Protecting Intellectual Property in China -- Journal Article

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Intellectual property protection is the No. 1 challenge for multinational corporations operating in China. According to the U.S. government, China accounted for nearly 80% of all IP thefts from U.S.-headquartered organizations in 2013,1 amounting to an estimated $300 billion in lost business. Among European manufacturers, the loss of IP in China reduced potential profits by 20%.2 Although multinational corporations can?t afford to stay away from China, in order to remain competitive they must develop mechanisms that enable them to shift some of their innovation capabilities to China safely, without losing critical know-how.3

The effects from IP leakage in China are ubiquitous. They are visible in counterfeited items including toys, luxury goods, automotive and aircraft parts, pharmaceuticals and other complex high-tech products.4 But IP violations go beyond products. They extend to pirated operational processes and the replication of entire business and service models. For many multinational corporations, IP leakage frequently becomes a barrier to Chinese sites becoming fully integrated partners in global innovation activities.

This study is based on a multiyear research project on intellectual property protection and innovation management practices in emerging markets, particularly in China. We generated 57 individual case studies of specific multinational corporations and their IP protection practices. The companies represent a wide range of industries, including information and communications technology, software, pharmaceuticals, automotive, aerospace, electronics, entertainment, food and engines, and are headquartered in the United States, the European Union, Japan, Taiwan, South Korea and China.

Altogether, we conducted 111 semistructured interviews with executives, external IP protection specialists, business consultants and regulatory spokespeople from the United States, the European Union and China. Our objective was to reach higher levels of generalizability than previously achieved while also focusing on practical applications.i We developed this approach after initial interviews indicated that there was no single best IP protection practice and executives described idiosyncratic configurations of practices.

The initial research involved examining the social system that creates motivation and influences absorptive capacity that fosters or stifles IP leakage, and the sociocultural system that underpins IP leakage dynamics and suggests rewards for IP misappropriation. Next, we investigated practices, processes and capabilities at the organization level for mitigating IP leakage. During the analysis, we categorized practices into managerial defensive and offensive IP protection practices. In addition, we consulted secondary sources to identify additional cases of IP protection failure and success dynamics to complement the fieldwork. Based on this, we provide detailed description of what companies actually do to mitigate IP leakage in China. We then integrated the most effective practices into a prescriptive framework.