Applying the Ethical Triad to protect IP and other commercial rights

Our Ethical Triad suggests Two simple proposals for effective protection of IP rights, and indeed all business-related property rights, in China: (i) develop a relationship with your counterpart prior to bringing up rights; and (ii) avoid blame, talk in private, emphasize cooperation and collaboration.

First, productive conversations about corporate rights, especially IP-rights, require you to develop a relationship with your counterpart prior to bringing up rights. It can be somewhat difficult to ascertain when a relationship with a counterpart is developed enough for it to be ready for the “rights talk,” but a few simple questions can help guide you. Do your counterparts know you as a person—about who you are, your family, interests, and so on? Do you know about your counterparts’ families, interests, and so on? If you can have at least somewhat personal conversations, if you have connected as human beings and not just as businesspeople, then you’re probably ready to have the rights-talk. hr addition to being an application of Context-First (the relationship comes before a rule such as a law) and Awareness (of the cultural-historical-philosophical background of your Chinese counterparts), it is also an application of Interconnectedness. Personal relationships, business relationships, and the networks they comprise are the grounds for motivating more compliant behavior from Chinese counterparts and their businesses.

Second, once you have developed a relationship, you can have the conversation about rights. To be effective and productive, however, such conversations need to avoid blaming and finger-pointing. Both are viewed as highly disrespectful in Chinese culture. To openly accuse someone of doing wrong is a kind of condemnation that is reserved for murderers, rapists, and similarly serious matters. To Chinese mindsets, lying, fraud, and intellectual theft are generally viewed as much less serious than acts like rape, murder, and sedition. For similar reasons, at least initially, conversations about IP need to happen in private, far outside of the public eye. As we have noted, IP rights, and indeed rights generally, are historically foreign to China. As a result, they trigger intense and culturally ingrained resentment at foreign people and powers meddling in Chinese affairs. For many Chinese people, part of what it means to be Chinese is to resist foreign powers imposing their ideas, laws, and economies in China.

Instead of finger-pointing and blaming, conversations about IP rights should instead emphasize the language of cooperation and collaboration. Rather than “this needs to stop” or “you can’t do this” or “this is wrong,” the language needs to be more like this: “we know a common problem is . . . how can we work together to reduce it” or “this happened . . . how can we collaborate to make sure things go better for both of us in the future?” Conversations will go better if Westerners emphasize mutual benefit, for instance in the form of prestige for both sides, say by having a widely recognized or highly regarded product or process. Typically, what will motivate Chinese counterparts more effectively than overt appeals to rights and legal considerations are appeals to prestige (e.g., for being associated with a successful, recognized product) and mutual advantage. Again, instead of the Western argument “protect this IP because it’s mine, I made it" the argument is more like “our having this innovation/product/process, when other people and companies do not, brings prestige to you, to me, and our companies . . . that reputation is to all of our advantage.” This kind of language also hints to Chinese counterparts the importance of not letting the Chinese government have access to IP. All this is an application of Awareness regarding what sorts of considerations are more motivating to Chinese mindsets, given the Chinese cultural-philosophical background. Again, we emphasize that the point of learning and applying these principles is not to abandon your IP rights. They are offered as what in many, but not all, instances will be your best chance to actually secure those rights. To illustrate how these ideas can be put into practice, we will draw on two examples, the first of which does not specifically involve IP: Hank Paulson and Goldman Sachs, as well as Bill Gates and the Microsoft Research China (later Asia) team.

Hank Paulson was chairman and CEO of Goldman Sachs, then Secretary of the Treasury during the 2007-2009 crash, and has a long record of successful dealings in China. As a result, he possesses significant Awareness of Chinese perspectives on meeting-protocol, the long process of cultivating and maintaining relationships, and what productive conversations look like. Deals are still done, of course—one way to see the difference is that, to the Western mindset “getting to yes” focuses on the desired end result, the “yes,” whereas the Chinese mindset focuses on the journey, the “getting to.”

