An Assessment and Ranking of Barriers to Doing Environmental Business with China
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The transfer of environmental goods and services to China will increasingly be of importance to developed nations as the demand for the environmental management increases in China. A review of the ...

The transfer of environmental goods and services to China will increasingly be of importance to developed nations as the demand for the environmental management increases in China. A review of the literature on technology transfer to China revealed a range of well recognised and commonly known constraints to transferring technologies to China. There were gaps in the literature in relation to the concerns that environmental professionals have regarding technology transfer to China as limited information on the transfer in environmental goods and services to China. A survey of the non-trade barriers and their practical impact on the transfer of environmental technologies and goods and services to China, focusing on Australian suppliers was undertaken to address these gaps. The survey, which was developed from barriers to technology transfer already described in the extensive research addressing the wider issues of technology transfer to China, targeted environmental professionals but also included other professionals with interests in transferring environmental goods and services to China. From the survey, the highest priority barriers to transferring environmental goods and service to China were identified and those which are most likely to limit Australian vendors of environmental goods and services in their technology transfers to China, were protection of intellectual property (IP), limitations of the rule of law, fragmentation and bureaucracy of the Chinese government; and establishing appropriate level of ownership (of environmental goods and services providers in China). Examples of Australian experience were also examined, which confirmed these barriers to providing the needed technology and innovation to manage China’s increasing environmental impacts. The research also shows that the barriers identified do not appear to be unique to transfer of environmental goods and services but rather generic to the transfer and adoption of Australian technology into China.

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An Assessment and Ranking of Barriers to Doing Environmental Business with China Document Transcript

  • 1. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment * Correspondence to: Turlough F. Guerin, Telstra Corporation Limited, L33/242 Exhibition Street, Melbourne 3000, Australia. E-mail: turlough.guerin@hotmail.com Business Strategy and the Environment Bus. Strat. Env. 18, 380–396 (2009) Published online 31 October 31 2007 in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/bse.605 An Assessment and Ranking of Barriers to Doing Environmental Business with China Turlough F. Guerin* Telstra Corporation Limited, Melbourne, Australia ABSTRACT The transfer of environmental goods and services to China will increasingly be of impor- tance to developed nations as the demand for environmental management services increases in China. A review of the literature on technology transfer to China revealed a range of well recognized and commonly known constraints to transferring technologies to China. There were gaps in the literature in relation to the concerns that environmental professionals have regarding technology transfer to China, as there is limited information on the transfer in environmental goods and services to China. A survey of the non-trade barriers and their practical impact on the transfer of environmental technologies and goods and services to China, focusing on Australian suppliers, was undertaken to address these gaps. The survey, which was developed from barriers to technology transfer already described in the extensive research addressing the wider issues of technology transfer to China, tar- geted environmental professionals but also included other professionals with interests in transferring environmental goods and services to China. From the survey, the highest pri- ority barriers to transferring environmental goods and service to China were identified, and those that are most likely to limit Australian vendors of environmental goods and services in their technology transfers to China were protection of intellectual property (IP), limita- tions of the rule of law, fragmentation and bureaucracy of the Chinese government and establishing appropriate level of ownership (of environmental goods and services providers in China). Examples of Australian experience were also examined, which confirmed these barriers to providing the needed technology and innovation to manage China’s increasing environmental impacts. The research also shows that the barriers identified do not appear to be unique to transfer of environmental goods and services but rather generic to the transfer and adoption of Australian technology into China. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment. Received 27 January 2007; revised 25 August 2007; accepted 27 August 2007 Keywords: corporate environmental management, China, technology, freetrade agreement, renewable energy, intellectual property, environmental consultants, training, environmental education, marketing, international trade
  • 2. An Assessment and Ranking of Barriers to Doing Environmental Business with China 381 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse Introduction C HINA IS THE WORLD’S MOST IMPORTANT ECONOMY IN RELATION TO NEGATIVE IMPACTS ON THE ENVIRONMENT (Guerin, 2001b; Anonymous, 2006; McDonough, 2006). With long-term growth rates of 8–10%, it is unlikely that the negative environmental consequences of this growth will be offset by adoption of local remedial technologies and innovation. These environmental impacts are now recognized as major threats and of central importance for businesses to manage when doing business in China. They include water shortages and contamination, energy demands, soil erosion and pollution. For foreign companies doing business in China, these impacts play out as impacts on reputation, the existence of faulty supply chains, transportation accidents, lost productivity from health impacts, collusion between government officials and political instability at a local level (Economy and Lieberthal, 2007). China will therefore require an aggressive acquisition program for procur- ing the necessary environmental goods and services (EGSs) to manage air, water and soil pollution, from both a preventative and a treatment perspective (Watson, 2005). There is mounting evidence that China is prepared to acquire this technology (Shanley, 1995; McDonough, 2006). Direct technology transfer is the imparting of knowledge, skills and methodologies from one location to another. This process also includes disseminating information on the end use and adoption of the transferred technologies (Guerin, 1999). The introduction, through exports, of a technology or service into a developing country such as China is not technology transfer per se, where the client or end user is then left to implement it. Licensing, in addition to direct technology transfer, can also be used to transfer technology. A license is a contract between a holder of a technology and an end user or distributor (licensee) of a particular technology. A license allows the licensee to manufacture, market or use that technology (or IP), while the owner or vendor maintains the owner- ship of the technology. With direct technology transfer, the transferor does not necessarily maintain ownership of the technology. Regardless of the type of technology or service, there are fundamental barriers to technology transfer, such as local capacity, the appropriateness of technology, priorities of the vendor, funding and trade arrangements and attributes of the end users and adopters. From the literature, it is evident that there are numerous barriers to western countries, and technology providers from these countries, transferring or licensing their technologies and services to China. An analysis of the literature revealed that there are a cluster of barriers related to legal, technological, financial, social and cultural, resource limitations, government, IP and organizational management (Table 1). The literature was organized according to six themes, which were identified as follows: • rule of law • protection of intellectual property • intercultural sensitivity • modernization of state owned enterprises (SOEs) • establishing the appropriate level of ownership (of foreign companies in China) and • fragmentation and bureaucracy of the Chinese government. These themes were used to organize the literature findings to facilitate the preparation of a survey described in the remainder of this paper. Although numerous barriers were identified, the literature did not provide any ranking of these in relation to their importance, nor did it report studies from the perspective of corporate environmental managers or environmental consultants as to (1) how these stakeholders perceived these barriers and (2) how companies transferring environmental technologies to China had overcome these barriers. Nor were there any published studies ascertaining whether these identified barriers were in any way unique to EGSs. The aim of this research was to quantify and rank perceptions of corporate environmental managers (CEMs) and environmental consultants in relation to the non-trade barriers to transferring EGSs to China and to identify any barriers that may be unique to the transfer of EGSs compared with non-EGSs. This article des- cribes the methods employed in the survey, the survey results and discussion, and a brief review of their implica- tions for CEMs and environmental consultants, and for the establishment of an FTA between Australia and China.
