||INTERNATIONAL JOINT VENTURES IN LIGHT OF WEAK INTELLECTUAL PROPERTY RIGHT LAW ENFORCEMENT IN THE PEOPLE’S REPUBLIC OF CHINA
||Master's Program, Department Of International Business
foreign direct investment
intellectual property rights
||International joint venture (IJV) is a mode of investment chosen by many firms, seeking to operate in foreign markets. It is chosen because it offers substantially lower costs of entry, and other government incentives. However, in countries with poor intellectual property right (IPR) protection regimes, JVs are a secondary choice as a mode of foreign direct investment (FDI). Due to a high risk of IPR infringement, firms prefer wholly foreign owned enterprises (WFOEs) which offer granular control over the entire venture and most important the use and dispersion of its intellectual property.
This study has two main goals. The first is to understand why IJVs are risker than WFOEs thus leading most foreign investors to abandon the IJV as a mode of FDI in China. This is examined from the angle of technology spillover and then from that of the various elements that make technology spillover more likely to occur in IJVs. Due to the riskier nature of IJVs and the poor IPR protection regime in China, the second goal, is to offer country specific IPR protection methods that can be used by foreign firms in order to avoid IPR infringement.
This study reviews the literature pertaining to technology spillover that results from IJV. Based on this review, we conclude that of the two modes of FDI, IJVs are more likely to result in technology spillover, and consequently a higher risk of IPR infringement. This occurs because of the closer contact firms in IJVs have with their partners as well as upstream industries that supply the JV. The proximity with foreign partners, gives local firms an opportunity to learn from the experience of being in a joint operation. This learning experience, in turn, allows firms to advance their knowledge and capabilities and raise their stature to international levels. However, this knowledge may later be used to compete with the foreign firm, and can be especially harmful if this knowledge includes the foreign partner’s intellectual property. For these reasons, IJVs are riskier than WFOEs as a mode of FDI.
To address the risky nature of IJV, this study synthesizes IPR protection recommendations from the literature for firms that want invest via IJV in China. In this study we offer five IPR protection methods that do not rely on IPR law and law enforcement system in China. These protection methods are separated into two groups. The first is aimed at making it more difficult for other firms to recognize the source of a company’s competitive advantage, with particular emphasis on the company’s technology. These methods include: keeping key elements of a technology secret; purposely making the technology more complex or specialized; and lastly, educating customers in ways that they find it more beneficial to purchase original products. The second group includes the creation and maintenance of internal and external guanxi. That is, crafting relationships based on trust and friendship with stakeholders within as well as without of the JV, thus creating social barriers to reduce the chances of IPR infringement.
English Abstract II
List of Figures V
1. Introduction 1
1.1. Objective 2
1.2. Scope and Thesis Outline 4
1.3. Research Methodology and Restrictions 4
2. Joint Ventures and Intellectual Property Right in China 5
2.1. IPR Protection In China 5
2.1.1. Social-Cultural Reasons for Lack of Enforcement 6
2.1.2. Trends of Intellectual Property Rights in China 10
2.2. Joint Ventures in China 14
2.2.1. Types of IJVs Existing in China 14
2.2.2. Current condition of Joint Ventures in China 15
2.2.3. The Benefits of Joint Venture as an Investment Mode in International Markets 18
3. Technology Spillover in International Joint Ventures 20
3.1. Technology Spillover 20
3.2. Risk of Technology Spillover in International Joint Venture 22
3.2.1. FDI and Technology Spillover 22
3.2.2. Joint Ventures and Technology Spillover 24
3.2.3. Joint Ventures in the IPR Literature 25
3.3. What Makes Joint Ventures Vulnerable to Technology Spillover 26
3.3.1. Why Firms Choose Joint Venture 26
3.3.2. Learning Between Partners 27
3.3.3. Non-Tangible Technologies (Know-how) 28
3.3.4. Absorptive Capacity 29
3.3.5. Why Firms do not Choose Joint Venture 31
4. Protecting Intellectual Property in Sino-foreign Joint Ventures 33
4.1. Ineffectiveness of the Patent Law Enforcement System in China 33
4.2. IPR protection in Joint Ventures 35
4.2.1. De facto Protection Methods for International Joint Ventures 37
4.3. Summary of Recommendation 45
5. Conclusion 47
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