Question

How might GE structure future joint ventures with Chinese companies to better protect its intellectual property? What cultural and managerial differences might complicate this effort and how might they be overcome?

Answer 1

Solution:

a) Intellectual property (IP) protection is the No. 1 challenge for multinational corporations operating in China. According to the U.S. government, China accounted for nearly 80% of all IP thefts from U.S.-headquartered organizations in 2013,1 amounting to an estimated $300 billion in lost business. Among European manufacturers, the loss of IP in China reduced potential profits by 20%. Although multinational corporations can’t afford to stay away from China, in order to remain competitive they must develop mechanisms that enable them to shift some of their innovation capabilities to China safely, without losing critical know-how. IP is a substantial portion of the value of most modern businesses.

For all General Electric, Intellectual property includes:

• Brand and image
• Business planning and corporate strategy
• Pricing plans

There is a set of considerations that need to kept in mind by GE while structuring Joint Ventures with Chinese companies, including the following:

1. Secrecy and refusal to disclose unique selling points to joint venture partners
2. Due diligence of licensing and trade secrecy agreements
3. Trade secrecy and related agreements with joint venture partners
4. Physical techniques such as encryption and related data protection techniques
5. Patent and trademark protections generally work well in China for protecting against large scale infringement, though small time infringement is difficult to prevent.
6. Software copyright. China has a specific regime for software protection by copyright. The system is shockingly effective for commercial software.

b) For hard asset, resource-based companies, IP is a major component in their company value. GE’s development in China has a long history. GE started doing business in China as early as 1906 and was considered one of the most active foreign companies in the country at the time. A major portion of their value lies in their Intellectual property like pricing plans, their internal data on their resources, their techniques of extraction and transport of renewable resources, their future exploitation plans and the like.

In order to design a structure that can enable protection of the above mentioned IP can be a challenging task for the management considering the complexity of local laws related to patents, transportation and trademarks to name a few. Hence, active and careful cultivation of IP is mandatory to survive.

The key concept is that IP protection is local. Since all IP protection is based on local law and practice, we must adopt an effective and realistic protection program for the country in which you are operating. If you are in China, you must consider the situation in China. China is currently the most dangerous country in the world when it comes to protecting IP, but that does not mean you can afford to throw up your hands and do nothing. China’s IP risks can be managed, if you realistically assess the risks and take practical steps for protection.