Intellectual Property Challenges in China's Automotive Industry

The Chinese automotive industry is rapidly evolving, characterized by significant growth and technological advancements. However, this expansion brings to light substantial challenges related to intellectual property (IP) rights. Companies operating in this space face complex issues surrounding the protection of their innovations due to varying levels of IP law enforcement and cultural attitudes towards IP within China. A primary concern is technology transfer—both voluntary and involuntary—whereby foreign companies risk losing proprietary technologies through partnerships or joint ventures with local entities. The legal framework, although improving, still presents hurdles such as lengthy litigation processes and inconsistent rulings, which can deter effective IP protection. Furthermore, the prevalence of counterfeit products complicates enforcement efforts, leading to financial losses for original manufacturers. To mitigate these challenges, companies are advised to adopt robust IP strategies that include comprehensive due diligence, strategic partnerships, localized legal expertise, and continuous monitoring of IP assets. As China continues its journey towards being a global leader in automotive innovation, addressing these IP issues will be crucial for sustaining growth and fostering a more secure business environment.

Running head: STRATEGIC MANAGEMENT
Protection of Intellectual Property Rights in Automotive Industry in Emerging Markets (BRIC
States)
Name of the Student:
Name of the University:
Author note:

1STRATEGIC MANAGEMENT
Introduction
In the modern business world, there are huge scopes along with many new challenges. As
the business world is growing, there are emerging markets with emerging issues. Some of these
emerging challenges are globalization, corporate ethics and governance, innovation,
technological development, knowledge management, cultural diversity and intellectual property
rights (Drahos, 2016). Protecting the intellectual property is one of the major challenges of the
organizations. The businesses of New Zealand are no exceptions. As the businesses are growing
domestically and internationally, people have found that protecting the intellectual property is
very important in order to sustain in the industry and make progress. The BRIC countries are
emerging markets for some businesses of New Zealand (May, 2013). The report focuses on the
protection of intellectual property rights in the automotive (car) industry in the emerging markets
of the BRIC countries from a New Zealand business perspective.
Intellectual property represents the creations of mind, such as, the inventions and
innovations, artistic works, literary works, logo designs, names, images etc. used in the business.
There are two types of intellectual property, industrial, which includes the patents for the
inventions, trademarks, designs etc., and copyright, which covers the artistic works, literary
works, architectural designs etc. (Bainbridge, 2015). Intellectual Property rights are similar to the
other property rights. These rights enable the owners or creators of the trademarks, patents or
copyrights, to get the benefits from the investment in their own creations. The law regarding the
protection of this right was outlined in the Article 27 of the Universal Declaration of Human
Rights (Bently & Sherman, 2014). Intellectual property is one of the main pillars of economic
development and cultural and social wellbeing. The businesses of New Zealand also face some

2STRATEGIC MANAGEMENT
challenges regarding the intellectual property rights while operating in the emerging markets of
BRIC. Those will be discusses in the report.
BRIC and its automotive industry
BRIC is an acronym for the countries of Brazil, Russia, India and China. This grouping
was made on the basis of the level of newly advanced economic development in the countries.
These four countries are at the similar stages of the advancement. It is generally rendered as the
BRICs. According to the economic potential of these countries, the global economist of
Goldman Sachs, Jim O’Neill says that these could become most dominant economies of the
world by 2050. These four countries hold their position among the largest and fastest growing
emerging markets of the international economy (Brics2016.gov.in, 2017).
Emerging market refers to the economy or nation, which has some of the features of the
developed markets but lack the standards for a being a developed market currently. This term
also includes those countries that were once developed but not now. Among the emerging
economies, China and India are two largest and the other two highly significant ones are Brazil
and Russia, which form the BRICs (Holtbrügge & Baron, 2013). It has been predicted that China
and India would capture the market for manufactured products and services; and Brazil and
Russia would capture the market for supplying raw materials (Rachid, 2017). New Zealand has a
strong relationship with the BRIC countries. Among the four countries, China is the biggest
trading partner of New Zealand. The automotive industry of any nation faces a huge challenge in
protecting the intellectual property rights. The issues of intellectual property rights in automotive
industry, China’s automotive industry, which is one of the BRIC states, and the challenges of the
businesses of New Zealand in this industry will be discussed in this paper.

