A Yam Squeezed Between Two Boulders: The Dilemma of Transferring Technology to China…and Others

Dr. Jean-Marc F. Blanchard's picture

Tech firms dealing with China have long had to find ways to please the latter to ensure they have had permission to invest in or sell to China, to enjoy preferential polices afforded foreign investors, or to bid on government contracts. Among other things, they have partnered with local businesses, supported university initiatives, hired a surfeit of local workers, run extensive corporate social responsibility activities, and transferred hardware and software. The issue of technology transfer, including source codes, has become even more pressing given Beijing’s current acute sensitivity about IT security. Technology transfer is not a patently obvious choice given the risks it poses to a company’s future (after all transferred technology may fall into the hands of competitors), the potential adverse security implications for a company’s home country, and the image it may convey about a company to its customers, employees, and home community. Regarding China, there is no universal answer for all firms about whether or not technology should be shared, with whom it should be shared, and how it should be shared. Boards of Directors need to debate thoroughly if technology needs to be transferred (which is dependent on a firm’s bargaining position and the gains to be obtained), what are the implications of a transfer for their competitive position, how technology should be transferred if it is transferred (e.g., in a controlled setting in headquarters, through a joint venture, or through a direct transfer), what are legal and political consequences of transfers at home and abroad, and what are the reputational costs of transfers. No firm wants to be labeled a “traitor” by its home government, customers, or employees. Finding a way to be a “good citizen” at home and abroad is immensely challenging, but Boards need to start debating now about how to do so.