3Com Concerned About China’s “Indigenous Innovation”

In a DC Velocity article in which a senior executive of the U.S.-China Business Council says conditions for foreign companies doing business in China have reached a new low, a quote from a 3Com spokesperson makes for interesting reading.

3Com is a networking vendor that manufactures nearly all its products in China. Most of its design and development is done there, too. As such, it’s notable that 3Com should have concerns about China’s “indigenous innovation” polices, which are intended to boost the research, development, and manufacture of Chinese companies — relative to foreign competitors — in computing, software, telecommunications, and cleantech.

One might think that 3Com, essentially a Chinese company with an American moniker, wouldn’t have an objection to China’s industrial policy. Nonetheless, 3Com is concerned, as the following paragraph from the DC Velocity makes clear:

Not only does that policy erect unfair trade barriers, it also puts intellectual property at risk, said Misty Rutter, trade compliance director for 3Com, a telecom hardware maker that manufactures almost exclusively in China. Rutter warned that the process of certifying a product’s compliance with the “indigenous innovation” policy exposes design and other intellectual property to Chinese government scrutiny—and potentially, to piracy.

HP’s pending acquisition of 3Com has been held up, awaiting official approval from China’s Ministry of Commerce (MOFCOM). If 3Com has concerns that China’s indigenous innovation might compromise its intellectual property, one can only wonder what HP will make of the situation.

5 responses to “3Com Concerned About China’s “Indigenous Innovation”

  1. The going concern is that the government of China directly and indirectly controls all native companies in the tech sector. As such, native competitors can be seen as agents of the government (ie. Chinese companies do what they are told to do by the government directly – to disobey the government is to be shut down, imprisoned, or killed), and so if you submit your telecoms gear to the government for certification, then you are basically passing all vital information directly to native companies.

    I don’t see how that is controversial – the Chinese government protects and nurtures its own industrial sectors, and one of the conditions that “western” companies comply with is that if you want to build factories in China, you need to leave the know how in China.

    The auto sector has known this for a long time – VW, BMW, and, GM have all sent trade secrets and technical know how directly to their competitors in China – as a condition of being able to produce and sell in China.

  2. Agree with JLin – this is a cost of doing business in China – a good example of this is Cisco, which made forays into China, and whose IP no doubt helped foster the rise of a now formidable competitor in Huawei.

  3. Danny and JLIn,

    I’ll be coming back to this subject. Suffice it to say, I understand that the cost of doing business for foreign companies in China is the loss of intellectual property, enabling the creation of China-based competitors.

    My contention is that it’s probably not a smart bargain to strike. It’s seem to me that it might be a classic case of corporate myopia, penny wise but pound foolish.

    Evidence increasingly suggests that the odds are stacked against foreign technology companies in China. It’s like a poker game where the card sharp allows you to win a few early games, then cleans you out subsequently.

  4. I’m trying to learn why DC Velocity rewrote the story to which I linked in my post. The new version of the story, which you will not find at the link provided in the first paragraph of my post, omits the quote from Misty Rutter of 3Com.

    Make of it what you will.

  5. I think most non-Chinese companies are worried about how their IP could potentially be abused in an indigenous innovation policy situation. However, it visibly highlights that standards-setting is a central objective of China’s R&D and technological innovation strategies going forward. I’m part of an online community called talkstandards.com and we’re debating this topic on Thursday June 24th between 15:00 – 17:00 GMT at http://www.talkstandards.com/standards-policy-in-china/. All with an interest in the subject are welcome to discuss how an open standardization policy, could provide the foundations for a more open and innovative economy in China

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