3STRATEGIC MANAGEMENT
Intellectual property rights in automotive industry
Automotive industry comprises of a wide range of organizations involved in designing,
developing, producing, marketing, distributing and selling of cars. In the modern world, with a
rapid advancement of technology, the car or automotive industry is one of the major and
profitable industries of the world. In this industry, the intellectual property is extremely
important. There are four categories of intellectual property (IP), namely, copyrights, trademarks,
patents and trade secrets (Chan & Daim, 2012). Copyrights are used to protect many works of
authorship, such as written works, computer software etc. The trademarks refer to a brand that
recognizes and distinguishes the goods and services of an organization from another
organization. A trademark allows an organization to prevent the other companies from using the
exact or similar features in their production. It also helps in gaining an advantageous position in
the market. Companies register their trademark with the state and/or central government. Patents
represent the exclusive right given for a discovery or innovation. It grants an exclusive right to
the owner or creator for that design or invention. Lastly, the trade secret is a highly confidential
information related to the business operation of the company. This includes techniques, formulas
or programs, and can be protected for a longer time (Blakeney, 2012).
One of the most valuable assets of a company is the intellectual property. Technology
and innovation has been evolving very rapidly. As the competition is very high among the
competitors in the automotive industries, the protection and enforcement of the intellectual
property have become more important. According to Yu (2012), in the period between 2009 and
2014, the automotive industry filed the third highest number of patents and patent applications.
With the advancement of technology, the automotive industry has progressed very rapidly. It
includes various aspects along safety and security, and those are designs and performance. The

4STRATEGIC MANAGEMENT
evolution of technology has introduced many new things such as, high tech sensors, cameras,
driver assistance devices such as GPS, etc. It provides many scopes for the cars to gauge the
surroundings, alert the drivers for potential threats, equipped with features like crash avoidance,
auto-braking, warnings for lane departures etc. The cars are mostly computers on wheel and
behind all these new designs and innovation, the intellectual property play a major role. Hence,
not only the safety measures need to be advanced, but the designs also be attractive and
performances need to be improved. For that, each company in the industry must maintain and
protect the intellectual property to remain competitive in the industry. If the rights to intellectual
property are not protected, the designs and technology could be copied by the rivals, which
would reduce the competitiveness of the company (Kroninger, 2016).
It has been found that the automotive industry of the world takes the protection of
intellectual property rights as a serious issue to gain an advantage over the rivals. The companies
use patents to prevent their creations being copied by the rivals and also as a tool for bargaining
while trying to get the permission for accessing innovations by others. The most number of
patent applications were filed by Toyota in 2015, Bosch being the second. Since, innovation is
the key factor for progress in the automotive industry, the incidence of IPR protection has
increased over the years (Calabrese, 2016).
Automotive industry of China
It has been predicted by Boston Consulting Group that one third of the world demand for
cars would be from the BRIC countries. However, they also predicted that the younger
generation prefers other mode of transport in the developed countries. Among the BRIC
countries, India, Russia and Brazil lost the market share in the automotive industry from 2005 to

5STRATEGIC MANAGEMENT
2015, by 12%, 3% and 8% respectively, and China has gained the market share by 23%
(autobei.com, 2016).
Figure 1: Performance of the automotive industries of BRIC, 2005-2015
(Source: autobei.com, 2016)
The above figure shows that the car industry of China has been growing over the past 10
years while that of the other three countries in the BRIC has been declining significantly.
The automotive industry of China is the biggest in the world in terms of production unit.
The sales of cars in the international market have been increasing too. In case of intellectual
property rights, the small to medium sized international organizations investing in the local
vehicle industry, must be aware of the IP risks in China and the tools for protection. China is the
manufacturing giant of the world, and the skills for imitation of the products are too high in
China (Morrison, 2012). Hence, protection of IP is a serious issue in China, in all industries
including the automotive industry.
Problems in China
The Chinese automotive industry is one of the biggest industries of China. The nation has
few biggest car manufacturers but the cars are sold only within the nation. The international
companies have very limited entry in China and this is one way of protecting intellectual

