China may be regarded as the factory to the world, but high tech companies still have reservations about the benefits other manufacturers find by locating there. Take Wavecom, for example, a company headquartered in Paris, France with subsidiaries in Hong Kong; San Diego, California; Darmstadt, Germany; Beijing, PRC; Tokyo, Japan, and Taipei, Taiwan.
In recent years the company has faced intense price competition and other changes in its business environment that have resulted in a dramatic downturn to revenues. Despite substantial earnings by serving, among others, Chinese and Korean manufacturers of mobile telephones, in 2003 market competition had intensified substantially, particularly in Asia. By September 2004, corporate executives decided to exit the mobile telephone handset business and center business exclusively on the market for wireless communications between machines, specifically automotive, industrial and mobile professional applications. The redirection called for corporate reorganization. More research and development (R&D) was needed in Asia. While Mainland China appeared to be a contender for a cost-effective expansion, Wavecom executives decided instead to increase the size of its Hong Kong operations.
'We made a comparison of Shanghai, Shenzhen and here,' says Didier Dutronc, Group Vice President, Head of Asia Pacific Region and Managing Director of Wavecom Asia Pacific Limited. 'We found that salaries were lower in Shanghai and Shenzhen, but when local taxes were added, we realized they could be higher.'
An added benefit: In Hong Kong, a city built by entrepreneurs, a company the size of Wavecom also does not get lost in the shuffle. In fact, the Government of the Hong Kong Special Administrative Region (SAR) lends a great deal of support to small and mid-sized enterprises. For example, the SAR has offered to build a lab at the Hong Kong Science Technology Park. The fact Hong Kong offers an innovative environment to scientists and engineers alike is attractive to Wavecom. 'The engineering population is stable in Hong Kong,' Mr. Dutronc remarks. 'In China, people move fast from one company to another. And they take their knowledge with them.'
This is of grave concern to Wavecom, since copying is a part of Chinese culture and the company was already copied in early 2004. The incident involved Wavecom's logo, which was associated only to a small portion of the company's business. 'But it was enough to raise alarms,' Mr. Dutronc says. 'Hong Kong laws protecting intellectual property are much stronger than those in Mainland China.'
Since joining the World Trade Organization (WTO), China has strengthened its legal framework and amended its IPR and related laws and regulations to comply with the WTO Agreement on Traded-Related Aspect of Intellectual Property Rights (TRIPs). But despite stronger statutory protection, China continues to be a haven for counterfeiters and pirates. According to one copyright industry association, the piracy rate remains one of the highest in the world (over 90%). Though China is a party to international agreements to protect intellectual property (including WIPO, Bern Convention, Paris Convention, among others), a company must register its patents and trademarks with the appropriate Chinese agencies and authorities for those rights to be enforceable in China.
Without a doubt, intellectual property rights (IPR) are critical to Wavecom. The company's business relies on a combination of patents, copyrights, trade secrets, trademarks and proprietary information to maintain and enhance its competitive position. If the company were unable to prevent a competitor from using its designs and techniques to produce competing products, its business would be adversely affected.
This issue is even more critical today than ever before. Prior to the decision to expand R&D operations into Asia, Wavecom utilized its Hong Kong office for sales and marketing only. R&D activities were centered in San Diego and France. 'But we
