By early next week, I promise to turn my attention away from China -- after all Spend Matters covers much more than low cost country sourcing. But I've got a few more issues that I'd like to blog on before turning my thoughts on the region into longer essays later this spring. One of the areas that I've not written about yet which I think is critical to understanding modern China is the lack of intellectual property protection in the region and its implications on innovation.
One experience, in particular, got me thinking about the subject. Before hailing my last taxi to the airport, I took a walk through an indoor market in Beijing where endless corridors of fake polo shirts, handbags and watches lined the stalls of dozens of merchants. The sheer quantity of pirated merchandise in a single building -- located less than a mile from the seat of China’s government -- was eye opening. But China’s lack of regard for intellectual property goes far beyond producing shoddy Louis Vuitton purses or Polo shirts that won't survive a single washing. I heard from one businessman in Beijing that the government is one of the worst offenders, freely pirating and distributing Microsoft Office and Windows (clearly, there’s no Bill Gates tax here). And as companies sourcing from the region know, it's foolhardy to share any prints or specifications with suppliers if there's concern over having them copied.
Today, companies that invest in China from a sourcing perspective do so knowing all of the IP risks involved. But I'd argue that there's a risk on the other side of the table as well. Why? Because where imitation is core competency, innovation is a novelty. Chinese suppliers are willing -- and often fabulous -- learners, soaking up criticism and input as fast as they receive it. But one thing China lacks is true innovation. Rather, today, imitation is China’s top capability. Ethics aside, this is fine as long as you can pay a factory worker $100 dollars a month. But as wages catch up with China's growth and make it a less attractive low cost manufacturing market, China suppliers will have to become more innovative to stay competitive on a global basis. But what is the motivation to invest in new ideas if your neighbor next door will copy a successful one as soon as it reaches the market?