In 1997, Goldman Sachs wanted to handle the privatization, and specifically the initial public offerings (IPOs), of Chinese state-owned telecom companies in the wake of Deng-era economic reforms. Paulson’s thought process neatly encapsulates the importance of building a relationship with Chinese Vice Premier Zhu Rongji prior to attempting to do a deal:

My approach by necessity would have to be a bit circuitous. I wanted to be careful not to presume that any specific deal might be done, or to drag Zhu Rongji too deeply into the details, or worse, to give the impression that I might somehow be asking him to make a decision in favor of us, right then and there.

(Paulson, 2015, p. 6)

Indirectness was also part of Paulson’s strategy. This approach was successful, though again success did not look like many Westerners might have expected. As Paulson describes it:

Then [Zhu] spoke the first of the words we wanted to hear: “Of course, we will consider your opinions, and we hope to cooperate with you. If you are interested in cooperating with the Chinese government in the area of telecommunications, I think you can communicate further with the Ministry of Posts and Telecommunications.” That was it, but it was everything.

(Paulson, 2015, p. 12)

Paulson and his team knew that “yes” does not always sound like “yes” in these conversations. He and his team were patient as well as tolerant of this indirectness because they understood that building relationships and negotiating in China are a long game: “As ever, the Chinese [counterparts] had been slow to decide, astonishingly quick to act” (Paulson, 2015, p. 64).

Bill Gates first went to China in 1994 to sell Windows, a product with extremely important IP components. When Gates first traveled to China to promote his product, he had far less experience than Paulson. There were some early bumps in the road—Chinese President Jiang Zemin reportedly said that “Gates should try to understand Chinese language and culture in order to be able to collaborate more” (Buderi & Huang, 2006, p. 1). In our terms, President Jiang was saying that Gates did not yet have sufficient Awareness that Jiang could work with him. Gates learned, however, and over the course of the next ten years took more and longer trips to China. Conversations also became longer, and did not focus on business, but included family, children, poetry, the terra cotta warriors in Xian, and famous Chinese geographical landmarks such as the Three Gorges that span Sichuan and Hubei provinces (Buderi & Huang, 2006, pp. 1-11). In 2004, Harry Shum—then managing director of Microsoft Research China (later Microsoft Research Asia)—was building strong relationships with Chinese academia and education officials. This was in part to secure an intellectual pipeline for Microsoft Research Asia of skilled researchers coming out of Chinese universities. Again, note the indirectness as wrell as the emphasis on collaboration and building personal relationships: “This meeting is about partnership with academia in Asia. ... The important thing to the lab is the quality of people” (Buderi & Huang, 2006, p. 21). Helen Meng, an engineering professor at the Chinese University of Hong Kong, explains how this approach was successful: “Microsoft’s academic outreach is focused on the long term, which is really smart. . . . Most other companies ask for turnkey solutions but that’s not what we’re good at” (Buderi & Huang, 2006, p. 22).

Both of these examples illustrate how successful conversations emphasize the benefits each side can offer the other, though it is worth noting that when dealing with the government, the conversations seem to emphasize benefit to China over those to the foreign firm. It is often viewed as a sign of respect to emphasize not just the experience and know-how that your firm brings to the table, but also the potential benefits for Chinese counterparts, firms, and even the government. For example, consider some of the conversations Paulson cites in connection with Chinese telecom IPOs: “this will be a complicated program. . . . But we will spare no effort to provide our skills and specialized knowledge” (Paulson, 2015, p. 13). In reply, Paulson and his team again hear from Zhu Rongji what they want to hear, not “yes” or “agreed,” but: “I welcome you to further cooperate with China Construction Bank. By cooperating with your company, CCB will benefit in its commercialization process and speed up its modernization process” (Paulson, 2015, p. 13). In Microsoft’s case, the benefits to Chinese individuals, organizations, and society included improving opportunities for Chinese students and engineers to work for prestigious global technology companies and be at the cutting-edge of software and Al research.

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