How does China steal technology

piracy

Constanze Müller

To person

Diploma in Business Sinologist, born 1979; PhD student in regional sciences China at the University of Cologne, research assistant at the University of Bremen, Werderstrasse 73, 28199 Bremen. [email protected]

China is an indispensable part of the German economy. For companies of all sizes and industries, the country is both a production location and a sales market. The Chinese market is also playing an increasingly important role as a cornerstone for the entire Asia strategy. But the ubiquitous product and brand piracy is affecting business. Almost 65 percent of all goods picked up in Germany that violate intellectual property rights come from China. [1] For almost a decade, China has been leading the relevant German customs statistics and is consolidating its title as "copier world champion" every year.

Product pirates counterfeit or imitate products and use established brands. Your goal is to achieve high profits primarily by saving costs. As a rule, product and brand piracy is used as soon as the intellectual property rights of the original manufacturer are infringed. Consumer and capital goods, complete production lines, simple mass-produced goods and high technology are equally affected. Everything that appears salable and promising profit is copied.

More than half of all German companies with activities in China are likely to have been affected by piracy at some point. Volkswagen is confronted with replicas of engines and transmissions, [2] and medium-sized companies also sum up: "Everything is copied in China anyway", "if you want to steal, you steal" and "there are no secrets in China". [3 ] Despite regular discussion at the highest political level, legal means against product piracy leave much to be desired. More than two thirds of all European companies describe the enforcement of intellectual property rights in China as inadequate or very inadequate. [4]

The often cheaper and inferior quality piracy products lead to lost sales and damage to the reputation of companies. The economic costs are immense. Jobs are being lost and tax revenues are falling. As was recently the case with dairy products and toys, consumers have to fear health consequences.

For companies, it is about much more than the short-term material damage. In the age of knowledge economy, a strong division of labor and close cooperation, the piracy phenomenon has a long-term effect on cooperation with Chinese business partners, customers, suppliers and employees. An investment in China requires the involvement of local partners and employees as well as the development of networks more than ever. However, in the vast majority of cases, product piracy occurs in the immediate vicinity of the company. Under these conditions, trust is difficult to build. Knowledge exchange is often inadequate. The immaterial damage to German-Chinese cooperation caused by the potential piracy threat should not be underestimated.

Economic catch-up process

Why is product piracy so widespread in China in particular? Is it a China-specific phenomenon? From an economic point of view, the comparison with the catching-up processes of other economically less developed countries speaks against it. Because regardless of spatial and temporal peculiarities, the economic development path is roughly the same. At the beginning there are learning processes from economies that have already been developed. Techniques, business models or brands that have proven themselves there are adopted in order to come up with their own innovations at a later stage. Japanese and South Korean copies from the 1960s, 1970s and 1980s are still in the collective memory. But even developed countries used to copy on a large scale. For example, at the end of the 19th and beginning of the 20th century, German mechanical engineers built American machines that were often sold under the name of the original manufacturer. [5] Germany owes the designation of origin "Made in Germany" to the British, who wanted to warn against the inferior quality German imitation products - for example knives from Solingen with Sheffielder trademarks. As soon as the goods from Germany reached higher quality standards, the warning was turned into the opposite - "Made in Germany" became a seal of quality.

Despite this generally applicable development path from imitation to innovation, the temporal and spatial context has a decisive influence on product piracy. The considerable extent and the complex forms of piracy in China are quite unique. Globalization and liberalization of world trade coincided with the Chinese reform and opening policy from 1978, which has benefited the learning of numerous foreign investors on the one hand and the worldwide sale of pirated products on the other. Ever longer value chains, a higher division of labor and lower vertical integration mean that nowadays the entire product is rarely manufactured by one person. Whole villages in China have specialized in one product category. One company copies the design, another the packaging, another something different, so that hardly any individual can be identified as a "pirate". In addition, the Chinese market offers both cheap labor and good sales opportunities in various parts of the country and market segments.

The phases of imitation and innovation naturally overlap. In Germany - the "Land of Ideas" - mechanical engineering is also complaining about local pirates. But in the transformation country China, the development happens in fast motion and causes a simultaneity of the non-simultaneities. In the middle of the process of industrialization, the knowledge economy is already taking hold: while product and brand piracy continues to flourish, innovations are increasingly emerging, which can be recognized primarily from the rapidly growing number of patents granted to Chinese companies. But what happens beyond these measurable extremes on the local, informal micro level is less perceived. There, piracy often no longer takes the form of cheap imitations that are as true to the original as possible. Imitated products are adapted, combined and expanded, guided by the local needs of a specific region. The term shanzhaiwhich, in contrast to copying or forgery, is often associated with innovation and creativity, is on everyone's lips in China. [6] Economists also point to the importance of localized, incremental imitations and innovation in China. [7] Chinese (piracy) companies are now challenging established companies with their speed, flexibility and precise knowledge of local sales markets.

German entrepreneurs in China are reacting by continuously countering the competition with technical innovations. To be copied once does not mean a withdrawal from China. A real threat, however, is less the cheaper production of pirates' products, but more cheaper production same quality. The credo that China stands in its own way with piracy and thus cannot technologically catch up with the West is not confirmed by German managers in China. On the contrary: Together with their Chinese colleagues, they prefer to check exactly what is happening on the market, while colleagues at the German parent company "invent the wheel twice". Chinese employees are in close contact with partners and competitors. In this way they receive "vital" information and basically assume that the competitor is equally well informed about their own company. Information such as about future developments of the customer is also actively used by German managers in China. This is the only way for companies to implement their strategy and "always be one step ahead of the competition".