German firms fear China technology theft

Chinese shoppers Chinese shoppers are too attractive for Western firms to make them shy away from China

What's a bright, ambitious Western company to do?

China is where the customers are - and where the customers are increasingly going to be.

But China, too, is perceived to be the country where technology mysteriously transfers from in-coming companies with know-how to companies which want to know how.

That, at least, is the pervasive view of influential German business leaders.

Artur Fischer, for example, is the head of the Berlin stock-exchange who got his fingers burnt in China.

"We gave them our description of the product we wanted - all the photographs, everything we used in order to to sell it over here in Germany" he says, recalling how a company he was involved with started making components in China.

"We asked them to manufacture it. They did that, but after half a year very, proudly they came back to us and showed us their own product, which they intended to sell in Germany.

"And it was a copy-cat of what we did, so they copied all our material. They took our photographs. They took our descriptions. Everything."

Different culture

Start Quote

It is very difficult to take a copy-cat to a court in China because the cases of copying products from western countries is actually conduct that the government supports”

End Quote Jens Zumblick Sales director, Berliner Seilfabrik

Mr Fischer was particularly amazed at one aspect.

"The interesting thing is that they had no bad conscience about it," he says.

"They openly told us what they were doing, not even understanding that this was not something that we gave to them so they could use it to compete with us."

So what does he think was going on?

"The culture is different," he says.

"They made money by delivering things to us, and the next step in their growth curve was that they decided to compete with us. For them, it was normal business."

Valid patents

Or take the case of Berliner Seilfabrik, which makes rope climbing equipment for children's playgrounds.

It might seem a low-tech, simple product, but actually it demands a lot of research and investment.

Because safety is crucial - and one bad accident with a child could destroy the company - Berlin Seilfabrik spends much effort on getting materials right and researching the size of gaps in the nets to minimise danger.

"We would love to sell our products into China like everywhere else in the world," says sales director Jens Zumblick.

Chinese bullet train Chinese companies quickly learnt how to make high-speed trains

"Only, in the past we've experienced cases where our products were being copied a lot. Chinese companies turned up at trade shows with products looking like ours. There's a lot of knowledge in this product and you can give all that away only by selling one product into China."

Mr Zumblick says that even though Berliner Seilfabrik has patents that are valid in China, the company finds it difficult to enforce them.

"It is very difficult to take a copy-cat to a court in China because the cases of copying products from western countries is actually conduct that the government supports," he says.

British legal system

The Chinese government denies that it condones copying, but it is sensitive to the perception.

Start Quote

If the Western world is taking even more technology to them, then in a few years they are a competitor”

End Quote Dieter Burmester

It has just opened a trade office for Hong Kong in Berlin - the first in Europe, indicating the importance it attaches to its relationship with Germany.

Stephen Wong, the director of the office, says he recognises that it is a "popular concern".

His pitch to German businesses is that they should use Hong Kong's legal system as the basis for an entry into the rest of China.

Hong Kong has a different legal system, created by Britain, and he said its lawyers were adept at negotiating deals.

Quick learners

Mr Wong is a lawyer specialising in intellectual property rights who trained at the London School of Economics.

He says that Western companies could do deals so that they brought their know-how and got access to the Chinese market, but the technology was then transferred to a Chinese company, for a price or after a set period like 10 or 20 years.

But German firms remain unconvinced.

Many of them cite the case of Siemens, which introduced the high-speed train to China only to find that subsequent extensions of the system were done by Chinese companies that had learnt or developed the technology very quickly.

Trade secrets

Western companies have different strategies to keep their know-how known only to themselves and not to potential Chinese competitors.

Start Quote

Normally you don't want to do business [with China], but can you afford not to?”

End Quote Artur Fischer Head of the Berlin stock exchange

Dieter Burmester created a company that makes very expensive, high quality hi-fi systems, each set of amplifiers and speakers costing hundreds of thousands of dollars.

He sells to China's new rich, but he will not build components there because that would reveal too much of his trade secrets.

"If the Western world is taking even more technology to them, then in a few years they are a competitor," he says.

China's emergence

Germany and China are arguably the world's two really successful exporters.

In 2009, China overtook Germany and now has a trade surplus with it.

Up to now, their needs and skills have meshed.

China has mass-produced everyday goods and Germany has manufactured high-technology products.

But increasingly China is moving up the scale and needs the technology.

China is moving into Germany's markets.

Vital market

So what should an ambitious Western company do? Should it shun China and seek money elsewhere?

Mr Fischer of the Berlin stock exchange thinks no company can ignore China.

"Normally you don't want to do business [with China], but can you afford not to?" he asks.

"I think 'no'. China has such a huge population that the demand cannot go ignored. The growth there is of such a magnitude that you have to participate, because if you don't your competitor will.

"So you need to factor in that you will lose knowledge. You will lose some of the things you have invested in - and you have to factor that into your prices".

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