  • 3. 382 T. F. Guerin Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse BarrieridentifiedDescriptionReference RuleoflawLackofenforcementorunderstandingoflawsbyChinesecounterparts(technology(MartinsonandTseng,1998; recipients);absenceofpolicingofenvironmentallawsandinconsistentinterpretationHongyanetal.,2003; oflawsMcCubbin,2004) ProtectionofintellectualTechnologicalgapbetweensupplierandrecipientiswide(Warhurst,1991) propertyLackofunderstandingofthetechnologybytheChineseanditsapplication(Guerin,1998a,1998b; LimitedorineffectiveprotectionofintellectualpropertyleadingtoillegalreproductionofGuerin,2001b) technologyanddisregardforhealthsafetyandenvironmentconsiderationsinsuch(Tackaberry,1998;Guerin,2001b; reproductionLiu,2005;Vicenzino,2006) InterculturalExcessivefocusofChineseonfinancialreturnatdetrimentofenvironmentalprotection(Guerin,2001b;Harris,2006) sensitivity/social/culturalLackofappreciationofcross-culturalissuesfromtechnologydonor(Guerin,2001b) CulturalandmanagerialdifferencesbetweendonororganizationsandChinesemanagement(Cummings,2006;Harris,2006; styles(Chinesefavoringcentralizedcontrol)Birkinetal.,2007) KnowledgeofecologyandenvironmentalissuesisusuallylimitedamongChinesefrom outsideofurbanareasandtothosewithhighlevelsofeducation VastmajorityofChineseareconcernedaboutdomestichomeenvironment(andperhaps neighbourhood)butnotthesurroundingareas Chinesehaveinstrumentalviewofthenaturalenvironment(i.e.itexistsforthepeople); Chinesedisplayambivalentenvironmentbehavior;Chinesemanagementvaluequantityasa moreimportantvaluethanquality ModernizationofSOEsLimitedfinancialresourcestoproperlyimplementnewtechnologiesandsolutionsinChina(JagersmaandvanGorp,2003) largelyaresultofhighdebtlevelsamongSOEs LackofskilledresourcesinChinaislimitingembeddingofsustainabledevelopmentpractices(Guerin,1998a,1998b;Guerin, 2001b;Economy,2004) ProcessofmodernizationofChinesestateownedenterprises(Birkinetal.,2007) LossoflocalChinesejobs(McCubbin,2004) IncreasingtrendofsmallscalelocalcapacityinChina(Guerin,2001b) EstablishingtheFindingreliablebusinesspartnersinChinaandthelackofqualifiedpeopleinChina(JagersmaandvanGorp,2003) appropriatelevelofAlackofcontrolofChineseinterestsinthebusiness(JagersmaandvanGorp,2003) ownershipForeigninvestmentrestrictionsforcompaniesoperatinginChina(Tsang,1999) FragmentationandLackofpoliticalwillinChinatoincreaseenvironmentalprotectionandlackofgovernment(HillsandMan,1998;Economy, bureaucracyoftheactioninthisarea2004;Liuetal.,2004) ChinesegovernmentFailureofgovernmentdemonstrationprojectsinChina(JagersmaandvanGorp,2003; Bureaucracyofsystemsimpedingdecisionmaking,identifyingdecisionmakersandleadingGallagher,2006) toinconsistenciesinapplyingregulationsanddeterminations Relationshipsbetweenregulatorsandbusinessestendtofavourharmonyandconsensus buildingandlimitprosecutionsandenforcement Absenceofstringentandeffectiveenvironment,energyandimportingpolicies,standards andguidelines TightcontrolofproductionbythegovernmentinChina Fragmentedmarketplace,reflectingthegovernmentfragmentation DifficultiesinrepatriatingprofitsfromChina Table1.AliteraturereviewofthebarrierstotechnologytransfertoChina
  • 4. An Assessment and Ranking of Barriers to Doing Environmental Business with China 383 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse Method Survey Design A survey was designed after a review of literature on barriers to transferring technologies to China, the results of which are presented in Table 1. The literature revealed numerous items, which were then clustered into six themes. A series of 39 items, which formed the individual options for answering questions in the survey, was developed, that represented each of the six themes. The survey was comprised of a series of closed questions (with forced ranking), which enabled quantification of results, as well as open questions enabling respondents to provide qualitative responses to each of the questions related to the six constraint themes (described in the sub-section ‘Survey Questions’). Survey Sampling The types of organization sampled and represented in the survey were predominantly Australian-based or operated companies (including individuals, small to medium sized enterprises and corporations), many of which were listed on the Australian Stock Exchange. Approximately 100 companies, likely to be involved in export of EGSs, were identified on publicly available databases, which contained company email addresses (including www.environ- mentdirectory.com.au). A further 100 individuals from companies and organizations likely to be involved in the export of EGSs, either known by the author or otherwise identified from internet searches, or through professional networks, were identified. Finally, a link to the survey was posted on several active Internet listservers, which were elected based on the range of topics that they covered and their level of activity as described by Guerin and Schaff- ner (2000, Guerin, 2001). The listservers chosen covered soil and groundwater treatment, climate change and general corporate environmental management and sustainability. The listservers represented a population of approximately 2000 potential respondents. Description of Respondents The response rate, when based on the potential number of targeted organizations and individuals (200), was 29%. The rate dropped