Monday, January 04, 2010

Selling China Long-Term Innovation Assets

On my way back from Beijing in December, I sat in front of a corporate guy who was returning to the US after pitching a deal to sell tens of thousands of electric car charging stations in China. He was talking to a California software guy, also returning after pitching after pitching a deal. Their exchange was all about the polite fiction that US companies are selling products to China when they are really selling their best technologies—for the lower price and profits of products. It’s short-term real gains over long-term potential profits.

Here is the essence of what I heard:

1-China is demanding technology transfer for the deal for electric car charging stations pretty much for the price of entry and for the price of the product alone. US, European, Korean and Japanese companies have known this and done this for the past 20 years. Most countries pay extra for the technology and most companies refuse to sell their best. China is getting cutting edge technology at almost no cost.

2- China can do this not only because of its enormous market but because it is the ONLY market for many products and services. China is building large numbers of high speed trains. The US is not. China is building hundreds of thousands of urban electric car charging stations. The US is not. China is spending $800 billion to make its electric transmission lines “smart.” The US is spending $8 billion. Corporations go to expanding markets. They have no choice today.

3- China is running a national, mercantilist economy policy that both state-owned and privately owned companies follow. Technology transfer is focussed on building Chinese global companies that can compete with US, Japanese and European corporations. Investment and trade are not just about raising living standards (if they were, then Beijing would let the yuan rise, increase the buying power of China’s consumers, and boost their living standards). They are about building national and global economic and political strength.

4—US companies know they are building their own competitors in China but feel they have no choice. They need that choice or the future long-term growth prospects for the US will grow dimmer and dimmer. China is playing a serious national innovation game. Good for China. The US is not. Bad for America.

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