6STRATEGIC MANAGEMENT
property rights. However, the exports of Chinese cars have reached more than 8.14 lakhs by
2011 (Wang & Chen, 2012). Although the country has established laws for IPR protection,
violations of the rules happened too. There are some problems faced by the international
companies regarding IPR in China. At present, the major factors for the international companies
to operate in the Chinese Tier 1 and Tier 2 car markets are the established and distinguished
contracts with international automotive manufacturers. These contracts bring together the
original equipment manufacturers, producing the parts for sale to other producers under their
own brand name (Mayyas et al., 2012). Apart from them, the technical capabilities and
reputation for their quality also play major roles. These type of contracts allows the international
car companies to get an edge over many Chinese companies, which are comparatively new in the
market, and do not have the regimented procedures needed for a high quality. Therefore, for
these global car companies, protecting the intellectual property for the new technologies from the
Chinese competitors is a key factor to capture the market and sustain. Since branding is very
important, registering the trademarks is very important in China. It is a big challenge for the
global car manufacturers to protect the technology they bring to China and the lack of proper
legislation makes it more difficult for the companies to protect the IPR in the Chinese market.
Thus, this is one of the biggest hurdles for the international car manufacturers to think before
entering China (Tian et al., 2014).
Regarding the IPR, China faces a problem with enforcement of the laws. There is very
little awareness among the people about IPR as well as the fact the infringement is a criminal
activity. For instance, the first training center for IPR was set up in 1996 while the first law for
IPR was drafted in 1982 (Griffith, Miller & O'Connell, 2014). Sometimes, the local legislation
policies dilute the strength of the central legislations regarding the IPR, because the local

7STRATEGIC MANAGEMENT
governments would not support the copyright or patent protection. To promote the local
manufactures and domestic economy, sometimes the local governments indulge in such type of
activities. Hence, during the IPR investigation, counterfeiting information and products are kept
hidden. These obstacles have made the entry of the international car companies and protecting
the IPR in China. Although New Zealand has free trade agreement with China, yet protecting the
IPR in the automotive industry in China is a big challenge (Parr, 2012).
Recommendations
To solve the above mentioned problems regarding IPR, the government of China must try
to increase the awareness among the people about IPR. They should take necessary measures to
educate people about protecting the IPR.
The state as well as the central government should make strict policies and laws to stop
the counterfeiting activities for all types of industries, including the automotive industry. Not
only the designs and technologies, but all types of merchandise, logos should be protected under
the IPR law (Huang & Jacob, 2014).
There are other measures also which could help in protecting the IPR. Firstly, the
international car companies should establish a fully owned manufacturing unit in China where it
is possible, rather than going for a joint venture. This would help in better protection of the IPR
through full control of the production technology and know-how (Perkowski, 2012).
Secondly, the whole production process should be broken down into separate discrete
steps and the units should be located in different places. It would prevent the employees to see
and know the entire process of production.

8STRATEGIC MANAGEMENT
Thirdly, the manufacturers should make more products themselves rather than
outsourcing the manufacturing process. The in-house production process is helpful in protecting
the IPR regarding the technologies. As China has been going through a rapid phase of
technological innovation, protection of the intellectual property would only be helpful for the
automotive industry (Li et al., 2012).
Conclusion
Among the BRIC countries as well as in the world, China is one of the biggest and
strongest economies. It is also the manufacturing giant of the world. The nation not only grew on
the basis of invention and innovation, but it also created a huge market for counterfeited
products. In case of automotive industries, the branding and patents are key factors for staying
ahead in the market. This industry needs constant innovation and hence, protection of IPR is
extremely important. Creativity and intellect must be protected to gain the competitive
advantage. In China, the protection of IPR is not strong due to lack of awareness and lack of
strict laws. However, the policies and people’s attitude are changing. The government is taking
measures to prevent the intellectual property theft. They are making laws so that international
companies can come to the nation for business without having the fear of IPR theft. Hence, it can
be said that, China is taking measures to protect the intellectual property rights in the automotive
industry.