to 3% when the listserver populations were used to calculate response rates. The majority (55%) of the organizations responding to the survey were either Australian based or operated, including small and medium sized enterprises, corporations and universities. Australian government organizations represented 12% of respondents. The remainder of respondents (33%) were organizations (corporations, private consultants/indi- viduals, small and medium sized enterprises, and universities) from outside of Australia. These organizations were not targeted specifically, but were a result of the requests sent to potential Australian EGS exporters, the author’s professional networks and Internet listservers. Of the 57 respondents, 47% exported to China at the time of the survey and 32% of these were organizations doing so from Australia. Of the goods and services being exported, 37% were EGSs, representing environmental education and training, consulting, water supply and treatment technologies, energy management and waste management. The majority of roles represented (28%) were environ- mental consultant or manager of an environmental consultancy. The remainder were HSE advisors or managers and corporate environmental managers (19%), sales and marketing roles (10.5%), government representatives (8.8%), export co-ordinators or managers (5.3%), researchers (5.3%), technologists (3.5%) and miscellaneous roles including students, retired individuals, individual business owners, professional architect, strategic planner, busi- ness executive, chief executive officer, company director, sustainability manager, safety director and management consultant (19.6%). Survey Administration The survey was conducted from August to October 2005. It was administered using an introductory email contain- ing a direct link to the survey. The survey was prepared using an online survey program called Survey Monkey (www.surveymonkey.com).
  • 5. 384 T. F. Guerin Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse Survey Questions The survey questions asking for demographic information, perceptions on the role of a FTA (in EGS transfer to China) and the relative importance of Australian EGS vendors, and examples from Australia, are presented in Table 2. The remainder of the survey questions, which contained the items forming each theme (see the six listed below), are provided below. For each item, respondents were required to state whether it was ‘a significant barrier’, ‘a potential barrier’ or ‘not a barrier’. Rule of law. How would you rate the following barriers related to limitations of the rule of law in China? • Lack of transparency of legal systems in China • Inconsistent interpretation of laws and regulations across provincial boundaries • Absence of policing of laws and regulations in a consistent manner across China. Protection of intellectual property (IP). How would you rate the following which relate to problems in the protection of intellectual property? • Ineffective IP laws in China • Potential rapid illegal reproduction of goods imported or concepts/ideas introduced into China (i.e. pirating) • Absence of exporting organization’s safeguards against IP loss when they introduce their goods or services to China • Health safety or environmental consequences of pirated goods when exported from China (e.g. which do not meet original manufacturer’s intended standards). Modernization of state-owned enterprises (SOEs). How would you rate barriers related to the modernization of state- owned enterprises in China? • The process itself of modernization of Chinese SOEs (which is now occurring at a fast rate in China) • Loss of local jobs of employees employed in China • The increasing trend of small scale of local capacity in China • High debt levels among state-owned enterprises. Fragmentation and bureaucracy of the Chinese government. How would you rate the following barriers related to fragmentation and bureaucracy of the Chinese government? • Inconsistent requirements at each level of Chinese government • Lack of transparency in the application of taxes across China • Difficulties in repatriating profits from China • Different bureaucratic rulings within and beyond provinces • Different customs requirements at different ports in China • Inconsistent enforcement of import duties across China • Unclear and conflicting standards across provinces in China • Conflicting Chinese importing guidelines • Difficulty in finding decision makers at the appropriate location and level in the Chinese government. Establishing the appropriate level of ownership. How would you rate the following barriers related to establishing the appropriate level of ownership (for an Australian-based or operated company planning to do business in China)? • Foreign investment restrictions for companies doing business in China • Difficulty in finding reliable business partners in China • Level of foreign capital investment is not necessarily proportional to the profits shared by partners (under Chinese legal framework) • A lack of control over Chinese interest in the business. Intercultural barriers. How would you rate each of the following intercultural aspects in terms of their potential to be a barrier (i.e. if they were not recognized and acted upon/embraced they could be a significant barrier)?
