Archive for China
A culture that can protect trade secrets is vital for innovative companies. Such a culture becomes especially important in collaborative innovation efforts where failure to protect trade secrets can severely damage partners and the offending company’s reputation.
Chinese companies are increasingly recognizing the value of what the West calls “open innovation.” In fact, forms of open innovation were the basis of a great deal of innovation in China long before the term was coined in the West. Innovation in China tends to be fueled by guanxi with trust between partners being far more important than the legal details drafter by lawyers for a joint venture or other collaborative effort. Innovation in China, though still largely overlooked by the West, frequently occurs as trusted friends or acquaintances discuss their needs and challenges and find new solutions by crossing disciplinary borders. The many partnerships and allies involved with leading innovators like Ten Cent, Alibaba, Foxconn, and Huawei testify to the fluidity and rapidity of innovation in China achieved via collaboration and shared vision among partners.
However, when companies in China or anywhere collaborate to find innovation, the inevitable sharing of trade secrets between partners puts the players at risk should there be inappropriate disclosure. Two leaders may fully trust each other, but if one of them leads a company with a weak IP culture where individuals fail to respect trade secrets, the partnership can be destroyed and severe damage can be done. Those engaging in a collaborative venture should be aware of the risks and consider their own culture and processes, as well as the culture, processes, and track record of partners. Zealous efforts are needed to avoid harm, even when there is no intent to harm or defraud. Simple slips can disclose information inappropriately and hurt a partner and one’s own reputation. Those pursuing open innovation need to pay particular attention to trade secret protection and ensure that only a few well trained employees will be exposed to the trade secrets involved in the partnership.
Unfortunately, university culture in China and throughout the world, generally speaking, is inherently geared toward sharing and publishing information, so partnerships with universities should be carefully pursued with the realistic expectation that information may be leaked. Containing the scope of the partnership and minimizing any sharing of corporate secrets can reduce risks, while still allowing a company to tap the many riches of knowledge and innovation in China’s academic community, where many companies are finding success in advancing innovation.
I had the privilege of speaking at the Global IP and Innovation Summit, Sept. 4-5, Shanghai, organized by Managing IP, an outstanding IP magazine. This was a terrific conference with about 300 participants, opened with a keynote from the Acting Director of the US Patent and Trademark Office, Teresa Stanek Rea. I got to chat with her and a friend of mine from the State Department before the conference began, and was deeply impressed with her vision and understanding. She gets IP and will be a great boon to the USPTO and to the US economy, if she stays on long enough. Fingers crossed that she will continue there for many years!
Overall, the conference exceeded my expectations. Almost every speaker on day one had me taking notes and feeling grateful for the information being shared. Well done, Managing IP!
In the session on trade secrets, I shared some experiences regarding trade secret theft and gave some tips on creating strong trade secret policies and practices. One important tidbit I offered is that multifunction copy machines can be an easy route for unintentional loss of trade secrets since they typically have hard drives that may record imaged of copied or printed documents, and that data may go out your door when the copier is sold, junked, or turned over to someone else. That’s a tip you can act on today to better protect your company. For more information see the story at iHealthBeat and the helpful guide from Xerox on how to prevent data loss from photocopiers.
Here are my slides in English and Chinese from my brief presentation, part of a panel discussion led by Esther Lim of Finnegan in Shanghai with attorney Will Rao from McAndrews, Held and Malloy in Chicago. The slides do not contain the stories I told and other information shared.
Among the many burdens entrepreneurs face is the outright theft of their IP by companies that specialize in ripping off others by making counterfeits or knock-offs. It’s a horrific problem in China, in spite of increasing enforcement efforts by authorities. Part of the problem is that the cost of being caught is relatively small, so many of the IP thieves see the risk of spotty enforcement as just the cost of doing business. They are willing to shut down an operation and restart somewhere else, continuing the crime.
Knock-offs not only reduce profits for the innovator, but can damage a brand when the counterfeit products have poor quality or even serious safety issues that can affect the reputation of the original. Apple has faced this problem in many ways. Knock-off iPad and iPhone rechargers have recently failed and injured or even killed some consumers, a potentially disastrous situation for Apple. Apple could face criticism for making its rechargers so expensive that it has created strong incentives to use bogus 3rd-party products. But rather than remaining silent and trying to ignore the risk, Apple has taken an aggressive and bold step that shows the spirit of innovative business model creation is alive and well at Apple. Or it at least shows Apple has some clever and creative marketers still shaping the company.
