Beware Dragon
China’s prominence as a world economic power is now well-known. Events like the 2008 Olympics and the 2010 World Expo, both hosted in China, have done a wonderful job of illustrating that. And the numbers back up this assertion, as China now ranks number 2 among world economies, right after Japan.
Over the last 30 years, the country has seen amazing change and economic development. Highlights include construction projects that have yielded the world’s largest dam and light rail system, the largest telecommunications network, and policy reforms that have liberated many citizens from the throes of poverty. The result is a densely populated company with a thirst for new technology and a desire to innovate.
Because of China’s rapid ascent to the top of the global economy, U.S. businesses have made it a priority to establish a presence and improve market share in China. With so many potential customers among the country’s enormous population, the potential rewards of success in China are significant.
Many of the firms which have worked especially hard to establish a presence in China are technology-related. As mentioned earlier, the Chinese have a real passion for technology, and the tech industry has played a major role in the country’s economic development. For instance, there are many of the world’s most popular electronics products are manufactured in China, and the influx of money for those projects has aided in financial growth. Plus, the technology has been used in the aforementioned construction projects and telecommunications growth.
That said, the Chinese government is still very concerned about the flooding of Western influences to China, so there are many policies that have been designed to regulate what sorts of technologies may be introduced into China and how they might be used. This also produces the effect of encouraging domestic innovation, as local companies can begin to produce technologies they might otherwise have purchased from the west. This ability to innovate locally has proved beneficial while much of the world has suffered from the global downturn over the past few years.
Therefore, it is important for any U.S.-based companies who are looking to build a Chinese presence to be aware of the country’s intellectual property policies. The technology that a U.S company brings into China could be appropriated by the Chinese government and turned over to local firms for further development, thereby lessening the potential an American business may have believed existed.
There are several potential outcomes that may occur when a company attempts to bring a new technology to China. The government may require that a company completely turn over its technology to a Chinese firm before any investing can occur. It may impose caps on how many natural resources a U.S. firm may access for production purposes. The government also uses local content-minimums and domestic production minimums that can force U.S. companies to partner with a Chinese firm.
The Chinese government also often offers subsidies to domestic firms that make it more inexpensive for them to invest in innovations. Together, these tactics have done a wonderful job of enhancing Chinese firms’ global viability, giving them a great edge in the development of telecommunications equipment, software, and transportation.
U.S. firms should certainly still consider China to be a wonderful opportunity. But they should also educate themselves as to barriers that exist in doing business in the country. They can then better understand the real costs of conducting business there, the real potential value of entering China, and they can then adjust their business plans accordingly. Or, during that review they may decide the cost of entry is too high, especially if it means turning over their own intellectual property. This careful consideration will help companies avoid misfires and re-starts, which can save lots of money and frustration which could hinder future global expansion to other areas.