IPR laws and internet censorship harm US businesses in China

28 June 2016 Consultancy.uk

The internet is a key element in today’s digital economy, with most businesses in the developed world having broad high speed access to uncensored data streams and digital tools. While the Chinese market remains generally positive for American businesses in a number of key respects, the laws and regulations of intellectual property rights and their enforcement remain problematic. A recent survey finds that 52% of US businesses cite China as a greater risk of IP leakage and data security threats than other regions in which they operate. Internet censorship too is inhibiting US businesses operating in China, among which productivity, data sharing across global operations and deploying companywide digital tools is impeded.

Every year, for the past 18 years, the American Chamber of Commerce in the People’s Republic of China (AmCham China) has produced a survey into the local market conditions of American businesses operating in China. This year’s survey, titled ‘2016 China Business Climate Survey Report’, was created in partnership with Bain & Company. The research itself involves 469 respondents from American businesses operating in China. The respondents are predominantly senior-level country managers (66%), followed by directors or functional heads (16%). Respondent companies have a range of revenues, with 34% under $10 million, 35% between $10 and $100 million and 31% above $100 million. The companies operating in China do so across a range of sector categories including Industrial & Resources, Technology & Other R&D Intensive, Consumer (product & service) and Services.

The research covers a range of factors relating to the operating environment in China. These include not only the company’s revenue growth and macro-economic conditions, but also factors such as continued investment in the region, access to skills, regulatory changes, and intellectual property conditions.

IPR laws and regulations effectiveness and enforcement

Intellectual property rights
The research highlights that China remains a region in which intellectual property rights (IPR) laws and regulations in a range of categories are lowly rated by American company’s operating in the region. Trade secrets protection is particular poorly rated, with 38% of companies saying that they are ineffective, compared to 17% who say that they are very ineffective. Patents are the best protected through laws and regulations according to the respondents, at 66% saying that regulation is either effective or very effective, while 27% say that it is ineffective.

In terms of the enforcement of IPR laws and regulations, trade secrets fares the worst — with 40% saying that enforcement is ineffective and 20% saying it is very ineffective. Patent enforcement also fares relatively poorly, with 34% saying that enforcement is ineffective and 12% saying that it is very ineffective.

Improvement to China’s IPR enforcement

Chinese authorities are mindful to the damage IPR violations, especially in the area of trade secrets and patents, can have on the friendliness of the business environment. Recent years have seen the environment improve, according to respondents. In 2014, 86% said that China’s IPR laws had improved in the past five years. In 2015, this increased further to 91% that believe IPR laws have improved in the past five years.

IP leakage and IT or data security threats in China

The report also finds the level of risk associated with IP leakage and IT or data security threats in China remains riskier than in other jurisdictions in which the company operates. In 2015, 52% of respondent companies rated China as a greater risk, while 46% say it is comparable to other jurisdictions. There is, however, a downward trend in terms of IP and IT or data security threats in the country — in 2014, as much as 60% said the risk in China is greater.

Internet censorship

Internet censorship on business
Another issue the report highlights is that ‘the great firewall of China’, and other measures to inhibit the free flow of information on the internet through censorship of content and websites, continues to impact companies’ ability to conduct business in the country. 36% of respondents believe it negatively impacts their operation, 43% say that it somewhat negatively impacts their conduct while 11% say it is somewhat positive and 10% that it positively impacts their operations.

The effects of censorship on business

The effect of censorship has a range of effects on business. Productivity issues and the (in)ability to share data between global teams, due to the slower pace of accessing websites outside of China, is cited as an issue for 77% of respondents, while the inability to access certain websites and sources of crucial information/data was cited by 71% of respondents. 63% said that they were hampered by unreliable or inconsistent access and speed, which saw one in ten organisations invest less in innovation in the country, while 56% were unable to use certain online tools for their operations — limiting the potential of new companywide digital tools available in other regions. Only 5% of respondents said that internet controls do not hinder their business in any way.


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Four ways digitalisation is transforming car brands and dealers

16 April 2019 Consultancy.uk

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”