CHINA VS THE WORLD

WHOSE TECHNOLOGY IS IT?

Presented by: Mayur Pahwa – 10/MBA/28

Meera Hans– 10/MBA/29Saurabh Arora– 10/MBA/49

Summy Kataria– 10/MBA/55

Harvard Business ReviewBy Thomas M. Hout and Pankaj Ghemawat

WHAT IS CHINA DOING?

Beijing is silently implementing policies to enable China to overtake the west and emerge as the globe’s technology powerhouse.

It is forcing MNCs to share their technology with Chinese state owned companies as a condition of operating in the country.

It is funding megaprojects in sunrise areas such as nanotechnology ,quantum physics , nuclear power.

HOW IS IT DOING?

Studies reveal , since 2006 that Chinese govt. has been implementing new policies.

These policies :a) Limit investments by foreign companies.b) Stipulate high local contentc) Force the transfer of technology from foreign cos. to their joint

ventures.d) Policies are complex and ever changing.

IDEA : Either comply or miss out the China Boom.

CHINA’S PLANS FOR WINNING THE TECH WAR

China wants to be leader in every field : innovation, defense, space ,nuclear etc.

It plans to increase R&D spending to 2.5% of GDP

Introduce unique technical standards to reduce dependence.

Ensure China has the largest no. of patents and scientific papers published.

WHY THE SHIFT?

China’s change in mindset is driven by economic disillusionment with serving as the world’s factory for low value products as it is by pragmatism.

China’s high tech cos. account for 85% exports , but that has less than 10% Chinese content.

Frustrated by inability of Chinese cos. To get lion’s share , Beijing decided four years ago to change its strategy.

Government realized that Yuan's appreciation would eventually render China’s low tech exports uncompetitive.

This would result in shift of manufacturing base to Malaysia, Thailand and Vietnam.

To keep its economy growing by 9%

To provide jobs to new population & boost income levels.

However , Chinese enterprises such as Aviation Corporation were unable to compete with western ,Japanese and South Korean leaders.

CHINA’S 3 PRONGED STRATEGY

The Chinese Govt. ensured:I. The state itself will be both the buyer and seller in key

industries, by retaining ownership of customers and suppliers.

For ex- The Chinese Govt. owns the airlines. This gives the state a great deal of influence over equipment purchases ,sales and technology

II. The govt. has consolidated several manufacturers into a few national champions , to generate economies of scale and concentrate learning.

For eg. CSR and AVIC have resulted from the mergers of several smaller , loss making enterprises.

III. Chinese officials have learned to tackle MNCs , often forcing them to form joint ventures with its national champions 7 transfer the latest technology in exchange for business opportunities.

WHY IT HAS TO BE DONE NOW

Timing is very crucial for the people republic of China as still Yuan is undervalued in comparison to other currencies, this provide China with Export advantage.

The internal demand of Chinese markets are increasing and this provide the company with global advantage as they have experience of catering to large masses

HOW CHINA IS PROMOTING R&D

It offers tax incentives to organizations who want to setup their R&D centers in China.

China has increased it’s spending on R&D manifolds in the past 17 years.

It has tailored procurement policies in favor of indigenous products.

Forcing MNCs to share their technologies.

WTO Vs CHINA

China quickly changes it’s policies to circumvent the regulations that WTO has placed..

According to china they are not doing anything wrong by promoting Domestic products.

Although the WTO prohibits technology transfer, China maintains whether or not to share technology is purely a business decision and companies are not being forced

THE STATE’S STRATEGY

China helps the smaller companies to grow by imposing law that requires the MNCs to procure from Chinese companies.

E.g. They offered Kawasaki, Alstom and Siemens that they may bid for expanding the railway system in china if they procure 70% of the goods from China.

Sometimes the govt. also synchronizes it’s desire to grow a particular field with new policies for MNCs.

E.g. Government started giving subsidy on wind turbines and at the same time they increased the local content requirement from 40 to 70% the foreign companies not able to increase their demand so quickly lost most of their customers.

THE STATE’S STRATEGY

China is having a hard time dealing with IT organizations since it does not have state owned company in this domain.

It therefore penalizes foreign players and favor local players in a less direct way.

E.g. it gives hefty tax rebates to local players while imposing heavy taxes on MNCs.

THE STATE’S STRATEGY

R&D in China Vs America

From: Case Study

CHINA’S GROWING R&D

From: Case Study

IS CONFLICT INEVITABLE?

China’s policies are very different then the policies of the west. The tensions between china and west are growing.

Whether or not this will cause confrontation depends upon the govt. of china and U.S in particular.

As of now they seem to be pragmatic and want trade to increase.

But the economies of China and west are very different in structure, objectives and beliefs.

For E.g. the west believes that the state should play a limited role in the economy while China believes otherwise.

Also there is difference in expectations as china believes in saving today while west presses for current consumption

IS CONFLICT INEVITABLE?

CHINA ECONOMIC POLICIES

China has policy rigidity, and the future of the communist government over there depends upon the growth of it’s economy in the next few year.

People in china believe that govt. is doing the right thing at the right time and the foreign complaints are the de facto attacks on t he country.

Beijing has less control over provincial governments which give rebate to exporters and levy heavy taxes on MNCs.

Many leaders believe that state capitalism is the best chance for China to regain technological superiority.

Also the taxes are calculated on the basis of production not profit this causes producers to overproduce which spills into the export market this too irks the west

CHINA ECONOMIC POLICIES

SUCCEEDING IN NEW CHINA

MNCs must adjust to the growing tensions b/w China & US.

They have split cutting edge technology b/w diff. partners.

Have starting posting more trained home employees for handling sensitive work.

Have started building stronger personal and organizational links with their partners.

Are negotiating with the Govt. more & more.

The UPs

Case of AIG:

Former CEO Hank Greenberg of AIG ,helped Chinese leaders in 1970s.AIG was rewarded 25 years later with special privileges when the insurance sector was opened.Gates , after early struggles bowed down to the piracy in China and learned to work in Beijing.In return , China forced PC manufacturers to load legal software onto their computers.

Cummins is an equal partner in both production & R&D with the largest Chinese diesel engine maker Dongfeng.

This has allowed the US cos. to develop products that they used to.

Teaming up with Chinese cos. Is becoming essential to become cost effective , since govt. aid, budgets , policies help them.

The Downs – Adjust Or Leave

SAP dominates China’s ERP software mkt., the govt. however gives hefty tax rebates to local players such as Kingdee International Corp.

In 2010 , the govt. has mandated the disclosure of source codes by the software companies.

China also issues product standards & specification that force cos. to develop special versions for china.

Applied Materials, a global leader in semi conductor making equipment , recently transferred many R&D activities to China & located its CTO there.

Shanghai Automotive industry formed a joint venture with Volkswagen , with a license to both partners for accessing technology and sale of equipment.

Google was asked to tame down , it did not comply ,and had to leave.

The Final Word…

A global realignment is under way.

It includes the spread of competitive capability to China and a surge of investment in China.

If the western corporations wish to remain the tech leaders , they must bring in greater innovation , imagination in dealing with china .

REFERENCES

Case Study: - China vs the World “Whose Technology Is It?”