PRD IP Issues
Article by: Sid Mewara Managing Director Saks Gloweli Consulting
At the forefront of both political debates and boardroom discussions about trade between the U.S. and China is the issue of intellectual property rights. SCM pundits are often heard saying “Hit-and-miss IP regulation is a significant inhibitor to development in China”.
The IP challenge is significant because, for many companies — especially high-tech firms — intellectual property is the bedrock of their competitive advantage; more than the actual electronic gadgets they manufacture, it’s the IP that generates their revenue. Companies respond to that challenge not by ignoring China in favor of countries with stronger IP rights protections, but by going into China with older, “second best” technologies. When a company takes their technology to China, it’s not the most cutting-edge, best technology.
In the late 1980s when Motorola decided to move into China, for example, it knew that taking its new and innovative cell phone technology wasn’t a wise idea. Instead, it opened factories in China to manufacture pagers, which it planned to sell to the domestic Chinese market. “At the time, demand for pagers was waning in the U.S. So we decided to go into the Chinese market with the technology. In a few years, we sold 4.5 million pagers there,” Tooker of Motorola said.
The lag in China’s development and enforcement of intellectual property protections arises from two sources, said participants. The first is cultural. “The East and the West have different ways of looking at intellectual property,” Tooker said. “In the East, it’s about what’s good for the group. In the West, it’s what’s good for the individual.” But Tooker is confident that those cultural differences can be overcome. “Once you make the case that it’s in China’s interest to protect intellectual property then they’ll be very good at it — it’s just a matter of education.”
In 1976, Chairman Mao reflected the uniquely Chinese way of looking at intellectual property: “Intellectual property creations are tools for the common good.” In 30 years, there has been a huge change in China’s view of IPR as a tool for their benefit. Whereas the West intrinsically values intellectual property rights, China will begin more rigorously enforcing IP laws because it will be good for China. In 2007 China’s Premier Wen Jiabao said, “The competition of the future world … is the competition of IPR.”
The “what’s in China’s interest” idea points to the second source of IP rights differences: for the first three decades of China’s economic development, “ignoring” IP violations was an important way that Chinese companies got access to the kind of technological know-how that they needed to become viable competitors in their own right. And over the long term, many say, having a greater number of competitive Chinese companies in the market is good for everyone.
But now that China’s domestic companies have moved up the value chain, becoming significantly better at innovating their own technologies, they too are pushing the government for intellectual property rights protection in China. Now that Chinese companies want to expand domestic brands in other countries — now that they want their own brand protection — then the government has more respect for IP rights.
As China continues to move up the value chain — from low-end manufacturing to high-tech manufacturing and services, experts expect to see much more aggressive intellectual property law enforcement from the Chinese government. But, it is cautioned, in some of the farther-flung Chinese provinces, Beijing’s IP laws may not matter much.
Already, the Chinese government is living up to its commitment to the World Trade Organization that it will enforce IP rights. There is evidence of China’s growing adherence to its IP rights commitments in a recently-won lawsuit that one of Emerson’s China divisions filed against a Chinese company for trademark infringement.
There are a number of Firms and companies operating within the PRD that have taken the fight all the way to the courts and have laid pro-active Measures to protect their and their customers IP. New incentives by the Local government allow for Labs and Quality control companies to assist global companies deal with IP Infringement.
Huqiangbei has been the main stay for “COPY” electronic components, which has cost global semiconductor manufacturers billions in lost revenues. These components sold in Shenzhen are usually sourced from Chaozhou, the same place most other “COPY” and fakes are sourced from. One now sees hope as QC and inspection labs are working closer with authorities in Shenzhen to try and curb the outright IP infringement.
hSid holds an MBA from the Wharton School of Business and is enrolled at Oxford University for the Advanced Management and Strategy Program. Sid has worked with global companies as a management consultant at McKinsey & Co. Sid is the Managing Director of Saks Gloweli specializing in market entry and business development strategy. He holds a position on the board at True Wind Consulting and Beepo Electric Vehicles.