On November 1, 2014 I had an opportunity to join the inaugural Minnesota China Business Forum, which was co-sponsored by two organizations focused on fostering Minnesota's engagement with China - China American Business Association of Minnesota (CABAM) and U.S. China Business Connections UCBC. My remarks on the panel that concluded the forum answer the question "What are the key challenges and best practices for foreign technology firms operating in China?" I answered this question in two parts: traditional technology firms and high tech firms. In this post I will focus on traditional technology firms and in a future post I will address the best practices of high tech firms.
Traditional Tech: 2 Best Practices for IP Protection - KISS and KICX
Traditional technology companies are in traditional markets such as manufacturing, but rely heavily on technology to remain competitive. For these firms a major challenge continues to be protecting their Intellectual Property (IP). Key reasons this problem persists include: lax enforcement of IP protection laws and a traditional culture that encourages copying. However, what is most critical isn't what is causing the issue, but proactive ways to address it.
Field research I conducted with executives in China identified two key solutions: keeping it simple and keeping it complex.
1) Keeping It Simple (KISS): When firms focus on simplicity they are crystal clear on both the broader picture of why they are in China and the business intelligence for the specific segment of the massive China market they aim to service. At the same they put simple legal practices in place to protect their company trademarks - in their home market and in China. It is critical to note, however, that these practices must go through a process of continual refinement as the needs of the Chinese customers and the legal landscape are very dyanmic.
2) Keeping It Complex (KICX): Competitive firms work hard to keep their operating framework complex from the vantage point of their competition, partners and even employees. This best practice is broken down into 6 pillars
- Interest Alignment: Understand the interests of your community, government officials, customers, employees and suppliers; actively find ways to put your company in a position to benefit their interests.
- Disagregation: Don't put all your eggs in one basket. Externally work with a variety of local vendors and partners and proactively seek to understand what they will do with the IP you've share with them. Fragment knowledge of your IP - internally and externally - so that IP is shared on a need to know basis.
- Dynamism: Seek to out innovate the would-be copy cats through continually improving your products and processes. The more flexible your company is in adopting technology that benefits end-customers, the more difficult it will be for others to copy.
- Control Discipline: Clearly segregate the access anyone - internally or externally - has to IP information through varying levels of IT access. Deliberately build a culture that encourages control of company information and reinforce this culture through rewarding good behavior and quickly addressing questionable actions.
- Talent Management: Create a company culture marked by challenging work, opportunities for professional develop and recognize employees who share their knowledge in a way that benefits the company. Actively work with employees, especially high performers, to outline a career path of continuous development and increased opportunities to contribute to the company.
- Focused Community Activities: Attract and retain top talent through both a reputation for community involvement and on-going activities that support this reputation. If a company has both a positive impact on the community and treats employees fairly, staff are less likely to steal company IP.
More details about this research can be found both in this Forbes article (May 2011) and in this MIT Sloan Management Review piece (Summer 2014).
In the next post in this short series I will focus on the best practices of high tech firms in addressing similar challenges in China.
