United States, South Korea and Japan.

We cannot discount the possibility that consumer electronics will continue integrating into the heart of the global economic system. This means that companies such as Google, Facebook or even Baidu could become the most geopolitically important businesses going forward. This would not be unprecedented. For example, the East India Company factored heavily into geopolitics from the 17th century through the 19th century. The same is true of tobacco companies, which either contributed to or defined their countries’ geopolitical ambitions. Eventually, railroad companies in large countries such as the United States rose to become dominant regional forces.

Since Standard Oil’s emergence more than 100 years ago, oil companies have arguably been the most geopolitically important firms. Perhaps now that oil’s dominance in the global economy is beginning to ebb, technology companies will take the place of today’s energy giants. Regardless, the long-term developments and cumulative changes the consumer electronics sector brings about are as geopolitically important as innovations in any other part of the economy.

© STRATFOR GEOPOLITICAL INTELLIGENCE

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