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CHINA VS THE

WORLD
WHOSE TECHNOLOGY IS IT?

Harvard Business Review


By Thomas M. Hout and Pankaj Ghemawat

Presented by:
Mayur Pahwa – 10/MBA/28
Meera Hans– 10/MBA/29
Saurabh Arora– 10/MBA/49
Summy Kataria– 10/MBA/55
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 content
c) 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.
THE STATE’S STRATEGY
 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.
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.


IS CONFLICT INEVITABLE?
 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
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.
CHINA ECONOMIC
POLICIES
 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
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?”

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