Next Silicon Valley? China Must First Protect Knowledge

SMITH BRAIN TRUST -- Despite its recent stock market volatility, slow growth and ranking 28th in global competitiveness, China remains the world’s second-largest economy. The country’s leaders are now keen to see China close in on Silicon Valley in terms of creating world-beating tech firms. According to some, Xiaomi is on the verge of competing with Apple. Alibaba is closing in on Amazon, and Tencent is catching up to Facebook.

But China needs an improved reputation for protecting intellectual property and subsequent Fairchild Semiconductor-like “spillover” to “make the next Silicon Valley happen,” said management professor Anil K. Gupta of the University of Maryland’s Robert H. Smith School of Business, during a November “Innovation 2015: From China to Silicon Valley” conference in Menlo Park, Calif., hosted by Asia Society.

“Developed in China,” not the proliferation of Chinese-owned companies, should be the priority benchmark, said Gupta.

China recently established IPR-dedicated courts to streamline the patent-and trademark-protection process that has involved multiple stages and interpretation by local courts. The transformation "is moving ahead, but this will take some real time,” said APCO Worldwide Chairman James McGregor, who moderated the innovation-themed panel where Gupta was one of the invited panelists.

Meanwhile, the likes of Alibaba continue to set up research and development units in Northern California’s original Silicon Valley. Plus, large U.S. tech firms continue doing less research but more development in China, McGregor said.

Gupta illustrated McGregor’s point: The top 10 U.S. tech giants operate research labs in both China and India, he said. But, over the past five years, for these tech giants, India has dominated China in the number of patents granted by the U.S. Patent & Trademark Office. The ratio of India-origin to China-origin patents for IBM is 2-1; for Qualcomm, 5-1; for Google, 3-1; for GE, 3-1; for Hewlett Packard, 16-1; and, for GM 4-1.

“China’s economy is more than four times the size of India’s, and China spends 10 times that of India on R&D,” Gupta said. “So one would expect American or European tech giants to do a heck of a lot more hardcore R&D in China. But the numbers don’t suggest that. What’s happening is that the IBMs of this world do much more of the next-generation R&D work in India, and a lot more of the localization-type R&D work in China. There’s only one explanation for this disparity. China’s weak IPR regime makes the tech giants of the world shy of doing next-generation R&D work in China.”

In contrast, even though, as a country, India spends much less than China on R&D, the world’s tech giants value the fact that their IP is much more likely to remain safe in India than in China.

SMITH BRAIN TRUST
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