  • 6. An Assessment and Ranking of Barriers to Doing Environmental Business with China 385 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse QuestiongroupingQuestions DemographicsDoesyourorganizationcurrentlyexportanygoodsand/orprovideservicestoChina? Doesyourorganizationcurrentlyexportanygoodsand/orprovideservicestoChinafromAustralia? Doesyourorganizationexportenvironmentalgoods(e.g.technologies)orprovideenvironmentalservices(e.g.consultingor qadvice)fromAustraliatoChina? Haveyouoryourorganizationhadanyindirectinvolvementintheexportingofenvironmentalgoods(e.g.technologies)or providingenvironmentalservices(e.g.consultingoradvice)fromAustraliatoChina? Ifyourorganizationdoesexportenvironmentalgoods(e.g.technologies)orprovideenvironmentalservices(e.g.consultingor advice)toChinahowwouldyoubestdescribethese? Howwouldyoubestdescribeyourorganization?Howwouldyoubestdescribeyourrole? TradebarriersOverallhowwouldyouratethefollowingtradebarriersforanAustralian-basedoroperatedorganizationexportingenvironmental goodstechnologiesorservicestoChina?1 Whatothertrade(only)barriersarethereforanAustralian-basedoroperatedorganizationexportinggoodstechnologiesor servicestoChina? Note:Donotincludenon-tradebarriersastheseareaddressedintheremainderofthesurvey. Non-tradebarriersHowwouldyouratethefollowingbarriersrelatedtolimitationsoftheruleoflawinChina?2 Howwouldyouratethefollowing,whichrelatetoproblemsintheprotectionofintellectualproperty(IP)?2 Howwouldyouratebarriersrelatedtothemodernizationofstate-ownedenterprisesinChina?2 HowwouldyouratethefollowingbarriersrelatedtofragmentationandbureaucracyoftheChinesegovernment?2 Howwouldyouratethefollowingbarriersrelatedtoestablishingtheappropriatelevelofownership(foranAustralian-basedor operatedcompanyplanningtodobusinessinChina)?2 Howwouldyourateeachofthefollowinginterculturalaspectsintermsoftheirpotentialtobeabarrier(i.e.iftheywerenot recognizedandactedupon/embracedtheycouldbeasignificantbarrier)?2 Othertradeandnon-tradeWhatothersignificanttradeornon-tradebarriersdoyouthinkthereareforAustralian-basedoroperatedcompaniesexporting barriersenvironmentalgoodsandservicestoChina?3 FreetradeagreementWhatimpactdoyouthinkanFTAbetweenAustraliaandChinawillhaveontherolesofcorporateenvironmentalmanagersin Australia?Pleasedescribewhyyougavetheansweryoudidabove WhatimpactdoyouthinkanFTAbetweenAustraliaandChinawillhaveonAustralian-basedoroperatedenvironmental consultancies?Pleasedescribewhyyougavetheansweryoudidabove AustralianexamplesWhatwastheenvironmentalgoodorserviceinvolved?Whatwasthevalue(estimate)inUSDoftheactivity?Whendidtheactivity (casestudies)occur?Wastheoveralloutcomeoftheactivityasuccessintermsofgoodsorservicesprovidedandpaymentreceived? Regardlessofwhethertheactivitywassuccessfulornotwhatwerethemainbarriersthatwerefacedinexportingthegoodsor providingtheservices? Iftheactivitywassuccessful,howwerethebarriersovercome? RelativeadvantageofDoyouthinkAustralianorganizationshaveanadvantage(inanyway)overanyothercountriesinprovidingenvironmentalgoods AustralianEGSandservicestoChina? vendorsIfyouansweredyestothepreviousquestioninwhatwayareAustralianorganizationslikelytohaveanadvantage(overeither Chineseorotherinternationalorganizations)? Table2.Summaryofthequestionsaskedinthesurvey 1 Resultsnotreportedinthisstudy. 2 ItemsundereachofthesesixgroupingsofconstraintsareshownontheyaxesinFigures1–6.Aftereachofthesequestions,respondentswereaskedifthere wereanyadditionalbarriers;however,noadditionalbarrierswereidentified. 3 Therewerenoadditionalbarriersidentifiedfromthis‘catch-all’question.
  • 7. 386 T. F. Guerin Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse • Basic understanding of the language • Harnessing the interpersonal networks in China (‘social networks’ rather than ‘markets’) • Speaking and questioning so as to ensure understanding • Group setting and group context in training • Flexible in your dealings with the Chinese • Developing an alliance with the Chinese customer (over a long period) • The ‘work unit’ (as opposed to the individual worker) in China • Being non-judgmental • Tolerance for ambiguity • The capacity to communicate respect • The capacity to personalize one’s knowledge and perceptions • The capacity to display empathy • The capacity for taking turns (in conversation) • Establishing trust • Autocratic control of information. In addition to the questions asked above, a further catch-all (i.e. an open) question was asked: ‘What other sig- nificant trade or non-trade barriers do you think there are for Australian-based or operated companies exporting EGS to China?’. No answers were provided in response to this question. A question was also asked for the purpose of rating the importance of trade barriers to transferring EGSs to China. The purpose of the question was to ensure that respondents were made aware of the difference between trade and non-trade barriers. These questions, and the results of these questions, are not included in the survey results. Results and Discussion Statistical Analyses Analysis of variation (ANOVA) tests were conducted between each of the six themes of barriers to the transfer of EGSs to China. These analyses were conducted on the ‘significant barrier’ responses. The p values that were obtained from the outputs from the ANOVA tests between each of the barrier themes (Table 3) showed that there were two main groupings of the barriers: • protection of IP; rule of law; fragmentation and bureaucracy of the Chinese government and establishing the appropriate level of ownership (30–50% of respondents thought these were significant barriers) and • intercultural barriers and modernization of SOEs (less than 25% of respondents thought these were significant barriers). Barriers 1 2 3 4 5 6 1. Protection of IP – – – – – – 2. Rule of law 0.56 – – – – – 3. Fragmentation and bureaucracy of the Chinese government 0.08 0.3 – – – – 4. Establishing the appropriate level of ownership4 0.09 0.16 0.64 – – – 5. Intercultural sensitivity 0.0007 (S) 0.007 (S) 0.02 (S) 0.16 – – 6. Modernization of SOEs 0.006 (S) 0.008 (S) 0.009 (S) 0.03 (S) 0.12 – Table 3. Results of ANOVA comparing non-trade barriers1 1 An (S) after the calculated p value from ANOVA tests indicates that the comparison between barrier themes (or groups) (listed as numbered text in rows 1–6 in the first column) compared to the same group of barriers (listed 1–6) in the corresponding columns, were significant at α = 0.05.
