Dynamics of the Global Economy

Dynamics of the Global Economy

DYNAMIC OF THE GLOBAL ECONOMY 4

Dynamicsof the Global Economy

Withincreased competition as a result of globalization, many companiesare keen to cross over to China to boost their sales (Guan, e al.2006). American and European companies that focus on benefiting fromincreased sales in China are forced to transfer their technology, astrategy that China has used to its advantage. However, it isimportant to point out that companies should move their technology toChina cautiously and in well-calculated steps, since they stand tobenefit not only in increased sales but also reputational andfinancial benefits (Jarrettand Wendholt, 2010). Many successful global companies such Boeing hastransferred technology to China to access the Chinese markets, engagein cooperative development, expand its customer base and developlong-term joint ventures in China. However, one challenge thatcompanies encounter in transferring technology to China is the highrisk of Intellectual Property (IP). According to Jarrett andWendholt, companies should devise strategies to avoid IP risks toensure a profitable and successful transfer of technology to China(2010). Some of the strategies to overcome IP risks include:

  • Evaluation of the company`s competitive advantage in the Chinese markets-The technology transferred should place the company in a competitive position in the Chinese markets.

  • Analysis of the competitors in the Chinese markets the company focuses to operate-One should know the strengths to develop an effective business strategy.

  • A good business design and structure-The business operations should be practical to establish a boundary for IP protection and ensure operational efficiency.

Accordingto Guan et al. (2006), companies stand to reap many benefits bytransferring technology to China. Besides increased sales and anexpansion of the customer base, companies benefit from variousfinancial incentives. There are some technologies that are encouragedby the Chinese government and upon their transfer a company canbenefit from tax exemptions. Guan and others point out that firmsthat transfer new technology to China most of the time get incentivesfrom the central and local governments (2006). Companies gainreputational advantages since they get attention from central andlocal government stakeholders, who create awareness of the companyhence enhancing its reputation and image.

Itis important to point out that transfer of technology to China canalso have long-term negative impacts on the Company. According toJarrettand Wendholt (2010), when transferring technology to China there areseveral risks linked to Intellectual Property Rights (IPR). In movingtechnology, IPR can fall under a competitor company or a localcompany might take advantage of the technology and start a similar,rival business. Currently, weak enforcement of IPR is one of thegreatest challenges facing companies transferring technologies toChina (Guan,et al.2006). There is a likelihood that after a business hassuccessfully transferred technology to the Chinese local market itmight be completely shut out from the domestic markets. If a businessdoes not have an effective business strategy to survive in the stiffcompetition prevalent in the Chinese markets, it might be displacedby more competitive local companies.

Variousstudies argue that not all technology transfers are profitable forcompanies. According to Jarrettand Wendholt, it is not advisable to transfer critical knowledge whenChina`s markets offer little competitive advantage and boost in acorporation`s sales (2010). However, many businesses have beenimpacted negatively by refusing to transfer technology to China. Someof the long-term adverse effects of refusing to transfer technologyto China are:

  • Lowered reputation of the company in the Chinese domestic markets.

  • Loss of potential customers from the Chinese markets.

  • Increased competition from rivals who gain entry into the Chinese markets.

References

Guan,J. C., Mok, C. K., Yam, R. C., Chin, K. S., &amp Pun, K. F. (2006).Technology transfer and innovation performance: Evidence fromChinese firms. TechnologicalForecasting and Social Change,&nbsp73(6),666-678.

JarrettK. &amp Wendholt A. (2010). TransferringTechnology to Transform China—Is It Worth It? Availableon:http://www.chinabusinessreview.com/transferring- technology-to-transform-china-is-it-worth-it/[Accessed on 1stOctober 2015]