Spring 11 MASTER.indd - Thunderbird Magazine

More documents

Recommendations

Info

faculty focus Protecting know-how In China, process is both simple and complex BY ANDREAS SCHOTTER AND MARY TEAGARDEN In 2010, almost a decade after China’s admission to the World Trade Organization, the ability to protect intellectual property (IP) or other corporate know-how in China remains one of the most critical issues for foreign multinational corporations, especially for those doing business in the high-tech and service sectors. Surprisingly little research has investigated IP protection outside the traditional litigation and mitigation approach. Previous studies fall short in providing a comprehensive understanding about successful IP protection activities that work. Our research intends to correct this. We conducted more than 97 in-depth interviews with executives from 50 multinational corporations, IP protection specialists, business consultants and government agencies. Many executives were Thunderbird alumni or friends. We sought answers to three overarching questions: • What are the key environmental issues for “IP Protection” in China? • How are foreign and local companies protecting their IP in China? • Are there “best practices” or common themes among companies? NEW CHINA REALITIES China is no longer simply the low-cost “workshop of Mary Teagarden, Ph.D. Andreas Schotter, Ph.D. the world.” While China still manufactures most of the world’s toys, footwear and consumer electronics, exports from China’s high-tech industries grew from 6 percent to more than 30 percent during the past two decades. In China, multinational companies can no longer compete with offerings based on previous-generation or “old” technology. They have to offer their most advanced know-how, despite the fact that, for many, China is synonymous with intellectual property theft. Consider the following incidents reported to us: • Several years ago, an Intel employee in China took intellectual property to AMD, the company’s main competitor. The value of the lost IP was estimated close to $1 billion. • Recently, a Ford employee took more than 4,000 confidential business documents and used them to secure a job with a Chinese auto manufacturer. Currently, Renault executives are being scrutinized for similar behavior. • Pfizer has taken several trademark cases to Chinese and international courts and received a ruling that Viagra is a valid trademark. The courts ordered two Chinese companies to stop producing counterfeit pills. Pfizer still struggles with the enforcement of the ruling through local authorities. WHAT DRIVES IP LEAKAGE? China’s unique sociocultural history contributes to IP theft in China. For example, students learn by copying their master. The perfect copy is considered a compliment for the original. Further, there are very low marginal costs for IP theft (including very limited prosecution) compared with the costs associated with R&D. One general manager stated: “Widespread IP leakage will persist until it is more expensive to copy than it is to innovate.” Finally, a high turnover rate of knowledge workers, well-educated middle managers and engineers causes a constant “bleeding” of corporate know-how. The unfortunate reality is that in China, eventually all intellectual property leaks. Some leakage is faster and some slower. Success in China requires diligent control paired with proactive, dynamic management of IP leakage. Passive overreliance on an immature legal system is ineffective. IP PROTECTION THAT WORKS Despite challenges, many multinational corporations have high-tech investments in China, and a fair number do a good job protecting IP using a variety of mechanisms. We found three specific levels of IP protection mechanisms that are required in combination for success: • Explicit strategic clarity about a firm’s China activities. • Establishment of a set of activities that follow core IP protection procedures, including context-relevant legal diligence and business intelligence — we refer to this as keep it simple (KISS). • An intertwined arrange- CONTINUED ON NEXT PAGE 52 spring 2011
faculty focus ment of six dynamic organizational and managerial actions including stakeholder alignment with the aim of increasing complexity to such a point that not one single breach could create a threatening IP leakage situation — we call this keep it complex (KICX). Our IP protection framework (see illustration) is characterized by a dynamic combination of simple and complex, static and flexible activities and practices. It should be read from the bottom up. For effective IP protection in China, companies must have context-relevant corporate and business strategies; they must have identified the critical IP that is required to execute these strategies; they must identify the right people (internally and externally); they must explicitly formulate effective operational, management and contingency processes; and they must develop an explicit awareness of timing and its impact on the other factors mentioned. While these practices seem simple, more often than not, companies rush into China without considering these measures. We collected overwhelmingly rich evidence that this negligence usually leads to significant IP leakage. Incorporating IP protection tools and practices during the development of the business strategy provides the critical foundation upon which companies can build a robust IP protection strategy (KISS — keep it simple). Once companies have established this foundation, the focus shifts to a variety of managerial activities (KICX — keep it complex) A DYNAMIC MITIGATION AND ADAPTION FRAMEWORK FOR IP KICX KISS INTEREST ALIGNMENT that introduce on one side complexity and ambiguity — they can’t understand how you do what you do — and on the other internal and external stakeholder alignment as dynamic elements of IP protection. We identified six effective activities: 1. Proactive interest alignment with regulatory institutions and individual government officials in the localities where the company operates. 