Apple’s response has been to offer a bold take-back program for the China market. Through October 18, Apple will take back any iPhone, iPod, or iPad charger not made by Apple and in exchange will sell users an authentic Apple USB power adaptor for $10—half the usual price. As reported in coverage at Quartz.com, this approach looks really brilliant. It shows Apple taking proactive steps to solve the safety problems that others have illicitly created, and will result in a lot of people coming into their stores and gaining more loyalty for Apple while properly losing trust in 3rd-party knock-offs. Smart move, one that requires some investment and upfront risk, but one that reduces risk and probably increases profit in the long run.
Even the burden of counterfeits can be an opportunity for innovation in our business models and product strategies. May we face every burden with such an innovative spirit, looking for the opportunities.
Brand management is essential in consumer products and many B2B products. Here in China, Asia Pulp and Paper has many brands in both areas such as the famous QingFeng brand of tissue paper. Especially in the retail market, brand value can explode or implode suddenly, depending on market conditions, actions of the brand owner, and the vagaries of public opinion and the media. Managing brands in China is a daunting task and there is a constant need for improved tools and better data. We learn repeatedly that great inventions aren’t enough. The cool product has to be supported with brilliant marketing, strong logistics, and healthy brand management to grow and become a successful innovation.
Those interested in innovation and business in China should be delighted with the newly released report, “2013 Brandz Top 50 Chinese Brands” from Millward Brown, a global company focused on brands. The full report is a large, 16 megabyte PDF file in either English or Chinese. (Be patient: downloads may be slow.) Its case studies and highlighted companies provide valuable content for reflection.
The lessons from this report are many. We learn that innovation is not just alive and well in China, it is essential for business growth. We learn that Chinese companies are increasingly expanding past the borders of China to seek global markets. Lenovo, for example, is now the world’s leading PC brand. Yet we learn that China’s leading brands are not immune to economic tailwinds and collectively have suffered slowing recently, with the rest of the global economy, though the pain has been less than in most other sectors. An especially important lesson is that Chinese consumers are becoming increasingly sophisticated in their shopping, partly due to the pervasive influence of broadly shared information on Weibo and other internet resources, and so as the economy further contracts, the higher expectations and demands of consumers will create complex new forces in the market that will require sustained innovation from companies. Strong, trusted brands will increasingly be important.
As an observer here in China, I wish to emphasize the importance of trust. Brand failures can become permanent disasters. Constant attention to quality and reliability is essential as brands grow and develop. Shortcuts can become disasters.
The Brandz report also examines growth relative to the previous year. Technology, exemplified by innovation leaders like Tencent, had the largest growth among the sectors explored in this report. TenCent has invested heavily in innovation for mobile apps. Another tech leader, Baidu, has emphasized cloud computing in its recent innovation efforts. Food and beverage has also been relatively strong in maintaining or growing brand value. Retail and e-commerce, on the other hand, experienced a decline in overall brand value of around 30% in the 2013 report relative to the previous year.
Here is an excerpt of the information on Tencent, illustrating the strategies it is employing for growth and innovation (p. 29):
Driven by the rise of mobile, Tencent is shifting priorities. Tencent Weibo, the brand’s Twitter-type service, and its mobile messaging app Weixin, are now among Tencent’s most significant products.
The open nature of Weixin and its variety of mobile features make it an important part of Tencent’s strategy to diversify and expand internationally. Meanwhile, QQ, Tencent’s well-known instant messaging service claims over 700 million active users, making its audience in China comparable in size to Facebook’s globally.
Tencent reorganized its business during 2012 to more effectively develop Internet opportunities. The company purchased 49 per cent of Singapore game maker Level Up for $27 million and a minority stake in Epic Games, a US 3D technology company. Tencent also entered an agreement with Disney in which Disney will help develop animation content for distribution on Tencent platforms.
In another deal, Tencent will provide software for a 26-inch flat-screen TV made by TCL that allows users to shop and access online games and videos. The deal marks Tencent’s first collaboration with a consumer electronics maker. The deal illustrates the dynamism of Tencent, a brand that achieved market leadership in about a decade.
Tencent derives most of its revenue from Internet value-added services but also relies on mobile and telecommunications, online advertising and e-commerce, with a brand called buy.qq.com, which it launched in December 2011. In 2004, Tencent Holdings Ltd., was listed on the Hong Kong Stock Exchange. Tencent ranks 37 in the BrandZ™ Top 100 Most Valuable Global Brands 2012.
