Tech
sale to China may hurt Bombardier's
workers By Benjamin A Shobert
Canadian company Bombardier this month
announced a 10-year technology licensing deal with
China South Locomotive and Rolling Stock Corp, the
world’s largest manufacturer of electric
locomotives.
The marriage of Bombardier's
Flexity 2 Trams, the product line covered by this
10-year license, with a probable Chinese
competitor has resulted in cries across Europe and
North America. Critics wonder whether Bombardier
has learned anything from the lessons the
clean-tech and high-speed rail industries have to
offer.
The Flexity 2 is the most recent
and technologically advanced tram Bombardier
manufactures. As such, it is notable simply
because it does not
represent the transfer of dated technology to a
Chinese partner.
Many are suspicious of
how Bombardier's strategy differs from the usual
approach of multi-national corporations (MNCs) to
technology licensing in China. Typically, MNCs
have elected to take their more dated products and
technologies to China, given the lax intellectual
property laws the country continues to struggle to
bring up to Western standards, as well as the
propensity of the government to force technology
transfer between Western and Chinese partners as
part of obtaining access to the Chinese market.
This strategy of bringing older technology
to China given the expectation that the technology
will inevitably be used to empower a competitor
has resonance within the aviation market in
general - where China has used such an approach to
try and accelerate the development of its own C919
and ARJ21 jet programs.
The earlier
agreement of Bombardier's China aviation division
to a collaboration and technology transfer program
related to the development of Bombardier's CSeries
fuselage by the China Aviation Industry in many
ways laid the foundation for what Bombardier's
Transportation Division has now done with the
Flexity 2.
A part of what motivated
Bombardier's aviation division to agree to the
partnership on the CSeries jet was gaining access
to China's high-growth market for narrow body,
mid-range regional jets. Similarly, a part of what
likely motivated Bombardier's transportation
division to the Flexity 2 Trams partnership is the
desire to gain access to China's equally lucrative
municipal tram and mass transportation market. The
Canadian company has not disclosed how it will be
paid.
Since the country's opening to the
West, China has strategically protected certain
sectors of the economy from outside competition.
In other cases, it has allowed foreign competition
with few restraints, and in yet others it has
allowed a foreign presence, but only if the
foreign company was willing to agree to some sort
of technology transfer.
The way in which
China managed the industries that fit into each of
these categories was deliberate, and always with
an eye towards fostering domestic job creation and
updating China's dilapidated industrial
infrastructure.
For years this trade was
deemed necessary and, in some quarters, even
noble. But today, attitudes about how China plays
the game are changing, and critics point towards
technology transfers like the one Bombardier's
transportation division has just agreed to as
naive and counter-productive. Naive because it
does not take into full account the ease with
which China learns from its partner and begins
competing with them; counter-productive because
while the trade-off might be good for the
corporation in the short-to-mid term, it
emasculates industries that should represent the
sort of high-technology exports that stay in North
America or Europe.
The first criticism is
the oldest; it may also be the least accurate.
While China has been able to internalize many
technologies that originated in the West through
partnerships and technology transfers like the one
Bombardier recently executed, those industries
where it has maintained a meaningful competitive
advantage based on out-innovating its Western
counterparts are rare. Critics point towards
high-speed rail as one example of this, yet even
here the story is more complicated.
In
2003, the Chinese Ministry of Railways believed it
was set to use domestically produced high-speed
rail locomotives that would have proved to the
world that China's technology was truly
world-class. What ended up happening was that the
domestically manufactured China Star program was
scrapped, and lucrative contracts were awarded to
a host of MNCs including Bombardier, Kawasaki, and
Siemens.
While China has continued to
pursue the development of the biggest and best
high-speed rail locomotives, the track record of
their implementation - both domestically and
internationally - suggests they have a long way to
go. Equally, the ongoing success of MNCs in this
space points towards the possibility that MNCs
understand the risk-reward trade-off that goes
into technology transfers and partnerships in
China.
The larger point that critics of
Bombardier fail to acknowledge is that China's
track record globally has little to do with its
innovative capabilities. Yes, the country
internalizes technology rapidly. Yes, its growth
allows it to quickly become the biggest market.
But neither of these makes technology leadership
inevitable.
In fact, when analysts wrestle
with the future of China's economy, most point
towards the profound lack of innovative capacity
from China's businesses and universities as signs
that the country has a very long way to go to
truly compete in the global marketplace.
The second criticism of what Bombardier's
transportation division has agreed to, that it
emasculates the very industries Western countries
need to stay put, is the more troubling.
One of the essential arguments advocates
of free trade have made relative to China is that
while Western economies were likely to see more
mature industries where low-skilled labor was a
cost driver relocate overseas, these jobs would be
replaced by higher-paying, higher-skilled jobs.
To this group of critics, Bombardier's
agreeing to license and manufacture trams in China
instead of the company's manufacturing base,
Montreal, points towards the ways in which
globalization is not working for workers in the
West. It may work for corporations and their
stockholders, but it does not work as well for the
men and women in the factory.
Today,
business schools and corporations are fond of
talking about sustainability. The idea is to
identify business practices that ensure the
corporation continues to exist profitably, and
that it does so in ways that reflect stewardship
of more than its own finances, but its obligations
to society and the environment as well.
Thus far, sustainability has resonated
primarily through how companies think about being
responsible for their environmental footprint. But
sustainability also resonates with the workers in
these corporations, many of whom feel that their
company's strategies reflect a holistic sense of
everything but their own interests.
While
tensions between the needs of workers and the
corporation are nothing new, the ways in which
they find expression in criticisms about
globalization may be.
In order for
globalization itself to be sustainable, the
benefits must accrue to more than just the company
or its shareholders. While employees are
shareholders, their primary income does not come
through appreciation of stock prices, or
declaration of dividends. Consequently, if the
company does well in its pursuit of a
globalization strategy, but the workers do not,
the sustainability of globalization is at risk.
In this way, the second criticism of
Bombardier's strategy in China is worth
questioning: not because it is inherently new, but
because it is not increasingly obvious that the
benefits belong to everyone as they were supposed
to.
It is possible - and at this stage in
globalization's current form perhaps even probable
- that companies will continue to do better than
individuals, and that this lopsided benefit may be
most noticeable in the West.
Among the
many reasons why Western governments will have to
further increase transfer payments from
corporations and the wealthy to individuals is
because workers continue to lose out as industries
that should have stayed put strategically relocate
overseas, through no fault of local government or
the workers themselves.
Bombardier's
decision to license technology to a Chinese
competitor likely makes perfect business sense.
Critics who point towards how this sets up
inevitable competition might be right, but they
are wrong to think that Bombardier will stand idle
by while this happens; rather, Bombardier will
likely continue to innovate in order to keep a
constant technology gap between it and its
competitors.
But the bigger and more
troubling question the Bombardier decision
illustrates is whether globalization in its
current form benefits western workers as well as
it does Western companies. If it does not, if it
actually costs workers in Montreal jobs they would
have otherwise had by exporting products to China,
then questions about the sustainability of
globalization will come front and center.
China's strategy of trading market access
for technology transfer has been a smashing
success; however, it also can only survive as long
as the countries providing it technology stand to
benefit, a benefit that must be equally meaningful
for corporations and workers alike.
Benjamin A Shobert is the
Managing Director of Rubicon Strategy Group, a
consulting firm specialized in strategy analysis
for companies looking to enter emerging economies.
He is the author of the upcoming book Blame
China and can be followed at www.CrossTheRubiconBlog.com.
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