“What May Prevent China from Developing Its Own IP”: Moderated by Gary Rieschel, Founder and Managing Director, Qiming Ventures

“No matter what your opinion is about China, you are correct”. We can reinforce any belief on the matter because of its multifaceted character.

Contrary to popular belief, China can innovate in its own way, but the question is how it does this within products and systems. The emphasis is on products at this time.

Many of the failings of the West in China are self-inflicted.  To reach the Chinese we should use Chinese methods,  ie, hire Chinese managers and use Chinese marketing. Point in case: Not a single U. S. internet company has been the leader in china.

Healthcare is different:  in 2005 needs were diverse and serious.  There have been serious challenges to the safety and due-process of the healthcare industry. Even the smallest agents were being paid off to benefit the domestic healthcare companies’ goals.

Clean Tech  FDI is doomed. They waited far too long to enter the market. They missed the fact of how difficult it is to clean up the industrial byproduct of the past 30 years.

Break down of Innovation Process.

  1. Invention- fundamental science, rare in china.
  2. Innovation- optimization, adaptation, more plentiful. Improves over cycle. Innovation plateau. Chinese are great at iterative development process.
  3. Commercialization- inventor gets 10% of economic value. Innovation gets 40%. Commercialization gets 55%.

It is inappropriate to say that all of China’s success is due to stealing IP. However, in going to China a consciousness of Chinese IP is critical.

IP: Now there are far more IP suits between Chinese and Chinese than between Chinese and foreigners, however the penalties are marginal. The leadership knows that without a proper IP legal framework, the Chinese cannot hope to guard their own growing innovation in the future.

You should know that: Products have no hope. Single use software has no hope either.  To protect yourself there must be wide support by complete system integration, the Government, and the industry.

Q:  What is the best practice to enter the country if trust is critical? It takes a long time to create.

A:  1. Know what you want. Just wanting to be in China is insufficient. You must take the time and think long term. Know when to walk away. Be patient. They sucker people. 2. Don’t work with someone until you get your terms. And double check their character.  You don’t have to cave to the drinking culture in china. That is rubbish. Know when to say No. Your technology and fit are worth it. Don’t compromise. Cultural sensitivity is no reason to cave to smart business sense.

Q: “Average rules don’t apply if I can get ahead”, what do I do with this mentality in a partner?

Corruption is worse (more obvious) than it has ever been, due to the idea of everyone binging now before the future crackdown (upcoming CCP policy change). The distribution channel is where all the bribery occurs. In healthcare there are 14000 distribution companies.   Now it’s Toxic.

Q: Can China innovate? What about education?

A: Innovation isn’t of importance. The commercialization phase is even more critical.

Education: Chinese students aren’t willing to challenge their superiors and thus are less innovative.

Thousand star program: offering huge incentives if overseas Chinese have a PhD. Invite them to come back to China and offer support as an entrepreneur. They have brought back 4000 phd’s so far.

Sundry Advice:

Gary Rieshel hates the word Guanxi (关系). It represents the worst about Chinese business. Also it does not indicate any close ties. A price will still be paid. A better framework is friendship in the western sense.  Long term TRUST is the key You aren’t the exception, it isn’t easy at all to build these relationships. Practically, this ideal represents the challenges of business everywhere.

Regarding the Chinese going overseas. They don’t like having foreigners in their management structure. Parochial. They also have to change the management structure if they go overseas.

There is a huge gap between what the market needs and what the companies are providing.

JGE: just good enough products. Consumer demand is too high for this model now. ie, no more fake Prada bags. The consumer demand has raced ahead.

One of the characteristics of scaling quickly is that it has serious consequences to the environment. Now it is a national priority. Presently the consumers can demand action. ie, moving production facilities away from the public or commenting on chromium runoff publically. (would have been unheard of 20 years prior)

We’ve been really surprised at business model innovation in china.

Question of the Day: Would you put all of your private Facebook information on a server based out of China?…NO.. Why? Trust. So, we have a long way to go.

Pro Tip: When doing business in China utilize your respective national Embassy.