Elektroplast AS : intellectual property In China

Abstract

The purpose of this project is to provide Elektroplast AS with information on how to protect their IP when producing in China. Currently they produce their product through a 50/50 JV in Nanchang, Jiangxi province. In addition, they have an international sales company in Shanghai with a 51% share. The internal analysis consist both an ACE model and a VRIO analysis. The purpose of the ACE model is to determine if EP has the capabilities to produce and market their product in China. If they do not have those capabilities, they should not risk losing control of their IPR to Chinese companies. The VRIO analysis is a framework that could clarify which resources the company should focus on and which could be improved. Both analysis will indicate what EP lack of resources and capabilities; both the production partner and sales partner should complement EP in the collaboration. For the external analysis a Porter`s five forces and a PESTEL analysis have been used. The Porter`s five forces shows the attractiveness of the industry, which gives an indication of how attractive it would be to copy EP`s product. The PESTEL gives an insight of how the macroeconomic environment of China affects innovation and IP theft. Further analysis show that the cultural roots from the times of Confucius has affected Chinese industry to follow the “best”, which in reality leads to copying industry leaders. China is today the world’s leading country in number of patents filed, however these numbers are somewhat misleading. Research show that a considerable amount of patents is “tweaks” of foreign technology. With this in mind, it was of interest to learn more about how the Chinese IP laws of China could protect IPR. Unfortunately, the fines for stealing technology are far too low to prevent IP theft. In addition, it is of interest to find out if effective contracts can prevent IP theft. To a degree, one can see that a well-prepared contract with the JV partner can prevent opportunistic behavior. Non-compete clauses in employee contracts are possible to prevent them from stealing IP. Since EP currently produces their product with a JV partner, a large amount of the analysis is about at Chinese JVs. A good relationship based on trust should be an effective way of avoiding opportunistic behavior, a Chinese would most likely not steal from someone in his or her personal Guanxi. Effective communication, managing management/talent, quick response to changes and aligning priorities are ways to make a JV successful. Many Chinese JVs are not successful and one should be prepared for ending the partnership and have a solid backup plan. Companies who steal technology are likely to export their products in the future. China is the largest exporter of counterfeit products. P&Gs products are sold in East Asia under the same brand name. The recommendation is that EP should protect their technology using both the IP laws of China and by making solid contracts with its JV partner and employees. Since the punishment for IP theft and breach of contract are not strong enough actions to protect IPR, it is listed two alternatives for future production. A JV partner becoming a future competitor is a considerable risk of collaboration. Starting up a WFOE is as a safer way of protecting IPR. The advantages and disadvantages of both alternatives are listed, and the conclusion is that EP should continue the JV. The reason is the internal analysis, which shows that EP do not have the resources or capabilities to both produce and market in China. Since companies stealing technology most likely try to export the product in the future, it is recommended that EP protect their product internationally. Solberg’s 9 Strategic Windows have been applied to show which markets EP should focus on. Based on the external and internal analysis, EP should “consolidate their position in established markets”. It is therefore recommended that EP focus on selling their products in current markets, and never let a stealer of technology get a solid impasse in those markets. The final recommendation is to be prepared for breakup of the JV in Nanchang. A backup plan with details of where and who to produce with should be in place before a breakup.