One of the great innovation fatigue factors in many nations is the lack of an effective patent system to protect intellectual property rights. When IP rights are weak or nonexistent, there is little incentive for innovation and economies can lag far behind their potential. China has recognized the need to do more than just low-cost manufacturing and copying from the West, and in the past couple of decades has embarked on a goal of becoming a leader in technology and innovation. It hasn’t been easy and there are still many steps to take, but China has gone from having no IP system at all in the early 80s to having a system that now leads the world in terms of IP filings and IP litigation.
Yes, China is the world leader in IP litigation. Patent owners can and frequently do sue infringers successfully. But there are some challenges in enforcing IP here. One of the problems is the lack of discovery during litigation, making it hard to learn what your opponent has been doing and how much they have made from your invention. There legal system is also a bit more complex, with both administrative and civil routes available for enforcing the patent. One of the most common complaints also is that the awards given to successful plaintiffs are too small. Some of these concerns are being addressed in new proposed changes to the current patent law, changes which make it easier to get higher judgments (and reasonable legal fees) and which also add more teeth to the administrative routes for patent enforcement. In fact, the entire body of proposed changes appear to be geared toward strengthening enforcement. This is consistent with the recent change in 2008 that doubled the statutory infringement penalty (the maximum penalty for infringement in cases when actual damages are unclear) from 500,000 RMB to 1,000,000 RMB. These moves show that China is striving to become more serious about enforcing IP.
For those who have heard that patent awards in IP lawsuits are too small to make a difference, consider the recent case of Chint vs. Schneider in which the plaintiff was awarded 334 million RMB for infringement of a single patent, and it was a utility model patent, the type of patent that Western companies tend to ignore since there’s an assumption that utility model patents aren’t enforceable and are just junk. Other patent battles have results in multimillion dollar (and RMB) awards. If you can prove damages, they can be way beyond the statutory limit.
Yes, China’s IP system has gaps, but those gaps are being filled in with teeth, and the direction for the future is clear: higher quality, better enforcement, and a stronger environment for innovation. Is your nation on the same path? I hope so!
As China’s IP engine continues to power up, the West remains blind to what is happening here. China now leads the worlds in patents. China’s companies aren’t just doing junk patents filed as unexamined, low-cost utility model applications in China. Two of the top five international patent filers, filing expensive, examined, international patent applications, are Chinese companies. And in addition to lots of filing activity, China and its courts are buzzing with burgeoning IP litigation. China now leads the words in IP lawsuits, many of which are Chinese companies suing other Chinese companies. And yet ZDNET.com just expressed amusement when they learned of a single IP case in China and talked of the “delicious irony” of one Chinese company suing another. Irony? Delicious? News?? This is part of a transition that has been going on for years in China. It’s routine now. Old news. But the West doesn’t get it.
More seriously, the West continues to write off the book in Chinese IP as just a bunch of low-quality patents. That may help the West feel good about its own decline in innovation, but it blinds people to the opportunities (and threats, for some) that are rising from the East. A recent example of Western attitudes is expressed by the European Union Chamber of Commerce in China (EUCCC) in their new report, “Dulling the Cutting Edge: How Patent-Related Policies and Practices Hamper Innovation.” Yes, Chinese IP has quality problems in some sectors (similar to the pervasive quality problems in the US that the USPTO fails to address), and yes, many companies are just filing lost of Chinese patents to get tax benefits. But they are learning how to file. Some are learning how to build estates and how to succeed with litigation when needed. And some are doing this on an international scale. The trends are there and what may be small waves now (still big enough to break records on some shores) could become a tsunami in the future.
Discounting Chinese IP and innovation for its early-stage weaknesses is the wrong way to prepare for the future.
So often I hear Westerners complain about innovation in China or about innovation from Chinese employees. There is a perception that Chinese people are great at following directions and working hard but poor at creativity and innovation. Yes, there is a cultural emphasis on respecting authority, following instructions, and sticking to one’s duties. There is also an understandable but often very strong aversion to losing face, and that can lead to hesitancy to speak out in a group setting when there is a risk of being wrong, and certainly weighs against challenging the views of leaders. None of this needs to be a barrier to innovation. But it’s easy for those barriers to seem insurmountable to Westerners.
