Made in China: the Conversation

Mark Vamos at FC Now wrote recently from Davos about innovation in China by telling the story of Jack Ma Yun, the founder and CEO of Alibaba.com (a Chinese version of eBay) and his observations on the inroads his country is making into technology, engineering and science. An interesting conversation ensued in the comments.

A few years ago, I met a dynamic and passionate entrepreneur who is helping sell American made goods in China. James Chan is the founder of Asia Marketing Management and author of Spare Room Tycoon. Dr. Chan agreed to be my Avatar for discussions on his native country and I took him up on it. This will be a different kind of conversation, which will develop over time as issues and topics that relate to China come up.

Here's the deal: I will create a permanent link on the "conversation with" part of my blog to document his expertise and responses as well as your informed contributions to the conversation.

Reporting from Davos, Vamos writes that Jack Ma Yun noticed:

"... on a return visit (to Silicon Valley) three years ago, the lights were out by evening and the office parks were dead on Saturday and Sunday. The opposite is true in China today (where increasing numbers of Chinese engineers and scientists who were educated in the U.S. and who cut their teeth in Palo Alto are returning because the opportunities are so great). Today, Ma said, "Silicon Valley is in China."

David Wolf of Silicon Hutong comments:

"As someone who lives and works in China in industries that are innovation driven, I can say that Mr. Ma's remarks are astoundingly superficial and overlook some interesting subtleties, including but not limited to:

• A regulatory environment for start-ups that is challenging and, when compared to that of the Bay Area, almost hostile.
• A lack of engineers trained in practical applications of the engineering art - despite a surfeit of people educated in engineering.
• A dearth of leadership and creative skills in the workforce from which technology firms must draw."

Let's see if we can formulate the question more broadly: How can technology firms that wish to introduce and sell their products in China overcome the lack of protection of intellectual property rights? Can you share some guidelines and real-case examples of how technology firms are having sales success and protecting their proprietary knowledge at the same time?

Dr. Chan: There is no easy way to protect a company’s technology in China, whether or not you’re selling software, machinery, pharmaceuticals or services. It is the responsibility of each company to come up with a creative way to protect its own secrets.

The art is to not let your competitor know what and where is the secret of your product, system, procedure, method, protocol, formula or magic. If you reveal everything, you lose your immunity and your business dies.

We have been selling precision-engineered components and information products in China successfully for 26 years. We’ve learned how to keep our secrets. We learn to use raw materials that the "pirates" cannot easily find in China. We design our products in such a way that people who try to reverse engineer our products can’t figure out what makes them work so well.

We’ve trained our sales and technical staff to not divulge sensitive information when they meet with customers and contacts. We travel to China regularly and visit our customers to learn what is "important" to them. We recruit and cultivate "insiders" who live and work in China who are capable of protecting our profits (and theirs) at the same time.

What are *your* thoughts? Do you have experience doing business in China?

Comments

[Stephen Denny]

Valeria:

China is, for most of us, a market of about 300 million consumers -- those who make over US$4,000 if my memory serves me correctly.

Staying ahead in one company I worked for meant guerilla branding. The category was computer headsets for PC gaming -- a commodity business where locally mfr'ed products were sold at around US$1 each. In a Shanghai electronics mart, I had a consumer come up to the storefront where I was and ask specifically for a Plantronics model (that had been discontinued for a few years) -- when we asked him why, he quoted verbatim (in Chinese) from a Swedish Counter Strike clan's endorsement of our product ("so good you can hear the enemy creeping up behind you") from several years prior (!)

I also saw Sennheiser headsets selling very briskly there, even at "global" prices of US$70 to US$100 -- a lot of money for that economy. Branding is alive and well in China.

The downside is the multiple claims of IP infringement from the likes of Hwa Wei and others for big ticket items like telecom and rounting technology products.

And, of course, the shadow over the horizon is that there are roughly a billion unhappy farmers whose rights and property are no one's top priority.

Not an easy situation, but a very interesting market.

[Valeria Maltoni]

Stephen -- thank you for joining this conversation. I admit to not knowing too much about China, my expertise resides with work in Europe and the US.

Back in April of last year I met a consultant who knew James McGregor, from the WSJ and recommended I read "One Billion Customers: Lessons from the front lines of doing business in China". The book was a fantastic find! If there is interest in this forum, I'll be happy to get into it.

When I met Shelly Lazarus from Ogilvy & Mather at a conference a couple of months later, she recommended McGregor's book to people who wish to understand how business in China is conducted.

My final thought is that I have a colleague who is the GM for China and he's from Italy. He studied in Germany and England and speaks Chinese. Again, if this forum will allow, I'll ask him to join the conversation.

Being myself what they define a "twin", with one foot in each continent and having done interpreting work and translation for years, I do get that culture is paramount.