  • 8. An Assessment and Ranking of Barriers to Doing Environmental Business with China 387 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse Non-Trade Barriers Protection of IP On average for this theme (which contained four items), 50% of all survey respondents were concerned that their IP would not be protected. Three of the individual items of this constraint, health, safety, environment and secu- rity concerns from pirated goods, absence of safeguards against IP loss when exporting to China and the illegal reproduction of goods imported into China, were each perceived to be significant barriers by 58%. Only 27% of all respondents considered that the fourth item, ineffective IP laws in China, was a significant barrier (Figure 1). Respondents strongly expressed their concerns with IP protection, which was expected. One stated ‘The major issue is lack of confidence in the IP protection system. We are technology providers. We have no confidence our technology rights will be protected’. While there are laws in place, enforcement of these represents a greater concern. Of critical concern are the health, safety and environmental problems posed by pirated goods. These results are not surprising. China is plagued by a history of lax enforcement of laws on IP rights (Guerin, 2001; Liu, 2005). The risk of technology or IP ‘leakage’ is greatest when the Chinese partner is in the same line of busi- ness as the Australian technology vendor (Guerin, 1998, 2001). Foreign vendors must be ready for this and take appropriate protective action. Enforcement of IP rights is largely the preserve of an administrative, rather than a judicial, system in China, and this reflects the high incidence of IP infringements. Of the 43 000 infringement claims in China during 2003–2004, over 40 000 were processed by the State Administration for Industry and Commerce. This leaves foreign companies at risk of ‘home town’ determinations, especially at local levels of government (McCubbin, 2004). McCubbin (2004) states that China is serious, however, about reform of IP protection, not necessarily because of its WTO commitments, but rather because China now produces more than 350 000 technologically trained engineers annually. According to the OECD, it is third in the world in gross expenditure on R&D at $US >100 billion. It also has 750 000 researchers, which is second only to the US. China is therefore rapidly learning the value of technology, and the need to protect it. Companies that previously moved their manufacturing opera- tions to China to take advantage of a low cost base are now also moving their R&D operations to China to take advantage of this skill base (Lo and Tang, 1994; McCubbin, 2004; O’Connell, 2007). The Chinese government is promulgating new laws to combat the IP protection problem (McCubbin, 2004), but this is a ‘deep-seated’ cultural issue that will not be changed easily, even with training of the local Chinese partners or the wider Chinese markets (von Krogh and Haefliger, 2007). The Chinese do not necessarily see protection of IP as a problem so change is only likely to occur when the Chinese become victims of such IP loss themselves, causing economic loss. This constraint, in conjunction to that of the rule of law (discussed in the following sub-section), is of critical importance in the licensing of technologies in China and therefore to technology transfer. In China there is limited evidence that IP rights of individuals or organizations are enforced and Australian organizations are clearly 0.0 25.0 50.0 75.0 Ineffective IP laws in China Potential rapid illegal reproduction of goods imported or concepts/ideas Absence of exporting organization's safeguards against IP loss Health safety or environmental consequences of pirated goods when exported from China % A Significant Barrier A Potential Barrier Not a Barrier Figure 1. Problems in the protection of IP
  • 9. 388 T. F. Guerin Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse concerned that Chinese end users of the technology, even under licence, may not co-operate with the terms of the licence. This is a fundamental issue about which survey respondents are concerned. Rule of Law This constraint was also identified as a significant or high priority barrier by 44% of respondents (Figure 2). Spe- cifically, it includes the items of absence of policing of laws, lack of transparency of the legal system and incon- sistent interpretation of laws. A consequence of the weak laws, including those designed to protect the environment, is unfair competition in the EGS markets. The major problem is protectionism in local Chinese markets, largely by the actions of various government departments. Municipal and provincial authorities protect local markets for local firms and may not enforce environmental protection measures (Economy and Lieberthal, 2007). Obsolete products, technologies and services are then protected with a consequent loss to the environmental protection industry and to the economy (Guerin, 1998b; Tackaberry, 1998; Anonymous, 1998; Guerin, 2001b; AIG, 2004; Liu, 2005). While there are laws prohibiting anti-monopolistic and anti-competitive behaviour, the existing laws require consolidation to remove inconsistencies (McCubbin, 2004). Anti-monopoly law is now approved in prin- ciple by the Chinese Cabinet. China lacks an anti-competitive authority charged with the responsibility, and equipped with the sanctions, however, to make the law effective operationally. In effect, the lack of competition policy means that the introduction of new, eco-efficient technologies is limited. Environmental laws are also likely to become more stringent, but the inconsistent policing of existing laws will act to limit foreign companies or organizations attempting to transfer EGSS to China. This constraint is likely to have a direct impact on environ- mental protection in China. Overall, the combination of local protection of obsolete and polluting production, the flouting of environmental laws and a lack of effective competition policy could be a significant barrier for foreign EGS suppliers. The Chinese Government’s Fragmentation and Bureaucracy This constraint was grouped with the ‘significant barriers’ group by 35% of respondents (Figure 3). One respondent indicated, however, the ubiquity of this problem more widely in stating ‘This matter is a barrier in Australia let alone China. Government owned enterprises world wide are hard to do business with for these and related reasons’. In China, the State Environmental Protection Agency (SEPA) has overall responsibility for environmental man- agement, though its influence is relatively weak (Economy and Lieberthal, 2007). Typically, there will be more than one agency involved in decision making for any particular environmental program. Interacting with the Chinese government can therefore be complex. Under the former command system, the State Planning Commis- sion in Beijing issued directives to its branches throughout the country, usually based on State Council rulings. 0 25 50 7 Inconsistent interpretation of laws & regulations Lack of transparency of legal systems in China Absence of policing of laws & regulations in a consistent manner across China % 5 A Significant Barrier A Potential Barrier Not a Barrier Figure 2. Limitations of the rule of law
