Keeping trade secrets in China is tough for suppliers

HANOVER, Germany -- Continental AG knows that doing business in China requires a company to guard its technical expertise carefully."We have seen photographs of some of our products in Chinese supplier catalogs," says Karl-Thomas Neumann, the Continental board member responsible for its automotive unit. "But we know there is nothing to it yet because they are not carrying our products and are missing key technologies."Neumann says one way the German tire maker and electronics supplier protects its intellectual property is making sure that key secrets never leave home.Close to home"We thoroughly consider which know-how we will implement into locations outside Germany," Neumann says. "Some key developmental components, such as software or special production technologies, will be kept in Germany."For instance, Continental produces antilock brakes and electronic stability control in China. But the key parts for each system are made in western Europe and shipped to China for final assembly.While Continental is willing to take the risk of doing business in China, Lars Holmqvist, CEO of CLEPA, the European suppliers association, says many mid-sized suppliers have no intention of establishing themselves there.Says Holmqvist: "Some don't want to do it because they say: 'Our technology is our survival. If we go to a country like that, the technology will be stolen. "We would rather survive on a certain level than grow and lose our future. "It is quite common that our medium-sized suppliers live off their technology, which might not even be patented."Holmqvist says those suppliers are sometimes criticized for not going to China. But he says they are doing it to protect themselves.$12 billion in costsU.S. Rep. Joe Knollenberg, R-Mich., told the U.S. China Economic and Security Review Commission in June that counterfeit automobile parts cost the supplier industry more than $12 billion a year.Piracy has cost German supplier ZF Friedrichshafen AG more than $10 million.Chinese auto executives are disappointed by the r&d and product development at joint ventures, according to a study by IBM Corp. and the University of Michigan's Transportation Research Institute."Joint-venture partners are concerned their Chinese partners will use any knowledge they transfer to compete with in the future, so they are being cautious," the study's authors said in a press release. "Thus, the skills and experience in manufacturing, design, testing and distribution haven't developed as fast as Chinese officials expected."You may e-mail Douglas A. Bolduc at dbolduc@craincom.de

Keeping trade secrets in China is tough for suppliers

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