Kate Mills Reporter

Kate monitors the social and economic dynamics that drive business. She has been a financial and business journalist for 17 years in Australia and the United Kingdom, working on publications including CFO, ALB (Australian and Asian editions), Investor Weekly and Legal Business in the UK.

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Ahead of the curve

Published 04 April 2012 15:56, Updated 05 April 2012 04:18

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Last month The Australian Financial Review broke the news that at the end of last year, the federal government told the Chinese telecommunications equipment giant Huawei it would not be able to bid on contracts for the building of the $36 billion national broadband network. The government was acting on advice from Australian Security Intelligence Organisation that the network could be at risk of hacking by Chinese interests if Huawei was involved.

The government’s refusal to consider a bid by one of the largest telecommunications companies in the world is too easily categorised as the result of US influence – particularly as the US has dealt with Huawei in a similar manner in the past while the UK government, in contrast, has allowed it to supply services to its telecommunications network. It’s a decision that’s too easily labelled discriminatory and has allowed some commentators to stir up old wounds – a fear of eastern nations that in the past has manifested in terms such as “reds under the bed” or the “yellow peril” – both replete with racial overtones. China, naturally, is offended by the implication that a private company may be influenced by political powers and the Chinese Embassy in Canberra responded by calling for a “fair and non-discriminatory environment for Chinese companies”.

However, while the decision may be open to allegations of bias, it is also founded on the reality that China, like it or not, has a terrible reputation for intellectual property infringement and instances of industrial espionage by Chinese companies are well documented. While this century will be an Asian one and there is a need to engage more deeply with China, for any business doing work there, the government’s concerns about security issues should remind them of the risks involved.

China is bounding up the commercial value chain. It is no longer just a buyer of raw materials and a supplier of cheap labour. It now wants to be an innovation hub and undoubtedly is prepared to bend the rules to leapfrog ahead. To a certain extent it has ever been thus. When the US sought to challenge the UK as the dominant manufacturer in the 19th century, it regularly sent agents to work in British factories and report back on innovation. At the same time, the UK ran propaganda that US goods were somehow inferior and should be bought with caution. What’s different now is the sheer scale of China’s ambition.

There are two ways for businesses to protect themselves when working in China. A defensive approach involves structuring companies in such as way that important innovation and attendant intellectual property is ringfenced so that the part of the entity operating in China does not have a porous relationship with the company’s research and development facility for example. BRW regularly publishes examples of this approach. The other approach is offensive. There is currently a worldwide intellectual property war raging as the number of patents registered rises each year and companies such as Apple seek to use their patents as strategic and commercial weapons. However, there are a small number of companies, such as the Dutch architect HVDN Architecten, that don’t file patents. Its argument is that the best defence against theft and competitors is to constantly innovate and stay ahead of the curve.

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