  • 10. An Assessment and Ranking of Barriers to Doing Environmental Business with China 389 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse Regulation was ‘top down’. In most industries, the implementation of regulation is now devolved to provinces and municipalities (Economy and Lieberthal, 2007). In effect this means that local government authorities regulate environmental protection according to their own interpretation. A consequence of the current arrangements is that problems arise on major projects that require central government approval. It is common to find that, having negotiated the bureaucratic maze of local and provincial authorities successfully, the National Development and Reform Commission (which supersedes the State Planning Commission) in Beijing then declines to approve a project (McCubbin, 2004). Although these delays can limit technology transfer, central government approval may lead to more stringent environmental requirements for a project (even if it delays a particular proposal). EGS vendors must be flexible and open minded to the bureaucratic and often unpredictable changes in the Chinese government. It is important that the Australian or western vendors develop strong relationships with both the Chinese partners and the local Chinese government so that trust can be built between all parties. Furthermore, vendors need to recognize that there are only very loose connections between government departments, and this inevitably leads to lack of communication between government departments. Establishing Appropriate Level of Ownership This was grouped with the most significant group of barriers by 32% of respondents, and it has the potential to impact foreign investment restrictions (Figure 4). The importance of this constraint was reflected in the commen- tary provided by one respondent, who stated ‘You need reliable joint-venture partners that you can trust to look after your interests as well as their own, and these are very hard to find (in China)’. Establishing the right level of ownership in a joint venture is important, but of equal importance is that forming a joint venture with Chinese partners should not be assumed to be the way to go. Many multinational corporations remain in ‘unhappy marriages’, as the majority of joint ventures in China continue to lose money. Since the 1990s, there has been a steady decline in foreign direct investment in China through joint ventures (Guerin, 2001b). One of the reasons is that many foreign managers have come to perceive their local partner as a disabler rather than as an enabler, while the Chinese are disappointed about unfulfilled expectations in these ventures. 0 25 50 Inconsistent enforcement of import duties across China Different customs requirements at different ports in China Conflicting Chinese importing guidelines Lack of transparency in the application of taxes across China Unclear and conflicting standards across provinces in China Different bureaucratic rulings within and beyond provinces Inconsistent requirements at each level of Chinese government Difficulties in repatriating profits from China Difficulty in finding decision makers at the appropriate location and level in the Chinese government % 75 A Significant Barrier A Potential Barrier Not a Barrier Figure 3. The Chinese government’s fragmentation and bureaucracy
  • 11. 390 T. F. Guerin Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse A fundamental requirement for any EGS technology transfer to China is for vendors to establish a local pres- ence. A first step is to establish a partnership with a local organization well established in China. Further, an effective sales and distribution system for an EGS needs to be developed commensurate with the geographical region and the client base aiming to be served. This sales and distribution system must be closely aligned with the vendor’s networks in the Chinese market place for EGSs. Intercultural Sensitivity A lack of intercultural sensitivity on the part of EGS providers was considered to be a significant barrier by 23% (Figure 5). Intercultural sensitivity was therefore ranked relatively low as a significant constraint, and one explana- tion is that Australians are able to manage the intercultural issues so they do not become barriers. This was also demonstrated in the ‘Examples of Australian Experience’ section of this article. Sixty-seven percent of the respon- dents in the survey were Australians. The findings may also mean that there was a lack of appreciation of this constraint by respondents. Given that technology transfer is more than exporting a technology or service into China, but rather a sustained implementation, Watson (2005) describes the term ‘absorptive capacity’ of the technology recipients. Intercultural issues and how these are managed will directly impact on the absorptive capacity of the Chinese recipients and should be considered in any proposed EGS transfer. An implication for transferring technology to China is that training and inductions should focus on skill devel- opment of the Chinese end users, a major reason being that the high availability of labour means less emphasis by the Chinese in applying technology efficiently. Also, given the importance of gaunxi1 (Guerin, 2001b) to the Chinese, it is likely that changes in technologies that negatively impact the end users or decision makers or their immediate family or friends are less likely to be adopted. Modernization of State Owned Enterprises (SOEs) Only 14% of the survey respondents considered modernization of the SOEs to be a significant non-trade barrier (Figure 6). Notwithstanding China’s rapidly expanding private sector, the reality is that most of the transactions undertaken between Australia and China involve SOEs. To provide an indication of the significance of the SOEs, every year in China the reform of these organizations creates 14 million unemployed workers (McCubbin, 2004). 0 25 50 75 Foreign investment restrictions for companies doing business in China A lack of control over Chinese interest in the business Difficulty in finding reliable business partners in China Level of foreign capital investment is not necessarily proportional to the profits shared by partners (under Chinese legal framework) % A Significant Barrier A Potential Barrier Not a Barrier Figure 4. The problem of establishing appropriate level of ownership 1 This describes the basic force that holds the personalized networks of influence among the Chinese.
