Innovation instead of imitation has become the policy of Chinese companies. Even young Chinese companies are filing international patents on a massive scale.
Economists from the Technische Universität München (TUM) and the Munich Innovation Group have analyzed the patent portfolios and internationalization strategies of nearly 80 Chinese companies. The main results: Following in the wake of telecommunications and IT companies, other industries are now heavily investing in their own intellectual property too. Even young firms are protecting their intellectual property rights on a massive scale in Europe and the US – and yet they are barely known there. The economists have now made profiles of the companies available online.
The telecommunications company Huawei has set up its European Research & Development headquarters in Munich and seeks to employ engineers from Munich’s universities. The automotive enterprise BYD has filed hundreds of intellectual property rights in Western countries. Chang’an is aggressively internationalizing its business in Russia, Brazil and African countries.
“For a long time, Chinese companies had a reputation for simply imitating their Western competitors. But the number of patent applications filed by them has increased heavily in recent years,” says Dr. Philipp Sandner of TUM’s Chair for Strategy and Organization. “China has a large number of up-and-coming companies that are pursuing an aggressive internationalization strategy – but some of these companies are still barely known in Europe or the US.”
Growing numbers of patents in energy, chemicals and pharmaceuticals
Researchers from TUM and analysts at Munich Innovation Group therefore investigated 77 Chinese companies with high potential in innovation, internationalization and growth. They concentrated on the key industries automotive, chemicals & pharmaceuticals, electronics, IT & Internet, engineering, solar, telecommunications, and oil & steel. The economists analyzed mainly the companies’ patent portfolios, enabling them to draw inferences about their general development and their internationalization strategy. For example, by studying the geographical distribution of patent applications, the researchers could conclude which are the firms’ target markets.
One conclusion the research team arrived at is that the imitation strategy of Chinese companies is on a downturn. For most of them, self-developed intellectual property more and more plays a dominant role in their businesses. Telecommunications companies like Huawei are pioneers. Many of them have now seen an end to the years with the ever-rising numbers of patent applications, their patent activities having stabilized at a high level. For other industries like energy, chemicals and pharmaceuticals the analyses indicate a strong rise in innovative activity.
Even young companies are filing 40% of their patents overseas
Indeed, the majority of Chinese companies are still primarily operating in their domestic market, including some companies with very high growth rates. But the number of distributed patent applications in Europe and North America over the last years illustrates the growing importance of these markets. According to the European Patent Office (EPO), Chinese organizations filed more than 18,000 applications for European patents in 2012. Thus, China represents 7.3% of all European patent applications in 2012, ranking 4th after the US (24.6%), Japan (20.1%) and Germany (13.3%).
Nowadays, many relatively new Chinese companies are focusing on internationalization from the start. Non-Chinese patents account for a substantial portion – 20 to 40 % – of their portfolios. “It’s these companies that are underestimated in Western countries – because we have never heard of them,” says Sandner. “A large number of firms that could soon be global market leaders are barely known at all.”
Large number of utility models especially critical for the Western economy
One element in the strategy of Chinese companies represents a particular challenge for European and North American economies: besides patents, Chinese firms are filing a relatively large number of applications for utility models compared to Western businesses. Being in worldwide IP registers, these intellectual property rights can protect a product in manifold configurations. As such, Chinese firms are securing a great deal of scope for themselves for future product developments, whereas other companies could be seriously blocked in this regard.
The economists, however, do think it unlikely that Chinese firms will be able to sustain the level of growth in their patent applications given the present economic development. Furthermore, it is currently unclear whether firms will hold on to their rights when they have to pay renewal fees year by year. If firms invest their money to keep and defend their patent rights can one assume that the protected technology has an economic value, the researchers say.
Technische Universität München