Friday, January 06, 2012

Key IP Question Before Considering Joint-Venture: Am I Educating My Future Competitor Or Building A Long-Term Partnership?

Colin Davies, managing director of Accenture Software, wrote a column for China Daily European Weekly (always asking whether the content is not usable for the Chinese edition) about ways that will make a better cooperation between Chinese and Western software companies possible: "The West will need greater assurances that the regulatory environment is friendly and conducive to building strong business relationships in ways that both sides can view as credible and mutually beneficial." Who can disagree with this.

Mr Davies also tries to answer the question of how a Western software developer can give a client in China a jump-start asset and let them customize it, while at the same time protecting their intellectual property?

"Although Chinese laws do exist to protect intellectual property (IP), the question is whether anyone is prepared to enforce them. IP protection will need to be adequately addressed before Western software developers are prepared to dive aggressively into the Chinese market."

Then he sketches the situation of a Sino-Western joint-venture, in a bit too optimistic light, in my view:

"Meanwhile, the prospect of a joint venture is attractive because Western companies, rather than investing resources to establish a foothold in a new and very different environment, have the advantage of leveraging the know-how of a local organization already well entrenched in China. This affords them the immediate benefit of a partner that has trust and recognition in the marketplace, knows the local players, and is more likely to defend the IP fiercely for the simple reason that it is also part of theirs."

When simple might be more complex
Some Western companies have been lured (or pushed) a bit too easily in "sharing" their intellectual property without rock-hard agreements that guarantee that the Western company is getting the intellectual property back once the joint venture dissolves. In other words, your joint venture partner can be a significant intellectual property challenge too. Also each company has to think carefully about how much of its knowledge it is willing to transfer in order to get market access. To sum up: Each potential Western company has to ask itself this question: Am I educating a future competitor or building a long-term partnership? Although Mr Davies is not asking the question, he is answering them: "Trust is vital." Read his article here.

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