2. Disaggregation of IP components and core processes through organizational and physical separation of activities, vendors and know-how. 3. Dynamism through continuously improving products and processes, in order to stay at the leading edge. 4. Controls discipline that rests on a strong organizational culture. 5. Strategic human resources management/talent management that makes the company a “great place to work.” 6. Focused corporate social responsibility activity that makes the company a valuable, integral part of the local community. DISAGGREGATION PROTECTION DYNAMISM CONTROLS DISCIPLINE LEGAL FUNDEMENTAL KNOW YOUR CONTEXT: BUSINESS INTELLEGENCE CHINA STRATEGY CLARITY The key driver here is the complexity that results from combining these multilayered activities. The effect is a significant slowing down of both opportunistic would-be IP thieves (including departing employees, suppliers and customers) and organized IP theft through espionage. The use of socially complex processes, like talent management, extends the reduction of knowledge theft to the employee level, which is the most common conduit for IP leakage. Protection activities embedded in socially complex processes create ambiguity that provides a temporarily sustainable advantage. Finally, the more onerous challenge for multinational corporations operating in China is to remain dynamic by configuring and reconfiguring the elements of the framework as the context evolves, devolves or shifts. BEST IP PRACTICES In China, IP protection that goes beyond patenting and legal litigation is potentially the most important organizational capability for ensuring long-term performance in high-tech and SHRM-TALENT MANAGEMENT FOCUSED CSR service firms. This requires that companies employ three sets of best practices: • Get the fundamentals right, including strategy, deep contextual understanding and the use of appropriate legal fundamentals. • Develop and reinforce the six activities that are catalysts for dynamic IP protection. • Build a control-based culture, processes anchored in social complexity, and do this with speed. Andreas Schotter, Ph.D., is a Thunderbird professor of strategic management. Before embarking on an academic career, he was a senior executive with several multinational corporations. He has lived and worked in Europe, Asia and Canada. Mary Teagarden, Ph.D., is a Thunderbird professor of global strategy and editor of Thunderbird International Business Review. She has lived and worked in 11 Latin American countries, five European countries and eight Asian countries — in addition to the United States and Canada. thunderbird magazine 53
Page 1 and 2:
spring 2011 magazine India catches
Page 3 and 4: magazine : spring : 2011 SAMANTHA N
Page 5 and 6: from the president Halls of innovat
Page 7 and 8: notes Critics who view emerging mar
Page 9 and 10: Latin American program spreads worl
Page 11 and 12: Thunderbird to host 100 global wome
Page 13 and 14: American Express expands social sec
Page 15 and 16: Executive MBA students hold ‘G78
Page 17 and 18: TIM CLARKE August 2010 Thunderbird
Page 19 and 20: news & notes in focus Thunderbird W
Page 21 and 22: news & notes etter world The goal o
Page 23 and 24: THUNDERBIRD: there’s an app for t
Page 25 and 26: obile is here thunderbird: there’
Page 27 and 28: eleven reasons to attend 11.11.11 T
Page 29 and 30: 11.11.11 celebration 7 COMMEMORATIV
Page 31 and 32: india CATCHES ITS STRIDE New wave o
Page 33 and 34: Menzies started a company more clos
Page 35 and 36: india catches its stride to $5 mill
Page 37 and 38: india catches its stride neurs, but
Page 39 and 40: VOLUTION Decades before massive oil
Page 41 and 42: iofuel revolution same as Thunderbi
Page 43 and 44: iofuel revolution of Italian immigr
Page 45 and 46: WINTERIM wonderlands Students explo
Page 47 and 48: uilding jordan government organizat
Page 49 and 50: winterim wonderlands Winterim diary
Page 51 and 52: faculty focus Power breakfasts T-bi
Page 53: faculty focus full bucket on our st
Page 57 and 58: faculty focus Dilbert Effect Discon
Page 59 and 60: chapter news Alumni rugby team head
Page 61 and 62: notes his German accent. … Carrol
Page 63 and 64: class notes recently traveled 6,000
Page 65 and 66: class notes the Kansas House of Rep
Page 67 and 68: class notes por and fl uid control
Page 69 and 70: class notes 2010 recipient of the B
Page 71 and 72: in memoriam class notes Robert Erne
Page 73 and 74: okshelf class notes Books on the We
Page 75 and 76: Share your experiences with future
show all

Spring 11 MASTER.indd - Thunderbird Magazine

Create successful ePaper yourself

Delete template?

Save as template?