Hon Hai Fights in Shenzhen

As if on cue!

A few days ago in China Strategy for Fabless Chip Designers I argued against Lung Chu, President of Asia field operations at Cadence, that Taiwan chip designers should partner with Chinese competitors. Also, yesterday in Mr. Ma please don't move the fabs to China I argued it would not be such a great idea for Taiwan to move stategic technologies to China. My main concern and the concern of many is the lack of protection against property rights.

In cases like this I hate to be right!

Today we read in the International Herald Tribune (IHT), Hon Hai Precision Technology (Hon Hai) is taking their Chinese competitor to court for stealing trade secrets. We also read the courts are delaying the proceedings enabling Hon Hai's competitor to become stronger. The IHT says (emphasis added):

Taiwan's giant electronics manufacturer Hon Hai Precision Industry Co. appears to have a big advantage in the China market — its principals all speak Chinese and have an intuitive sense for the country's often bewildering business culture.

But last week the company took out half-page ads in major Taiwanese newspapers to complain about delays in a mainland court over the prosecution of a Chinese competitor.

Spokesman Edmund Ding said Hon Hai suspects that BYD Company Limited, a Chinese electronics maker based in the southern city of Shenzhen, is systematically looting its trade secrets.

The purpose of BYD's alleged actions, Taiwanese media have reported, is to give the Chinese company a leg up against Hon Hai in winning big parts orders from international mobile phone powerhouse Nokia.

The row is a stark reminder that even for the most sophisticated Taiwanese companies — in this case one employing 500,000 Chinese workers — doing business in China is not as simple as it seems.

Later we read (emphasis added):

Cheng Jung-wen, a senior official at the Taiwan Merchant Association in Shenzhen said the Hon Hai case reflected a tendency among some Chinese officials to favor local companies over outsiders in intellectual property rights disputes.

Cheng said intellectual property theft is a common problem suffered by Taiwanese businesses, but that provincial Chinese officials seemed unwilling to
help them address it.

"We have long given up the thought of asking Chinese authorities for help," Cheng said. "The only way we can avoid damages is to develop new products all the time."

The context of this is clearly given in the IHT. Hon Hai, as the IHT points out, is a huge company. They are the world's largest contract manufacturer producing everything from mobile phones to computers. Their leader Terry Gou Tai Ming is a legend in Taiwan and one of the richest men on the planet. There are not many companies in Taiwan bigger than Hon Hai. If Hon Hai can get hammered by the theft of trade secrets, what can the smaller competitors do? What realistic chance do they have?

In China Strategy for Fabless Chip Designers I said:

So there is potentially a huge downside for Taiwan design firms establishing partnerships with Chinese competitors. They might steal their stuff and blow them out of the water! Don't get me wrong! Partnerships and joint ventures can and do work, but for them to work there must be trust and a record of behaviour that speaks for itself. Chinese firms must realize that business is not about getting ahead at all costs and at the cost of those you work with. Only then will people be more willing to partner with them.

I stand by those comments today! Do you?

International Herald Tribune: Taiwan electronics maker Hon Hai wages judicial battle against Chinese competitor