Protection of Intellectual Property Rights in Automotive Industry in Emerging Markets (BRIC States)
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 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.
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 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 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 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 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).
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.
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).
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.
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