July 10, 2006 SDF China

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Opportunities and Challenges

On Monday July 10, 2006 at the East Palo Alto offices of DLA Piper Rudnick Gray Cary, SDForum’s International SIG hosted an extraordinary panel discussion on business and intellectual property (IP) in China to an overflowing audience.

The panel host was Zhahoui (Zoe) Li, Financial Advisor, Morgan Stanley. The panel guests were Aimin Li, Science Consul, Chinese Consulate General in San Francisco, Tom Ho, Yield Dynamics, VP Product Marketing, Jihong Sanderson, Executive Director of Center for Research on Chinese & American Strategic Cooperation at UC Berkeley and CEO at Berkeley Consulting Associates, USA, and Andy Tang, Managing Director, DFJ Dragon.

The conventional wisdom for outsourcing is that software development is done in India and hardware in China. The obvious reasons for this evolution are legal protection for IP, the number of English speaking programmers and respective government policies. The panel tried to address the less obvious ways to encourage software development in China.

Aimin Li excerpted an extensive presentation on China’s official government efforts educating its public, which has a long history of community property about the very concept of IP. Since, 1980, State Council took steps to install and enforce IP protection with new regulations, courts and penalties. Even with this infrastructure in place, the challenge is enforcing these standards to bring them in line with international standards. Without enforcement, the environment to encourage innovation cannot exist. Li offered his government’s services to anyone interested in doing business in China.

Andy Tang pointed out that IP enforcement is a question of priorities. For instance, there are few counterfeit products for the Beijing Olympics, because the government has an immediate interest. As for outsourcing to any country with a language issue, there is always a gap in getting what you ask for on a project. In China in particular, while technical skills are common, good project managers who understand people and technology are in great demand. China still has a core competency in manufacturing. The closer you stick to that, the greater chance of success.

Jihong Sanderson talked about the broader social implications of IP beyond the legal issues. For most people, wages are low. Faced with the prospect of spending several hundred dollars on legal software when people only make several hundred dollars a year, people will buy what they can afford. Companies that do well in China do not sell a shrink-wrapped box; they offer affordable integrated service experiences across work, home and entertainment. It is hard to pirate a service experience.

Tom Ho’s company Yield Dynamics takes its own steps to fight piracy. They have security systems, password protections, firewalls, and do not allow data to be exported outside the development environment. Projects can be broken up into basic elements and developed by different teams, so no one has a complete picture. Good communication and extensive specifications is key. U.S. engineers get what you say and can turn it around immediately. It isn’t the lack of skill that can slow the process. The lack of experience can cause the development schedules to take two to five times as long. Develop a trusted good team overseas and do what you can to retain them.

Zoe Li and others pointed out cultural differences between China and India. Chinese engineers pay close attention to the specifications and carry out those instructions to the letter. An Indian developer will argue with you about any aspect of a project. This dialog can lead to a better product, so this needs to be encouraged in China. Everyone agreed the work ethic of Silicon Valley is alive in well in China. People will work on a project until it is a success.

By DJ Cline
Copyright 2006