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On The State of China Intellectual Property Enforcement And Cars.

Posted in China Business

Two excellent quotes from Bill Russo in one article. Bill formerly headed up Chrysler Asia and he is now based in Beijing with Booz & Co. He knows China’s auto industry as well as anyone.
Both of these quotes come from a Detroit News article, entitled “Ford-Geely deal spells out tech sharing.” The article highlights Detroit’s skepticism about China Auto’s willingness to abide by tech sharing agreements.
Russo’s first quote is on intellectual property protection in China and it nails it by pointing out how the laws are fine, it’s enforcement that is the issue:

“There’s a well-articulated set of intellectual property guidelines and laws, but there hasn’t been consistent enforcement of those laws,” said Bill Russo, a Beijing-based consultant with Booz & Co.

We often counsel our clients who license their technology to Chinese companies that they should front-load as much of the license payments as possible and that they should only enter into the licensing arrangement if it makes sense even if they are only paid for the first year or two under a longer term deal. We tell them this because our experience has been that Chinese companies do fairly often (though less than in the past) stop paying licensing fees after they no longer need further assistance from the foreign company licensing the technology.
But my favorite quote from Russo is on how China’s auto manufacturers are not “there yet” when it comes to making a world class car and is explanation for this shortcoming:

Auto analysts say the Volvo acquisition will help Geely gain expertise in vehicle development — an area where China’s fledgling carmakers are all weak. Geely has only been making cars since 1998, while expertise in vehicle development is built over five-year product cycles.
“It’s like you can go to medical school and be a straight-A student, but until you’ve been a doctor for 10 years, you’re not going to be that good at it,” Russo said.

But give China time:

But it won’t take long for the Chinese to catch up.
“We probably had this discussion about Japan 40 or 50 years ago, and we probably had this discussion about Korea 10 to 20 years ago,” Booth said.
“The world is accelerating, and China is accelerating very fast.”

Do you agree?