9STRATEGIC MANAGEMENT
References
autobei.com. (2016). BRICs Automotive Market and Trend Analysis. Autobei Consulting Group.
Retrieved 17 October 2017, from http://www.autobei.com/autoanalysis/brics-automotive-
market-and-trend-analysis/
Bainbridge, W. S. (2015). Intellectual Property Rights.
Bently, L., & Sherman, B. (2014). Intellectual property law. Oxford University Press, USA.
Blakeney, M. (2012). Intellectual property rights. The Wiley-Blackwell Encyclopedia of
Globalization.
Brics2016.gov.in. (2017). BRICS : ABOUT BRICS. Brics2016.gov.in. Retrieved 16 October
2017, from http://brics2016.gov.in/content/innerpage/about-usphp.php
Calabrese, G. (Ed.). (2016). The greening of the automotive industry. Springer.
Chan, L., & Daim, T. (2012). Exploring the impact of technology foresight studies on
innovation: Case of BRIC countries. Futures, 44(6), 618-630.
Drahos, P. (2016). A philosophy of intellectual property. Routledge.
Griffith, R., Miller, H., & O'Connell, M. (2014). Ownership of intellectual property and
corporate taxation. Journal of Public Economics, 112, 12-23.
Holtbrügge, D., & Baron, A. (2013). Market entry strategies in emerging markets: An
institutional study in the BRIC countries. Thunderbird International Business
Review, 55(3), 237-252.

10STRATEGIC MANAGEMENT
Huang, C., & Jacob, J. (2014). Determinants of quadic patenting: Market access, imitative threat,
competition and strength of intellectual property rights. Technological Forecasting and
Social Change, 85, 4-16.
Kroninger, T. (2016). Why Should the Automotive Industry Care About Intellectual
Property?. Varnumlaw.com. Retrieved 17 October 2017, from
http://www.varnumlaw.com/blogs/varnum-etc/why-should-the-automotive-industry-care-
about-intellectual-property/
Li, D., Miller, S. R., Eden, L., & Hitt, M. A. (2012). The impact of rule of law on market value
creation for local alliance partners in BRIC countries. Journal of International
Management, 18(4), 305-321.
May, C. (2013). The global political economy of intellectual property rights: The new
enclosures? (Vol. 3). Routledge.
Mayyas, A., Qattawi, A., Omar, M., & Shan, D. (2012). Design for sustainability in automotive
industry: A comprehensive review. Renewable and Sustainable Energy Reviews, 16(4),
1845-1862.
Morrison, W. M. (2012). China's economic conditions. Current Politics and Economics of
Northern and Western Asia, 21(3/4), 289.
Parr, R. (2012). Royalty rates for licensing intellectual property. John Wiley & Sons.
Perkowski, J. (2012). Protecting Intellectual Property Rights in China. Forbes.com. Retrieved
17 October 2017, from

11STRATEGIC MANAGEMENT
https://www.forbes.com/sites/jackperkowski/2012/04/18/protecting-intellectual-property-
rights-in-china/#7aa306dd3458
Rachid, B. (2017). Information about BRICS. Brics.itamaraty.gov.br. Retrieved 16 October
2017, from http://brics.itamaraty.gov.br/about-brics/information-about-brics
Tian, G., Chu, J., Hu, H., & Li, H. (2014). Technology innovation system and its integrated
structure for automotive components remanufacturing industry development in
China. Journal of Cleaner Production, 85, 419-432.
Wang, J., & Chen, M. (2012). Management status of end-of-life vehicles and development
strategies of used automotive electronic control components recycling industry in
China. Waste Management & Research, 30(11), 1198-1207.
Yu, P. K. (2012). Intellectual property and Asian values. Marq. Intell. Prop. L. Rev., 16, 329.