IP Theft in China: Whiteboard Jungle

When a Chinese company gains access to your proprietary technology or IP, they probably don’t use stealthy hacking techniques or industrial spies. They ask for it.

As frightening and despicable as the  recent hacking of the NY Times and Washington Post may have been, they were not acts of industrial espionage.  State terrorism or a light act of warfare? Perhaps.  But when a Chinese company wants to get its hands on your valuable IP, they are much more likely to use simpler tools — like a whiteboard and an overhead projector. As for the information that fills the empty spaces, well, that’s all you and your team.

Learn to negotiate successfully in China
Learn to Negotiate Successfully in China

Between the soft yes, the MOU (Memorandum of Understanding),  the tentative handshake from a middle level manager or a boozy declaration of mutual love & eternal trust at a KTV and the actual business, a strange and mysterious process takes place. This is the deal-making gray area — after you have reported your success back home but before the implementation or execution phase of your exciting new business starts.

Role Reversal

Before the verbal agreement you were anxious and he was reserved but friendly. Now you are friendly and he is anxious. Why the role switch? Your new Chinese-partner-to-be is unsettled because the people above him are having trouble understanding your technology or strategy. What had once looked like a simple, straight-forward deal is now taking a winding road through the hazy woods of bureaucracy. You’re not getting any feedback or explanation until someone from their side asks to meet at a coffee shop or hotel lobby– someplace discreet and neutral. And then he’ll say,“You see, in so many ways, China still lags the West. Our education system isn’t as creative as America’s, our engineering isn’t as original.”  And then your new and potentially lucrative partner confides in you –

  • “We don’t understand the technology”
  • “We don’t know how to produce the part efficiently”
  • “Our marketing department doesn’t know how to promote the product”
  • “We don’t know how the commission structure works for resellers”

They are embarrassed. They are ashamed. Have they lost face? Uh-oh – you read that that’s a bad thing…so you rush to offer a solution. After all, this deal will be huge and your new partners are being so honest and open with you. They are admitting that they can’t move forward without finding out something that, quite frankly, they are going to learn anyway once you start doing business. So what does a can-do, get-‘er-done, success oriented American negotiator do? You arrange for the necessary expert to come in from the US.

Loose Lips Sink Stock Prices

The tech nerds are always paired up with their Chinese opposites – without management to make them nervous (or take up any more of your valuable time). There’s always a young woman to help out – a low level staffer who seems to have all the time in the world to act as translator, tour guide and assistant (this is usually a G-rated affair). Polite, friendly, but most of all – admiring, complimentary, flattering… and then there is the board room or amphitheater filled with the technical or operations staff from your new Chinese partner.  Your designer or engineer or marketing wiz is given the rock-star treatment – all the respect that he never got at home. And he just talks and talks and talks. That Q&A session is like a master class in your company’s technology and trade secrets.

The biggest source of IP loss isn’t hackers or sophisticated espionage.  It’s an overhead projector, a whiteboard, and some geek from your own operation on the endorphin high of feeling important for the first time since the high school science fair / yearbook committee celebration.

Plan To Keep Secrets in China

Solution – build a negotiating plan that makes sense for China, and stick to it.

  1. Have a method for figuring out early what they can do and what they need. Make that part of your banquet routine. 
  2. Develop information boundaries. Make sure your whole team knows what is off limits and what is OK for discussion.
  3. Have manpower plan – both for the negotiation and for the China business. Make sure that the lead negotiator (or someone with authority) is always involved – or at least present – in every exchange.
  4. Set up alternate counterparties in advance.
  5. Put together a list of business intelligence and key facts that you want from them, and make your conversations an equitable exchange. If they don’t show you their information, you don’t show them yours.

The most important thing is not to rush. A good Chinese negotiator manipulates time. He’ll make you wait and slow things down when it’s favorable to him – but rush you and make you panic when it serves his purpose. “We need a detailed proposal right away – a complete operating manual by tomorrow at 5:00 so our Chairman can read it on the plane to Paris. This is our one chance!”

Don’t let them rush, don’t let them pressure you – and don’t let them convince you that the whole deal will fall apart if you don’t volunteer sensitive information on short notice. If your deal really depends on you giving up proprietary technology or IP, then it isn’t a good deal and this is not the right counterparty. Once you start giving up the crown jewels, it never stops. Real partners don’t demand your company secrets – future competitors do.
Be careful out there.

Learn more about building effective China negotiating strategies in the ChinaSolved / China Training Institute online course: Negotiate Successfully in China.

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