  • 12. An Assessment and Ranking of Barriers to Doing Environmental Business with China 391 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse 20 55 70 5 The capacity to display empathy Group setting and group context in training The capacity for taking turns (in conversation) Being non-judgmental Flexible in your dealings with the Chinese The "work unit" (as opposed to the individual worker) in China The capacity to personalize one's knowledge and perceptions Tolerance for ambiguity Developing an alliance with the Chinese customer (over a long period) Harnessing the interpersonal Networks in China ("Social networks" rather than "markets") Basic understanding of the language Speaking & questioning so as to ensure understanding The capacity to communicate respect Autocratic control of information Establishing trust % A Significant Barrier A Potential Barrier Not a Barrier Figure 5. The need for intercultural sensitivity 20 55 70 5 The increasing trend of small scale of local capacity in China Loss of local jobs of employees employed in China Process of modernization of Chinese state owned enterprises % High debt levels among state-owned enterprises A Significant Barrier A Potential Barrier Not a Barrier Figure 6. The implications of modernization of state owned enterprises (SOEs)
  • 13. 392 T. F. Guerin Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse Forty-two percent indicated that this was not a barrier; the highest response compared to the other five themes (or groups of barriers) surveyed. This survey result reflects a perception that modernization of SOEs is unlikely to be a barrier. Rather, it is conceivable that the modernization process will open many opportunities for foreign EGS vendors to meet the needs of these organizations as they are transformed. The reform process of the SOEs will probably reshape China’s economy and its environmental performance (Watson, 2005). More importantly, the behaviour of the SOEs will drive market behaviour so significantly that it will have a substantial impact on both the implementation and the compliance with the terms of any Australia–China FTA (McCubbin, 2004). This is also an opportunity for companies from Australia and other developed nations and is likely to lead to the purchase of new foreign (including Australian) EGSs. General Discussion The problems of enforcing regulations and laws, and protecting IP, were the most important barriers identified in the current study. There were no new barriers or groups of barriers identified by the survey respondents, over and above those already ranked as part of the current study. This was the case even though respondents were provided with an opportunity to describe additional barriers. The study has also shown that the barriers identified in the transfer of EGS to China appear to be the same as those encountered when transferring other non-EGS technologies to China. No unique barriers associated with EGS were identified from the study. The Role of Australia in EGS Transfer to China and the Potential Impact of an FTA This section attempts to focus on Australia’s role and experience in EGS transfer to China. Australian organiza- tions were perceived to have an advantage in providing EGS to China (56%). This is likely to be, as stated by the respondents, largely due to attributes of the intercultural sensitivity of Australians. This has implications for Aus- tralian organizations planning to enter China. Australian organizations can overcome these intercultural barriers through their awareness of them and proactively managing the relationship with their Chinese counterparts. The respondents perceive that an FTA between Australia and China will have at least some impact on corporate environmental managers and environmental consultants in Australia, both positive and negative (Table 4, Figure 7). An FTA would create a favourable context for EGS transfer, and ultimately enhance profits of Australian Corporate environmental managers (CEMs) Increase the responsibilities of Australian environmental managers to manage facilities in China, which will be quite difficult to do to a standard acceptable in Australia, primarily due to cultural differences Lower the standards that Australian companies work to, in order for Australia to stay competitive (with China) Easier to develop business in China and make more profit Provide short term hope Create a positive context for trade It will become necessary to export best practice to collaborative enterprises in China More Australian manufacturing businesses will diminish as they have done over recent years under the reduction of tariff barriers but at a far greater rate While the FTA provides a rules-based framework for engagement, cultural issues will still dominate Environmental consultants (ECs) It sets a scenario that there is a special relationship between Australia and China, which is the basis for developing the required personal and professional relationships Provide Australian consultancies more business opportunities1 Table 4. Perceived impacts of an FTA between Australia and China 1 This was stated by two consultants.
  • 14. An Assessment and Ranking of Barriers to Doing Environmental Business with China 393 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse companies. However, Australian corporate environmental managers are concerned about lower operating stan- dards in China (than Australia) and the likelihood of the further diminution of Australian-based manufacturing. The barriers presented in this article, in particular those related to the Chinese regulatory system, will act in effect as a non-tariff barrier to market access, which a traditional FTA between Australia and China is unlikely to resolve. Any FTA between these two countries will need to incorporate measures that address the less tangible non-trade barriers. It is likely that Australia (and other developed countries) have under-estimated China’s technological capacity. Australian manufacturers will need sustained reliance on their innovative skills if they are to remain competitive, with or without an FTA with China. Regardless, progress towards effective IP protection will still be perceived by Australian companies as an important consideration in determining whether an FTA can deliver real market access in China. Examples of Australian Experience A subset of the survey respondents (30%) was or had been directly or indirectly involved in the transfer of an EGS to China. The majority of the activity (65%) was in provision of environmental consulting services provided to other companies, water supply or treatment technologies or advice, internal environmental consulting or corporate environmental advice and renewable energy technologies and advice. The value of EGS transfer activity ranged from $US10000 to greater than $US1 M for each of the Australian examples. Of the 19 Australian examples, 15 were valued at $US50K and over. Seventy-five percent of EGS trans- fers occurred during 1996–98, though 20% were either in progress or completed in 2005. The examples of the Australian experience were most prevalent during the period 8–10 years ago; however, the total value of the EGS transferred across all the Australian examples represents a total value of more than $US10M, indicating they are likely to be representative of the range of EGS transfers to China. Of the successful examples of EGS transfer, 80% were from Australia, representing more than $US2.5M, indicating the Australia to China transfer activity was well represented. The responses describing the Australian experience suggest that Australia has an important role in assisting China to meet its demand for EGSs. The range of EGSs transferred in the Australian examples is consistent with the needs of China as it expands and its ecomony continues to grow, particularly general environmental consulting services, which include soil and groundwater assessment. The demand for ‘end-of-pipe’ treatment technologies for wastewaters from manufactur- ing processes, as well as contaminated site management, and for reducing greenhouse gas emissions, is expected to continue to increase as environmental legislation in China becomes more effective. As the Australian examples 0 10 20 30 40 50 Significant Some Minor Unknown None %Responses CEMs Consultants Figure 7. Perceived Impact of an FTA on Corporate Environmental Managers (CEMs) and Environmental Consultants from Australia
