Ralf HallerRalf Haller April 9, 2012

China goes high-tech

If you have been read this blog over the last few years you will have noticed that every so often there is an article about China winning in high-tech. The trigger for this post is the news that the German solar cell manufacturer Q-Cell announced chapter 11. The German newspaper FAZ showed this infographic that is very typical in other high-tech industries as well. Note how little time it takes to go from being a leader to  a minor market player. Your industry might be next.

I have a special relationship to China because I lived and worked in Shanghai and Hong Kong for a few years when Hong Kong was still British. Also, in each of the 10 years and more since then I have been to China for business development assignments.

Now over the last 2-3 years things have changed for more and more clients, as China has shifted from being a country with unlimited growth potential to their number one competitor. And my attitude to China has also shifted from being enthusiastic 10 years ago (I even learned some Mandarin), to somewhere you can do some business (albeit never very profitable and entailing very hard negotiations) to facing a competitor who is out to kill you and will use both legal and illegal business practices to do so.

I heard that China has taken on about 50 industries where they want to become the dominant force. In order to get there fast, copyright infringement is the way to go, which companies like Cisco ( with Huawei stealing their IOS and copying routers 1:1) or Ericsson (an Ericsson BCS looked identical to that of Huawei) have experienced first-hand. If I tell people that you always lose against the Chinese, it’s just a matter of how much, they are mostly puzzled and do not seem to understand. Going through the three stages mentioned happened over 15 years. Most people enthusiastically doing business with China these days are still in stage 1, but I am convinced that they will go through the same experience over time. So I have been thinking how best to warn people, and came up with this list:

  • don’t shift technology know-how to China even if Chinese partners demand it and make business dependent on it
  • if this is demanded, forget it and manufacture elsewhere in Asia; cost-wise there is no need to be in China any longer
  • increase your intellectual property security mechanisms, and make sure there is no single point where all info is stored and can be accessed; encrypt all data, and enforce security policies like a bank
  • in order to stay competitive you must keep innovating; while this is sort of a no-brainer in high-tech it is even more so critical if Chinese companies start copying you
  • make product marketing and product management one of your key strengths
  • do not underestimate Chinese competitors but study them the same way you study other competitors: always assume that they will soon be able to deliver the same quality products as you but for much less
  • in case a Chinese partner demands something unusual and not acceptable to you, walk out. One way that Chinese companies typically win in negotiations is knowing that Western managers have just a few more months of reporting cycles before they are under pressure to show results: turning this around to put the pressure on the Chinese partner requires an open-ended long term (years) approach on your side. If you don’t have that, do not even start negotiating
  • try over the years to bridge the intercultural gap: the new generations in China are changing also their attitudes becoming more westernized. It helps if you learn at least some Mandarin, BUT don’t try to do business with it, you do not want to have another disadvantage
  • build your strategy not on China alone but have at least one or two other regions where you develop business so that you can shift focus in case it is needed