Supply chain management practices and intellectual property protection in China

Abstract

Purpose – The purpose of this paper is to investigate the strategy used by German Mittelstand companies to achieve a profitable business in China. It explores how those firms seek to reduce their risk of entry into this market. Design/methodology/approach – Survey data were gathered over the phone from individuals in the companies who were identified as knowledgeable contacts. Their responses were then analyzed using descriptive statistics and structural equation modeling. Findings – German Mittelstand firms that hire Chinese nationals in China obtain market knowledge and a higher return on investment than others. German managers’ efforts to understand the Chinese cultural norms increased the firm’s unwillingness to share information with others. This was probably because their concern about protecting their competitive secrets increased, so they shared less information with suppliers, which decreased their return on investment. Research limitations/implications – First, the small sample size limited the analysis. Second, there was low inter-rater reliability on multiple items, so these responses could not be analyzed. There is a need to further validate the survey, and obtain a larger sample to analyze alternative models. Practical implications – This suggests to the practitioner that while it may be relatively easy to start a manufacturing business in China, it requires great effort to manage their risk of losing corporate secrets to their competitors in China. Originality/value – This paper provides a unique set of data from practicing managers about the risks and gains from doing business in China. This data can be of use to both researchers and to practitioners and it provides a foundation to examine how the risk of losing proprietary knowledge to Chinese competitors affects business.