One of the most interesting things about China is the relationship between the western industry and local Chinese suppliers. IP laws are a challenge so anything remotely sophisticated or technologically advanced needs to be guarded well and yet the market is so big that if you are not happy about supplying, your competition will be. So what do you do?
Walking a thin wire is what most big suppliers are doing in China. The idea is to supply to the Chinese industry and yet keep your secrets to yourself. If you re BorgWarner – which has three joint ventures and one wholly owned subsidiary in China – you make the simple things in the joint-venture plants where they will leak but will not really damage and the real complicated stuff in the wholly owned subsidiary where you can guard it with your life. And if BorgWarner's man-in-charge Freeman Shen can admit it without any qualms in front of a packed audience then that must be the way to do things in China.
Going by how things are in China, it sounds like everyone is gleefully sleeping with the enemy, while on Viagra, and yet remembering to wear a rubber.
The same approach is often used when developing Tier 2s. You handle everyone and everything with the clinical precision of a surgeon. One does need Chinese Tier 2s as those are the guys that will drive costs down and yet one has to be careful on the quality front and the secrecy front. So plastics in China, but forgings in India (where they have apparently greater expertise) and electronics and embedded software in an underground facility in Sacramento. And yet electronics is what will be the cheapest to manufacture in China, says the top guy in strategy for TRW in China. So what does one do? Perhaps manufacture in China and breed a large number of sniffer dogs? The practice is often to manufacture 99% of the stuff in China and leave that vital 1% to your home base.
Suppliers like BorgWarner employ other means of IP protection as well. The supplier has decided to put all its future apples in a basket called Ningbo so that it generates a large number of jobs in the area. Then it simply tells the local state government that we employ your guys so you better protect our IPs.
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