When China Can’t Be Trusted

Saturday, October 8, 2011 10:36

Couple of articles came out this week that had me thinking about the speed by which trust in China can be lost, and the impacts that this lose of faith can have on China.

It was an issue that was a hot topic in 2008 through the “Made in China” product safety scandal offered up lead painted Barbie dolls, contaminated dog food, and melamine laced milk powder.  Not the proudest moment for China’s manufacturers, and a moment when (globally) consumers began looking more closely at “Made in China” products and looking for alternatives. The trust consumers that global consumers had for Chinese products had been shaken.

Within the industrial sector though, the issues are deeper.  Quality is certainly an issue, and in my experience that is the primary issue for anyone who is engaged in manufacturing in China, particularly if outsourcing is involved.  However, the real issue in China has been IP, and the fact that many foreign firms (and managers) have a very hard time trusting China with more than a 3rd generation product.

Which leads me to the first article that caught my interest.

In the recent WSJ article China Bullet Trains Trip on Technology, the author took a very interesting look at the recent Wenzhou high speed train accident.  Instead of focusing on the exact cause of the accident, or the way in which the investigation was undertaken, the article focused almost exclusively on the fact that these high speed trains were being built with large quantities of foreign products, some of which could not be integrated because the supplier did not trust the buyer:

Hitachi—fearful that Chinese technicians might reverse-engineer and steal the technology—sold components with the inner workings concealed from Hollysys. Hitachi executives say this “black box” design makes gear harder to copy, and also harder to understand, for instance during testing.

“It’s still generally a mystery how a company like Hollysys could integrate our equipment into a broader safety-signaling system without intimate knowledge of our know-how,” a senior Hitachi executive said.

That, as a vendor of equipment used in the safe operation of a high speed train, the concern of having their equipment knocked off would prevent the ability of Chinese engineers to full test (and I am assuming integrate) the components.

It was for me a moment where in a small way the issue of trust hit home.  That, while infringing IP and copyright may have distinct short term advantages for the state, as China looks to move up the value chain and become an innovator itself, it will need to begin building the trust required.

Particularly as it looks to export “Chinese” systems around the world.

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7 Responses to “When China Can’t Be Trusted”

  1. Renaud says:

    October 8th, 2011 at 8:10 pm

    “It’s still generally a mystery how a company like Hollysys could integrate our equipment into a broader safety-signaling system without intimate knowledge of our know-how,” a senior Hitachi executive said.
    >> It also sheds light on the silly things some foreign companies are ready to do, in their pursuit of the Chinese market. Hitachi SHOULD have refused to sell these components in this condition. They knew there was a safety risk…

  2. Rich says:

    October 8th, 2011 at 9:28 pm

    Renaud

    You will get no disagreement for me there.

    R

  3. Homer says:

    October 10th, 2011 at 7:01 am

    I find this interesting. Anyway, from a moral stand point I would agree that in hindsight Hitachi maybe shouldn’t of sold Hollysys the tech. But how where they supposed to know they would copy it. Should others refuse to sell products and tech in China because one or two degree of separation could lead to something happening?

    For instance at work we have a machine that takes components manufactured in America. The American company was smart enough to black out all the chip information. Say if a Chinese company were to knock it off but somehow make it unsafe with some sort of over heating and fire problem. Then sells the tech back to America, who is responsible? The Chinese company? Or the American company that “shouldn’t” of sold or “blacked” out the component information?

    Anyway I find this an interesting argument and am curious to see what happens in the future.

  4. Rich says:

    October 10th, 2011 at 8:18 am

    Homer.

    Thanks for the comment, and questions.

    Your questions is really situation specific, and while I am not entirely sure of the process / product you are managing, I would say that in the case of Hitachi (given it was a component of the safety system) they should have either (1) ensured that the technology was integrated properly or (2) foregone the sale.

    R

  5. All Roads Lead to China » Developing Trust in China by Building Trustworthy Systems says:

    October 13th, 2011 at 11:01 am

    […] many firms, this is a constant frustration, and as I pointed out in the previous article “When China Can’t Be Trusted “, the repercussions to China not being able to develop trust are having sever […]

  6. Richard says:

    December 13th, 2011 at 2:19 am

    This is a sobering lesson as to why Chinese companies have to come into line. Its definitely time for the leading chinese companies to make a stand on intellectual property and for the government to crack down on copycats.
    Unfortunately trust takes a long time to build.

  7. bert says:

    October 27th, 2013 at 10:26 pm

    Chinese do not have a concept of ‘sin’, only getting caught, and getting caught only matters if it is someone who can do anything about it. All you need to know.

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