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?

Question

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?

Answer 1

IT depends on the technology, of course, and the controls on it. The specifics are always the difficult parts to decide. In a vague and general question such as the above, there is no right answer.

Answer 2

The decision of whether Boeing and other companies should go along with China's terms or refuse to transfer technology is a complex one and depends on various factors. Here are some key points to consider in making this decision:

1. Market Attractiveness: China is a massive market with significant growth potential. The size and growth rate make it highly appealing for global companies looking to increase their sales and expand their operations. Accessing this market can lead to increased revenue and market share.

2. Economic Freedom and Political Risk: China ranks lower in terms of economic freedom, meaning that there might be restrictions and regulations on business operations. Additionally, it ranks higher in political risk due to its communist government. These factors can pose challenges and uncertainties for businesses operating in the country.

3. Manufacturing Operations and Learning Opportunities: The Chinese government encourages companies to establish manufacturing operations in China. This is because they want Chinese companies to learn modern management skills and acquire technology from non-Chinese companies. By locating production in China, companies can benefit from lower production costs and potentially gain access to new technology and market knowledge.

4. Technology Transfer Concerns: Some observers argue that agreeing to China's conditions may result in Western companies giving away valuable industry knowledge and technology. There is a risk that this knowledge could be used by Chinese companies to compete with Western companies in the future.

Considering these points, the decision ultimately depends on the specific circumstances and objectives of each company. Some factors to consider include the importance of the Chinese market for the company's growth strategy, the potential risks involved in technology transfer, the competitiveness of the industry, and the long-term implications of refusing to transfer technology.

Companies should carefully assess the potential benefits and risks associated with each option. This may involve weighing short-term gains in sales against long-term impacts on intellectual property and competitive advantage. Seeking legal and expert advice can also be beneficial in making an informed decision.