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Mar 1, 2012 (Vol. 32, No. 5)

Myths about Doing Business in China

This Large and Growing Country Provides Many Opportunities for Companies in the Know

  • Myth 4: Minimal or no IP protection exists in China

    Since China joined the WTO in 2001, Intellectual Property (IP) protection has improved significantly. IP protection in China still has many areas to improve compared to Western standards, but it has already come a long way. The government has made concrete and deliberate efforts to protect IP with significant outcomes. As a result, many leading pharmaceutical companies have increased their research investments in China.

    Additionally, Chinese companies now value IP protection to a greater extent due to their own innovation and their acquisition of Western technologies and products.

    In 2010, China ranked fourth in number of patents filed under the Patent Cooperation Treaty (PCT), filing 12,339 patents. This represents a 56% growth from the previous year. This growth is expected to continue; according to Tian Lipu, the State Intellectual Property Office (SIPO) Commissioner, “By the end of the 12th Five Year Plan (2011–2015), invention applications received by SIPO every year are expected to double over the current number.”

  • Myth 5: The same business logic in the West can be applied successfully to China

    Although many business principles from the West can be applied to China, not everything is transferable. For example, the patent cliff that is common in the West is far less severe after IP expiration in China. Glucobay, Bayer’s 17-year-old, long off-patent drug, only sold $12–15 million in the U.S. in 2010, but its sales in China surged by 22% to $283 million. Bayer CEO Marijn Dekkers said, “We’re still winning market share” with Glucobay in China. Glucobay’s commercial success can be attributed both to the rapid spread of type 2 diabetes in China, and to Bayer’s clever marketing strategies. Due to the Chinese preference for Western brands, many Western pharmaceutical products continue to do very well after IP expires.

    To conclude, China’s great rise was built through a series of small and cautious steps. Progress has been made “crossing the river by feeling for stones,” as Deng Xiaoping put it. The Chinese government launches a small pilot program, pauses to iron out any problems and then, if successful, expands the program on a much larger scale.

    Western companies hoping to succeed in China may also consider this approach. No one doing business in China should expect overnight success; some growing pains are inevitable. It takes time to fully understand the importance of the cultural differences, the dynamics of the business relationships, and the unique challenges and opportunities associated with doing business in China.

    There are many opportunities in China, but companies must proceed with care, patience, and persistence. In addition to industry-specific risks, such as product approvals from regulatory authorities, there are general risks, such as high inflation, the real estate bubble, labor unrest, growing disparities between the rich and the poor, etc. It is essential to pick a trusted local team to navigate and lead during both good times and bad. The new challenges and experiences that arise as part of doing business in China are what make the eventual success even more rewarding.

Readers' Comments

Posted 03/06/2012 by Stevan Djakovic

While China has improved their laws regarding protection of IP, the arena is still a tricky place to navigate - especially with the first to file policy.  Just look at the trouble that apple is having with the iPad.  http://www.bbc.co.uk/news/business-17188498

Posted 03/05/2012 by James Chan

Dr. David Jiang has made a few good points. I've been selling American-made products and technical services to China for more than 100 U.S. firms big and small since 1981. The key point in Dr. Jiang's list is that overnight success is hard to achieve. U.S. firms that want to really succeed in China must have a long-term view. See the articles in my website: www.AsiaMarketingManagement.com.

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