For many global companies, China represents a very attractive market in terms of size and growth rate. Yet, it ranks lower in terms of economic freedom and higher in political risk than other country markets because it has a communist government. Despite these risks, Volkswagen, Isuzu, and Boeing are just a few of the hundreds of companies that have established manufacturing operations in China. This is due in large part to the Chinese government making sales in China contingent on a company’s willingness to locate production there. The government wants Chinese companies to learn modern management skills from non-Chinese companies and acquire technology. Some observers believe that when Western companies agree to such conditions, they are bargaining away important industry knowledge in exchange for sales today. Should Boeing and other companies go along with China’s terms, or should they risk losing sales by refusing to transfer technology?
Your thinking is what matters. My thinking is that it is a losing economic proposition in the long run. As I see it, the companies are giving away their business for free.
The decision of whether Boeing and other companies should go along with China's terms or refuse to transfer technology is a complex one that involves weighing short-term sales opportunities against long-term risks and benefits.
To analyze this decision, one approach is to consider the potential advantages and disadvantages of transferring technology to China. Here are a few factors to consider:
Advantages of transferring technology:
1. Access to a large and growing market: China's population and economy offer significant sales potential for companies operating in the country.
2. Cost savings: Establishing manufacturing operations in China can sometimes lead to lower labor and production costs.
3. Government incentives: The Chinese government may provide various forms of support, such as tax breaks or access to infrastructure, to companies that agree to transfer technology.
Disadvantages of transferring technology:
1. Loss of industry knowledge: Transferring technology to China could mean sharing valuable industry knowledge and intellectual property, which may give Chinese companies a competitive advantage over time.
2. Increased competition: As Chinese companies gain access to advanced technology, they may become stronger competitors in both domestic and international markets.
3. Political and regulatory risks: China's political and legal system, which includes censorship, state control, and limited legal protection for intellectual property, can present uncertainties and potential risks for foreign companies.
It is important for companies like Boeing to carefully evaluate these factors in their specific context and assess the potential long-term impact on their business. Here are a few steps that can be taken to evaluate the decision:
1. Analyze market potential: Assess the size of the potential market in China and the growth prospects for the industry. Consider the potential revenue and profitability that could be gained from sales in China.
2. Evaluate the value of the technology: Determine the importance and uniqueness of the technology that would be transferred. Assess the potential impact of sharing this technology on the company's competitive advantage.
3. Consider alternative strategies: Explore other options for entering the Chinese market, such as joint ventures, licensing agreements, or forming strategic partnerships, which may provide a balance between market access and control over technology transfer.
4. Assess risk tolerance: Evaluate the company's risk appetite and ability to manage political and regulatory risks in China. Consider the potential consequences of intellectual property theft or unfair competition.
5. Seek legal and expert advice: Consult with legal professionals and industry experts who specialize in doing business in China to gain insights into the specific risks and regulatory environment.
Ultimately, the decision will depend on a company's unique circumstances, risk appetite, and long-term strategic goals. It may be necessary for companies to find a balance between accessing the Chinese market and protecting their intellectual property and industry knowledge.