If you bring a team of Chinese employees together for a brainstorming session looking for fresh ideas, it’s very easy to get blank stares and a lot of people looking silently at the ground. A Westerner might interpret this as lack of creativity or unwillingness to innovate. But the real problem might be that the boss is in the room and everyone knows what the boss thinks is needed for the future. They aren’t going to challenge that directly. They also don’t want to risk being “wrong” by offering silly ideas. Or perhaps the problem is that they don’t trust you yet and don’t know what you’re really after. In my experience, respect for authority and a desire to follow the rules can be turned to advantage in an innovation session. The trick is helping them understand the process and giving them new rules that promote creative participation. And you must earn their trust and give constant encouragement.
One type of innovation session I do with Chinese teams is aimed at rapidly creating enabled intellectual property to jump start an IP initiative. The goal is not just a list of wild ideas, but a few ideas that can be challenged, critiqued, and improved iteratively until we feel we can actually make it work and have enough detail for an enabled description (“constructive reduction to practice”). With a creative, technically competent team of 6-15 people, during the course of a day we may be able to product 5-10 concepts that seem novel and have enough meat to them to support a reasonably enabled invention disclosure that can then, pending more thorough prior art searching and business considerations, be turned into a patent application or defensive publication, as desired.
In preparing one Chinese team for this exercise, I offered some sample exercises for associative thinking, one of the tools I use in my innovation sessions. I asked for their ideas and got nothing. Blank looks, looking at the ground, obvious discomfort. Few were willing to risk sharing new, untried, possibly crazy thoughts with the group, and this was without the boss being present. I then had to do some coaching. I explained that the rules today required us to express new ideas, that it was OK to be “wrong” and it would not just be OK but even necessary to point out the gaps and problems with our ideas so we could improve them.
It was almost time for a break then, so I also added this: “And we can’t take a break until I get at least 3 ideas from this associative thinking exercise.” Suddenly my quiet, shy team started bubbling with interesting comments. And on each one, I offered praise and acceptance. When they came back from the break, as we did a few more exercises, I soon noticed that these kids were excitedly going the extra mile, trying to get as much as they could from the few minutes of time I gave them. And I found my biggest problem wasn’t getting them to talk, but getting them to stop talking. They wanted to go on and on explaining their creative concepts and how they could be used and all the variations they had thought of and so forth. I felt like I had struck oil.
When I met with them a few days later to get deep into a particular new product concept and tap their thinking, the problem once again was getting too much, not too little. I found them to be enthusiastic inventors anxious to contribute and perhaps even to show off a little. Group exercises added a touch of competition where being quiet would be the way to lose face. By making the rules encourage participation, by reducing risks of losing face, and by giving them positive experiences as they participated, I found that they were every bit as creative if not more than American teams I’ve worked with, and was often impressed with their contributions.
Don’t assume that your Chinese team members are naturally less creative or innovative than Westerners. It’s easy to focus on the moat and wall that China, in Western eyes, seems to have around the “forbidden city” of innovation. In reality, access is easy, but you’ve got to use the right approach and find the (very large) entrance. Recognize that there are cultural differences that need to be bridged, but when you set up your innovation efforts appropriately, you can obtain great results regardless of where your team comes from.
As we’ve discussed previously on this blog, the West often gets things completely backwards when it comes to China, and the misunderstandings can be serious barriers to Asian innovators seeking global markets. The “Tragedy of Chopsticks” helps illustrate this.
A few years ago while in the US, I became concerned about chopsticks in China. The anti-chopstick publicity from Greenpeace and other groups was pretty convincing. What a shame to read about the vast tracts of precious forest land in China that were being mowed down to fuel China’s reckless, wasteful use of disposable chopsticks. What an environmental disaster! The New York Time‘s famous Green Blog recently reminded us all that “Disposable Chopsticks Strip Asian Forests.”
The article begins with a photo of a Greenpeace demonstration in Beijing where activists are building trees made from chopsticks to highlight how chopsticks wipe out trees. The coverage of China’s deforestation from its horrific chopstick use made me worry about the nation, for I had long known that China hardly had any forests left. Thirty or so years ago, the amount of forested land in China was around 9%. Some say it might have been a little higher, perhaps 10 or 11%, but it wasn’t much. As a young professor at the Institute of Paper Chemistry early in my career, I learned that China had to import most of its wood since there was so little forest land. But since that time, the paper industry and the chopsticks industry in China has boomed. So if we had 9% forest 30 or so years ago, how much, if any, do you think is left today? After all those people using disposable chopsticks for all these years, is there anything left of China’s forests?
