If you want to succeed in China, it is better to share knowledge than to try to protect it, according to a study from BI Norwegian Business School.
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China is an attractive market for companies that want to invest and expand. Many Western companies have established, or want to establish, commercial ties with China.
In such commercial relations, the Chinese partner wants to obtain knowledge about Western business practices and technology. This can be problematic for innovative Western companies that focus on knowledge as their competitive advantage. These companies primarily want to protect their knowledge and prevent the Chinese from copying new products and processes.
Over the last few years, U.S. and European companies have been forced to give up patents in order to gain access to the Chinese market.
Share or protect knowledge?
Companies must decide which knowledge they want to share and what they want to protect when they enter into partnerships with Chinese companies.
What creates the best competitive position over time?
Through sharing knowledge with their Chinese partner, the Western companies will achieve easier and faster access to new Chinese customers. At the same time, the company’s long-term existence in the Chinese market may be threatened, because the Chinese partner can copy the knowledge and technology, thus becoming a new competitor.
If the Western company chooses to protect its knowledge and communicate as little as possible with its Chinese partner, this could lead to a low level of trust and minimal transfer of knowledge from the Chinese, which will complicate the establishment process in the Chinese market.
What is the best strategy?
We have developed a simulation model to determine which type of knowledge sharing is most beneficial in the long term.
The model contains different scenarios for knowledge sharing based on experience and data from a company in the maritime industry that has established itself in the Chinese market.
When the company chooses to protect knowledge, we see less imitation by the Chinese partner. At the same time, the Western company receives less inspiration in return from the Chinese. The effect of knowledge sharing thus has multiple dimensions.
When the Western company protects its knowledge, it receives less feedback from the Chinese regarding what the Chinese market really wants in the form of new technology and products.
Knowledge protection will therefore also lead to a reduced pace of innovation in the Western company, which will in turn make this company less attractive to Chinese customers or partners in the long term.
Wise to share – in the long run
In the short term, the protection strategy appears to have a positive effect, with better market shares than expected. In the long run, this protection strategy will backfire. Imitation will occur; no matter how much the company tries to protect itself. If the company also loses its innovative power, it is in real trouble. Market shares collapse, and it will be very difficult to reverse such a trend.
If the company does not protect knowledge, imitation by the Chinese increases. Simultaneously, there will be a rise in innovation in the Western company.
Over time, this results in the best overall development for the Western company. So, it is better to share knowledge and technology than to hide it – also when dealing with the Chinese.
Van Oorschot, K., Solli-Sæther, H., & Karlsen, J.T.: «The knowledge protection paradox: Imitation and innovation through knowledge sharing in global supply chains». Accepted for publication in International Journal of Technology Management.
This popular article is first published in Dagens Næringsliv on October 20th, 2017 (in Norwegian).
Text: Kim van Oorschot and Jan Terje Karlsen, Professors at BI Norwegian Business School, og Hans Solli-Sæther, Professor at NTNU