Wednesday, June 10, 2009

Ryan Pyle Blog: Moving Up the Value Chain


According to the Economist, a few weeks back, China is moving up the Intellectual Property value chain. The article in question discussed patents and how Chinese companies have been rapidly increasing their applications for patents both in China and in western countries where they operate.

There were a few high profile cases of late where foreign companies had to pay out significant sums to Chinese companies for patent violations in China. It is a relatively new and novel idea in China that if you create something, and then someone copies or uses it for their own profit, that they'll need to pay you. In a country where everything is copied instantly, there has been little incentive for people to create anything unique; especially when a quick and comparatively easy profit can be made by copying someone else's work.

This stage we are in at the moment is, by all means, an education process for China. Patents were not officially allowed in China until the mid-1980s and even then they weren't ever enforced until 2006. And they still have a long way to go. But if there is a corner out there, they are beginning to turn it.

For years us China watching folks have talked about China's need to beef up IP law to save the domestic music, movie and software industries; the three industries that suffer the most from IP infringement. Stricter IP laws will add value to the production of higher end products; so that China can move away from the low-tech manufacturing that migrates from poor country to poor country in search of low production costs; today it's China. Tomorrow it's Vietnam and Bangladesh.

Does that mean that China will completely move away from low end jobs, such as the image above of a young man working in a toy factory in Dongguan, China? Absolutely not. There are still millions of people in China willing to work for next to nothing, and that will never change. In a country of 1.3 billion people there will always be people to do low paying jobs. In saying that, China will slowly over time become known for not only the label "Made in China" on your sneakers or tee shirts, but also for that same label on your computers, servers, routers, telecom equipment, mobile phones and electric cars; and the companies making these products will not just be western firms exploiting low production costs in China, they will be Chinese companies producing domestically and exporting to global markets. Mark my words, I am an optimist, China will go up market in a very big way. Companies like Lenovo (Computers) and Huawei (Telecom Equipment) are setting the pace already. And with more IP law the future could look very bright indeed for innovative and creative individuals and firms in China.

As an aside, one question that hasn't really been answered is how much as the lack of IP protection cost China? Well, that is a riddle I would love to see someone, much smarter than me, solve. The government always stands by the official line that you have to copy before you can learn. But it is clear that this prolonged period of copying has stunted intellectual, artistic and innovative development inside the country. Why write a book, that is widely read and enjoyed, if you can't feed your family from the sales because it's been copied and widely distributed? Why write a song, if it will be enjoyed by millions, and you still can't afford to pay your children's school fee's? I'm not saying that we create only for profit, but creation needs to, in this modern day and age, cover our basic costs; especially if you have a family or other dependants to provide for. This is simply a fact of life.

China's laid back attitude towards IP has annoyed the more mature economies in Europe and North America. But as the Economist article points out, in the 18th century a very young United States of America copied just about everything they could get their hands on, mainly machines from England and Germany, in an effort to industrialize and become a manufacturing powerhouse. Everyone has to start somewhere, it's just rough luck for China that we live in a world of instant information and communication; it makes these growing pains much more public, painful and embarrassing.

Ryan Pyle

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This is Ryan Pyle. I appreciate you adding a comment to my blog and I hope that this space has offered you something useful and interesting. I look forward to staying in touch and I'm glad you took the time to comment.

Ryan Pyle