That was a question in my mind before coming over here, where one of my first agenda items was to better understand some of the environmental allegations made against China and against the forest products industry here. What I found really shocked me. Take forest, for example. What’s left of China’s forest? What percent of China’s land is covered with forests? The World Bank and other credible sources now put the estimate around 21% – roughly double what China had a few decades ago. In fact, China is on course to achieve it’s goal of 27% forest land, and has what appears to be the world’s highest rate of afforestation, the opposite of deforestation. To provide the raw materials needed for forest products such as paper and, yes, chopsticks, China is ADDING forests, not mowing them down, creating sustainable high-yield plantations that can be planted and harvested repeatedly just like farmers plant and harvest their farmland, while carefully protecting virgin forests. Yes, plantations aren’t the same as wild virgin forests in terms of species diversity and beauty, but they are forests, and it is a good solution to the challenges of development. Yes, there was tragic forest lost in the past and irresponsible actions, but now China has strict policies and enforces strict regulations. Plantations must be approved before they can be created, and further official approvals are needed before trees can be harvested and then before they can be transported. As for chopsticks themselves, most of these come from bamboo, which grows rapidly and is easily planted, just like a food crop. In fact, bamboo is a food crop, with bamboo shoots being one of the most important components of Chinese cuisine. Will Western NGOs next tell us that we have to stop eating bamboo shoots? And then will we need to stop eating rice to save the rice fields?
So while the West is bemoaning the stripping of Asian forests from Chinese chopsticks and paper, the real story in China is a doubling of China’s forest with the help of the forest products industries and aggressive State policies. Why is this story so completely untold in the West? Why is it not part of the debate when Congress is deciding they need to punish the Chinese paper industry with punitive tariffs, when actually, the Chinese paper industry (at least based on my knowledge of APP) has environmental standards and achievements that are typically better than those that are standard for Europe and North America. But recognizing the remarkable environmental achievements of that industry, including its contribution to rapid afforestation through sustainable plantations, does not fit the agenda of some the West.
China has had its environmental problems and still has a lot of progress to make in terms of pollution, but it’s an issue that is taken seriously and remarkable progress is being made. In the forest products industry, the worse polluters are being shut down, hundreds of inefficient, highly pollution paper mills every year are being shut down as standards are progressively tightened. Come see for yourself and visit some of the beautiful, clean paper mills I’ve seen here in China. And before you try telling the people of China how or what to eat because of your enlightened knowledge of all things environmental (if, perhaps, you are as wrong as I was about the realities of China before coming here), you might want to get your chopstick facts straight. Chopsticks and forests are one of many issues where the West grossly misunderstands China.
The impact of innovation in China is often not obvious to the West, even when many gadgets like the iPhone draw upon innovations from China and Taiwan that make many Western products possible. Not many Chinese brands have spread outside the borders of China, leading some observers to question the significance of Chinese innovation in full-fledged products and not just components or manufacturing methods. China is just beginning to learn how to develop brands that will succeed in the West. The apparent dearth of brand-based innovation from China should change in the coming decade. Some of the front-runners might be found in the automotive industry.
The Chinese automobile brand, Chery, is already rolling westward. A friend of mine spotted it on-sale in Kiev, Russia, and sent me these photos (photos courtesy of Martin Daffner). Chery, now one of China’s leading exporters, began exports in 2001 to Syria and now sells its cars in the European nations of Russia, Ukraine, Belarus, Serbia, Macedonia, Turkey and Italy (per Wikipedia) and as of 2012 will be marketing also in Australia, Singapore, and South Africa. Chery’s strategy is to expand in developing countries first and then enter more developed countries.
As Chinese brands move to the West, we will increasingly see Chinese companies getting their IP stolen unless they take proactive steps early to protect it. It’s already happening in the realm of trademarks, as Li Yongbo reports in the China Daily article, “More Chinese brands victims of IPR violations.”
- Auto Innovation—China Style (Businessweek)
Following up on the mind-numbing failure of Thompson-Reuters to include ANY Chinese or Taiwanese company on their list of the 100 Top Global Innovators, let me mention one more that should be there: Lenovo. This Chinese multinational company had 402 US patents granted from 2005 to 2010, well above the numbers obtained by some other companies on the TR list supposedly based on patent activity. They have international scope and are now the world’s 2nd largest maker of personal computers. Annual sales are over $20 billion. This puts them above many of the less-known companies on the TR list. OK, Lenovo inventors listed on patents are more likely to be from the US or Japan than from China, so Lenovo’s IP situation arguably doesn’t speak to innovation in China per se, but based on the stated criteria of TR, one would think that this Chinese company should still merit attention as a global innovator, regardless of which part of the globe their R&D centers are located.