  • 15. 394 T. F. Guerin Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse showed, it is apparent that renewable energy technologies and advice are also likely to become increasingly impor- tant in the mix of EGS being exported to China from Australia. This is important as Australia has these technolo- gies and experience with these, including solar, wind, geothermal and biofuels. Other successful EGS transfers to China were in environmental education and training, advice to companies in the area of corporate social respon- sibility, energy management, sustainable agriculture, air pollution control and the development of an environment investment program. The most common barriers observed from the Australian examples were the absence of skilled personnel where the EGS was being used, local protectionism and legal, financial and intercultural barriers (Table 5). Respondents overcame the barriers when common aims for the project were established with the Chinese, communication between the Australian and Chinese team members was effective, trust and goodwill was present and the Austra- lians demonstrated intercultural sensitivity (Table 6). These findings suggest that intercultural sensitivity is impor- tant in ensuring technology transfer occurs effectively. Conclusions This survey confirms concerns that Australian companies (and companies from other developed countries) have in relation to China’s lack of safeguards to protect IP, the lack of policing of laws across China, the fragmentation and bureaucracy of the Chinese government and the importance of establishing the appropriate level of ownership of new businesses (for transferring EGS to China). It also shows quantitatively that these four constraints were Getting the Chinese to understand what the technology could and could not do Lack of educated persons on the ground who could service the equipment2 Availability of skilled Australian personnel in China Seeking capital for the technology transfer Graft and corruption The Chinese essentially wanted monetary input Differences in expectation of work processes between the Chinese and foreigners Competition from local providers [in China] of notionally similar technology that was markedly inferior but much cheaper Internal and local politics in China Understanding the legal processes in China Language problems Lack of cultural understanding by both parties Table 5. Barriers faced in transferring EGSs in the Australian examples1 1 Respondents were not asked to distinguish between trade and non-trade or non-tariff barriers. These are not ranked as they are individual responses. 2 This was stated by two consultants. Establishing common aims for the project By good communication in English and a visit to the customer in China Good communication, testing assumptions and establishing trust with the Chinese Spending time and putting the effort in at the grass roots level Good will by all parties Demonstrations of the equipment to the Chinese Lack of cultural ‘arrogance’ from the Australian team and awareness (within the Australian team) of the need to be sensitive to different nuances (in the Chinese culture) Table 6. How barriers to transfer of EGSs were overcome in the Australian examples
  • 16. An Assessment and Ranking of Barriers to Doing Environmental Business with China 395 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse perceived as significant barriers compared with intercultural issues and modernization of SOEs. These perceptions are the first from corporate environmental managers and environmental consultants, providing a new contribution to the literature in this field. In terms of how these barriers may be managed, IP loss may be overcome at least to some extent by only transferring those EGSs that are difficult to replicate such as those involving the provision of high quality consulting and advisory services, and the product of strategic alliances (i.e. synergy generated between collaborating vendors or partners in a supply chain). The results also confirm that training and awareness in IP rights will be critical for long-term changes in attitudes to IP rights in China, and Australian and other western organizations should have a vested interest in seeing that a proportion of China-derived profits is put back into this activity locally in China. For companies aspiring to do business in China, a reliable source of advice on the changing legal landscape in China will also be critical, as will knowing the key players in both the industry and within the relevant Chinese government authories (regulating a particular industry). Establishing the appropriate level of ownership is important, and ensuring that skilled operators are available at the point of use of the tech- nology. These abovementioned barriers present high priority areas for Australian and other western vendors to consider when planning their market entry into China, and for the Australian Government to consider when establishing the terms of the pending FTA. Intercultural issues and modernization of SOEs were rated as medium priority barriers. A reason for this ranking is that Australians sense the importance of intercultural sensitivity and manage these barriers as part of their technology transfer activity to China. However, it was evident that absence of effective training of both the Aus- tralian team involved in the technology transfer activity and of the local Chinese organization co-ordinating distri- bution, sales or implementation of the EGSs is likely to be a potential constraint in the ongoing success of EGS transfers. This issue of intercultural sensitivity was not examined in depth in the survey and therefore is not dealt with further here. Modernization of SOEs was not considered by respondents to be a significant barrier. Potentially, this transformation in China is perceived as opening a new area for marketing of Australian and other foreign EGSs. From the study, there were no unique aspects of the constraints to EGS technology transfer to China. As such, the barriers identified and discussed in this article appear to be generic to a range of types of good and service. Further research would be required to ascertain whether there are any unique attributes of the transfer of EGSs compared with that of technologies in general. Further, no new barriers to technology transfer were identified. Apart from weak laws leading to unfair competition, the impact of the constraints identified on actual environ- mental protection in China is unclear. If there were any effects of the identified constraints on environmental performance, then this assessment was beyond the scope of the study (including rate, extent and/or type of EGS adopted). Modernization of SOEs is another barrier that may have a direct impact on environmental protection in China, as the economic incentive to improve the business performance of SOEs will also probably improve envi- ronmental performance of the same organizations if low or non-polluting technologies and services can be imple- mented as the SOE facilities are upgraded. Similarly, intercultural issues and in particular the perception of environmental problems by the Chinese as of minor concern only (Harris, 2006) is also likely to limit transfer and adoption of EGSs in China. Further research is required to establish to what extent the identified constraints are impacting the protection of the environment. Statement of Limitations This article presents the views of the author only and does not necessarily reflect those of his employer, Telstra Corporation, or former employer, Shell Australia. References AIG. 2004. China and Australian Manufacturing – Opportunities and Challenges. http://www.aig.org.au [6 July 2005]. Anonymous. 2006. China orders cleanup of 20 chemical plants. Chemical Week 12/19 April: 47. Birkin F, Cashman A, Koh, SCL, Liu Z. 2007. New sustainable business models in China. Business Strategy and the Environment. DOI: 10.1002/bse.568
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