Doing GNSS Business in China

China represents a huge potential market for Western GNSS companies, even though the country has a strong and growing GNSS capability of its own. Before booking a flight to Shanghai or Beijing, however, some careful preliminary research will likely pay off: looking for potential Chinese industry partners with whom you would jointly work to open a market niche. The key ingredient — a huge investment in developing personal relationships, two-way trust, and understanding — is the only way to really penetrate the Chinese market. This month’s columns recaps some of the highlights of our recent webinar on this topic, and explores further with questions from our audience and the answers from our panel of experience China businesspeople.

Back on July 21, we held a GPS World webinar on “Doing GNSS Business in China.” The presenters were Vic Hsiao, CEO of Knowledge Access in California; Francis Yuen, CEO of Baseband Technology in Calgary, Canada; Jianhui Lee, president of BDStar in Beijing, China; and myself. The presentations were not only informative, but also generated a host of questions from a very well-informed group of GNSS-ers who logged on for the webinar. It’s therefore useful that we review what was discussed and that we try to summarize some of the key issues raised by the web audience.

Vic Hsiao has clearly spent significant time in China in his current consulting capacity, and previously with NavCom, Qualcomm, and Magellan, so he knows the dos and don’ts of trying to market in China. China represents a huge potential market for Western GNSS companies, even though there is a strong and growing GNSS capability, as Jianhui Lee explained the wide range of activities in which BDStar has become involved. Francis Yuen added a number of well illustrated commentaries around culture, communications, and negotiation which are particular to doing business in China.

In the slew of questions we received, there were a couple of common themes which I’ll try to address first. There is a really wide-felt concern about protection of intellectual property (IP) when doing business in China. While China is becoming aware of the need for IP protection, especially as its own GNSS industries create their own Beidou/COMPASS IP, and the filing of indigenous patents has grown by a whopping 57% (!), it’s still difficult to say that Chinese industry has fully grasped the concept of IP ownership and value.

So what could you do to protect your key “crown jewels” when, as a Western company, you venture into China? That question actually leads us into what would be the best way to enter the Chinese market. Showing up in Beijing with a catalogue and samples and knocking on doors is probably not the preferred approach. Before booking a flight, careful research would likely pay off looking for potential Chinese industry partners with whom you would jointly work to open a market niche. Then that leads to the key ingredient — huge investments in developing personal relationships, two-way trust, and understanding. This is the only way to really penetrate the Chinese market, through an extremely well-known and trusted partner.

And with a trusted partner, IP protection should be easier because personal relationships usually help understanding and acceptance of each other’s needs. Nevertheless, both sides need to protect their stuff as you would in a working relationship between two Western companies where trade secrets are retained and discussed only at the top level. I’ve known of instances where only object code has changed hands, and yes, object code and chips can also be cracked, which is why you need a trusted partner, as well as well established, long-term personal relationships and a business relationship which is mutually beneficial.

But don’t be fooled, China does understand IP protection very well — just ask anyone who’s still trying to get hold of the Beidou/COMPASS signal in space ICD. The Chinese government has restricted access to this key to tracking the full Beidou/COMPASS signal, and we’ve only seen Chinese companies making direct use of this ICD. Again, just another reason why you need a great Chinese industrial partner — they may be able get access to the ICD. Not that that will help you directly — you still have to work through your partner to implement Beidou signal tracking — maybe in an application embedded in the end product/receiver.

And is this all worthwhile? It’s not the easiest market to access. It’s a long way from home and the effort involved in servicing this market from the West (even with a great in-country partner) is significant. The estimated market for GNSS in China is probably around $18 Billion in 2011 and growing at a whopping 50% annual rate, so even though it takes a lot of work, the potential for a healthy return is still huge. This market will likely continue to exist for some time for Western companies, provided you’ve got the right products and have established your Chinese market baseline as we’ve outlined. But don’t wait too long — China has announced its intention to join the GNSS market on an equal footing with all the other GNSS constellation-capable nations, and that intention is not only for sovereign control of its navigation assets, it’s also to gain market share for its own industries. Import duties for GNSS products are, however, still low (around 1.5 to 5% of selling price), so it’s still possible to sell Western GNSS equipment into China. And it’s generally accepted that dual-frequency GNSS chipsets are all still imported from outside China.

Some other questions we may have not yet addressed include:

• How receptive are the Chinese to women entrepreneurs? There are a lot of women in leading positions in this industry, and Vic Hsiao believes there are a large number of Chinese women entrepreneurs — so being a Western woman trying to do business in China should be a positive thing.
• What is the requirement to offer integrated receivers with Beidou/Compass capability? As China is investing heavily in Beidou/Compass, it wouldn’t be unreasonable to expect something in the future like when Russia mandated GLONASS capability in Russia. The safe way forward is to find a Chinese partner and implement Beidou/Compass capability.
• Negotiation strategies? This is perhaps the hardest thing for Western companies to get their heads around. Chinese want the best deal possible and they will likely try to wring the last cent out of any negotiated sale. This is particularly true in the commercial market where pricing is the only edge Chinese companies can get in an increasingly competitive internal market. The best strategy is to look at the longer term and work hard to stay connected to the business over many years. If you drift away from your partner, expect things to come off the rails, so remain as closely connected partners. Make a deal that is good for both sides, even though you might feel you could have done better. It’s a huge market and a few points of margin might be worth it for a long-term business presence in one of the largest, fastest growing markets in the world.

So, lots of information for people looking to make their first foray into GNSS in China — maybe not so much new news for those who are old hands, but hopefully there was the odd bit which was useful. Certainly there were a lot of questions we stirred up with our webinar. Thanks for everyone who participated; if I missed your concern, please drop me an e-mail (tmurfin@questex.com) and I’ll do my best to get you some help.

Tony Murfin
GNSS Aerospace