It was just 2 months ago that our blog Planes, Trains, and Drones–China’s Reverse Engineering Controversy pointed out the costs and dangers of sharing technology and trade secrets with China. American, European, 
and Israeli firms have all learned that the short-term profits from chasing the lucrative markets in China have longer-term negative implications when Chinese companies beat them at their own game by making the same products cheaper, if not better. But as one who has served on the board of a publicly- traded (NASDAQ) manufacturer, I am well aware of the quarterly and annual pressures from shareholders who want immediate returns and profits. What US firm takes a 20- or 50-year view of global strategy?
With the Chinese President touring the US this week, the risk and reward strategy has no better example than GEs decision to share its airplane electronics and engines with a state-owned Chinese partner, Avic, for the new C919 jetliner. (See Ch.5’s discussion of joint ventures and alliances). The New York Times (Jan.18,2011) reports, “As China strives for leadership in the world’s most advanced technologies, it sees commercial jetliners…as a top prize. The Times adds, “GE will be sharing its most sophisticated airplane electronics, including some of the same technology used in Boeing’s new state-of-the-art 787 Dreamliner”.
Neither Boeing nor Airbus are thrilled to see GE, one of their major suppliers, helping the Chinese so much. But both firms have already opened their own joint plane and parts factories in China. “Boeing has opted to accept the reality of both partnering and competing with China”, says the firm’s CEO.
The VP of another aviation firm, Rockwell Collins, adds, “his employees often ask whether the company is trading its future for immediate sales in China… It comes down to who can innovate faster”.
Discussion questions:
1.What are the benefits and dangers of joint technology ventures with Chinese firms?
2. Where does China view itself in 20 years in terms of manufacturing?
I can’t say I blame companies for taking a short term, profit driven view. In these days of super-spy cams, and other devices, it is almost impossible to keep technology secret. Isn’t it better to take profits now, then keep on innovating, than to try to hold on to secrets.
I think American manufactuers should take a lesson from the early computer wars. The reason Microsoft was able to achieve world domination is that they licensed their technology. Invent it, make it cheap, then license it even cheaper.
The Chinese are not capable of innovation, only duplication. So, let them duplicate, but find ways to strategically license. The music industry finallly learned this lesson.
The future does not belong to the secure. It belongs to the bold.
Barry recently asked me about my view on technology transfers and, at the risk of appearing to be a raging nationalist, it scares me to death. A couple of years ago, the Bush administration restricted funding for basic research by DARPA, an unsound decision based on our position as a R&D incubator. Now, the Chinese have the fastest (known) super computer, a stealth plane 10 years before predicted, a ballooning economy, dominance on rare earth materials (not just in their own country, but they purchased mines all over the world), footholds in Africa and South America (paid for with US dollars given to them for trinkets and blankets and constructed by Chinese laborers – not like there wasn’t sufficient cheap labor on hand to do the construction projects). We gave them the keys to the bank, but now it looks like we are giving them the bank.
Looking logically at the changing economic landscape, it is fairly clear that the US government and companies are fighting the last war, a war based on oil (and I’m not talking about the War on Terror). The Chinese are fighting the next war, the war for rare earth materials, aviation, next generation energy, and information (technology/innovation). And, I disagree that the Chinese are incapable of innovation. We said the same things about the Japanese in the 80s: their economic system was unfair, they allowed companies to own banks, they couldn’t innovate, etc. The simple fact of the matter is, American companies now license some their technology (e.g. hybrid drives in Ford products) the same way they learned to adapt ours. Besides, the Chinese were smart enough to innovate the US out of the comfortable position of hegemonic power enjoyed following the collapse of the old USSR.
Say what you like about President Obama, like him or loath him, it appears that he is trying to position America on some sort of footing to compete in this new space. I don’t believe that his message has been terribly effective, but if Immelt and Company can convince him on ways to reinvigorate the US manufacturing sector, I’m all for it. And, yes, I realize the hypocrisy of saying Immelt may be a key figure in renewed US economic power when attached to a story like the short sighted business decision of providing advanced avionics to the Chinese.
The Chinese want to move up the technology latter and upstream the production value chain. Their preference for indigenous technologies is not surprising and their size means that they can dictate the terms of engagement for MNCs.
MNCs have long been abusive in developing countries, transferring very little technology and using their resources and cheap labor. The tables have turned. Nobody is holding a gun to the MNCs’ heads. What are their options?