Chinese tech companies should be aware of the risks when venturing into overseas markets with their core technologies

After more than 40 years of reform and opening-up, the private sector has become a dynamic part of the Chinese economy.

In 2022, private enterprises accounted for 93.3 percent of the total in China. By April 2023, registered private firms surpassed 50 million. According to data from the General Administration of Customs, the import and export volume of private enterprises in 2022 accounted for 50.9 percent, exceeding half of the country's total foreign trade for the first time. In the first 10 months of 2023, the share reached 53.1 percent.

Leveraging the opportunities from China's continuous opening-up, private tech companies have been expanding their overseas business, from exporting products, to expanding their channels and brands in the overseas markets. While they have made some achievements, they are also exposed to risks.

In the era of globalization, the nature of major power competition has changed. The focus has shifted from traditional security to nontraditional security issues, such as ensuring the stability and security of industry and supply chains.

One of the United States' long-term strategic goals is to maintain a competitive advantage in high-end industries to prevent a structural crisis in its economy. That makes China's growing high-tech industry a target in the eyes of the US and its allies.

It is a common strategy among Chinese tech companies to venture into overseas markets with their core technologies. However, there are risks of being copied and losing core advantages.

Moreover, when Chinese tech companies leverage domestic-born technologies to expand overseas businesses, they can face restrictions imposed by the destination country or region. Some host countries, under the pretext of protecting intellectual property rights, make it difficult for Chinese companies to transfer the technology developed overseas back to the Chinese market, preventing Chinese technologies from upgrading.

Competitors' strategic use of intellectual property is the primary risk faced by Chinese tech companies when going global, apart from their own technical issues. If a company loses a lawsuit over overseas intellectual property, it often has to pay a large sum of fees and may even be forced to withdraw from the overseas market. Infringement disputes can lead to a decline in customer trust and purchasing intentions, resulting in a loss of market share. Being entangled in lawsuits can affect market expansion and even threaten national security.

Currently, Chinese companies continue to face a large number of intellectual property disputes in developed economies such as the US. The US and its allies also keep imposing interventions and restrictions on Chinese tech companies such as Huawei. This not only seriously hinders the development of these companies, but also threatens the security of related Chinese industries and supply chains, and endangers China's national security.

To prevent risks, Chinese tech companies need to understand the approval processes and geographical limitations for intellectual property protection in the destination market, and draw up their plans accordingly. It is necessary to leverage the overseas service network for intellectual property dispute response guidance created by the Chinese government, and gradually improve the pre-risk analysis and post-risk response mechanisms as part of a sound prevention and control system for overseas risks.

Second, private tech companies should make their best efforts to meet the intellectual property rights compliance requirements in the target markets. Take the automotive industry as an example. One of the major risks faced by Chinese car exporters is the Standard Essential Patents (SEP) risk. To make the "going global" journey easier, companies must carefully study the SEP risks, make strategic patent plans in advance, and identify potential security risks related to intellectual property, in order to effectively avoid patent infringement lawsuits from competitors.

Last, it is important to strengthen international cooperation between tech companies. On Aug 25, 2023, Huawei and Ericsson, major mobile communication SEP contributors, announced the signing of a long-term global patent cross-licensing agreement, granting both parties global access to each other's patented, standardized technologies. It is noteworthy that Huawei was on the US Section 337 investigation list 10 years ago, but was removed from the list recently.

Over the years, Huawei has been committed to independent innovation and intellectual property rights protection, and has established a sound intellectual property risk control mechanism. Once a follower and practitioner of intellectual property rules, it has become a contributor of intellectual property rights. In 2022 alone, Huawei's intellectual property revenue reached approximately $560 million, mainly from SEPs. Huawei's cumulative payments for patent licensing fees are about three times the licensing income.

The author is a professor at the Center for International and Regional Economic Cooperation Studies with the School of Economics and Finance at Shanghai International Studies University. The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn