Tuesday, June 28, 2011

Why Business Methods Are as Important as IP to China

Courtesy of China Defense Blog, I just read a fascinating (if you like aircraft) report on China's capability to natively produce jet engines produced by China SignPost titled Jet Engine Development in China: Indigenous high-performance turbofans are a final step toward fully independent fighter production (pdf).

It's common to see open source reports describing how the APT seeks intellectual property (IP), which many people read as plans, designs, and related mechanical and scientific information. What some miss, however, is that China needs business know-how as well as technical know-how in order to achieve its economic and security goals. The report includes examples of this:

What China must achieve, however, is a methodology akin to Six Sigma or Total Quality Management (TQM) to ensure quality control and sufficient organizational honesty to ensure that actual problems are reported and that figures are not doctored.

Otherwise, standardization and integration may be the one in which the costs of China’s ad hoc, eclectic approach to strategic technology development truly manifest themselves.

The Soviet defense industrial base failed in precisely this area: talented designers and technicians presided over balkanized design bureaus and irregularly-linked production facilities; lack of standardization and quality control rendered it “less than the sum of the parts.”

If there's anything you need to know about the Chinese government, it's that it seeks to avoid mistakes made by others. The Chinese government does not want to repeat the Soviet failure, and it knows that technology isn't the only component when trying to build jet engines. Expect to more open and hidden actions by Chinese actors to gain the resources they need to indigenously create this core military and civilian capability.


Anonymous said...

Seems the original PDF is not linking correctly .. any chance you can host a local copy? WebCache is only so enthralling...


Richard Bejtlich said...


Anonymous said...

I'm not buying it - can't China just purchase all the Six Sigma or TQM training they want? It's not like the training manuals are regulated as a dual-use good, is it?

Anonymous said...

Excellent post Richard. I think it points to even greater systemic issues in the "Chinese Model." For example, anyone who has worked in China understands that Chinese businesses are fairly opaque when it comes to reporting their financials. Contrast this to the US, where some degree of transparency is required by law. The people who lead organizations in China are not accustomed to the notion of "organizational honesty."

Patrick Florer said...

This post is spot on -

Being able to purchase or steal something doesn't imply anything about knowing how to use it.

We tend to forget, or not know in the first place, how different some of these societies are from the USA.

About 10 years ago, a friend of mine - a prominent bankruptcy lawyer - cohosted the first ever conference on insolvency in China.
The Chinese government simply had no idea and no body of precedent for winding down failed enterprises - up to that point, failed enterprises just somehow went away without explanation.

For another example: my daughter is an international finance lawyer in Dubai, UAE.

The UAE, like so many traditional societies, is moving in one step from a tribal, feudal monarchy into the 21st century. These people are trying to accomplish in one or two generations what we in the West have been working out since the Renaissance.

Patrick Florer