Technology transfer to China: a study of strategy in 20 EU industrial companies

Foreign direct investment has been important in China's economic developmen t since the early 1980s. In recent years the volume of inward FDI into Chin a, according to some estimates, has been second only to that into the USA. The Chinese government has emphasized the need for FDI to be coupled with t he transfer of more advanced technologies to China. For foreign companies t echnology transfer raises the risk of losing their technology based competi tive advantage to potential competitor firms. This risk may be exacerbated by insufficient legal protection of intellectual property rights in China. After briefly reviewing the development of Chinese official policy on techn ology transfer, this paper considers the strategy adopted by EU companies r egarding the transfer of technology; in particular in advanced technology s ectors. The research on which the paper is based included an analysis of in formation gathered from 20 leading EU companies with investments irt China and operating in high-technology sectors. information was gathered from sen ior company managers based in both China and Europe during the second half of 1998. The main findings include a measure of reluctance on the part of E U companies to transfer their core technologies to China and to base R&D ca pability there. At the same time, the companies appear aware that this poli cy may be unsustainable in the longer-term in the face of Chinese official policy and a desire to expand their operations in China. While they attempt to protect their existing technological knowledge, most of them accept that there will be technology 'leakage' and therefore the mo st effective strategy is to maintain their technological lead through R&D.