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Leveraging Piracy: A Business Strategy?

Glenn Otis Brown, January 9th, 2005

In a long article on piracy and the Chinese economy, the New York Times Magazine’s Ted C. Fishman describes Toyota’s judo-like approach to piracy: don’t fight overwhelming forces head-on; use their momentum to your advantage . . .

Another approach to the Chinese intellectual-property regime is to leverage its vitality. The Japanese may be showing the way here too. In September, Toyota surprised the world’s automobile makers by announcing that it would join with China’s government-owned First Auto Works Corporation to start building its Prius hybrid cars in Jilin, a northeast Chinese province. The innovative Prius is one of the world’s most sought-after cars — why would Toyota bring its hottest technology to China where it is almost certain to be carefully studied and boldly copied? The company says that it just wants to make more cars to meet demand. But an American management consultant who asked not to be identified told me that Toyota could have a deeper strategy that actually counts on Chinese manufacturers to usurp and adapt some of the car’s technology. The car’s central and perhaps most expensive component is its battery. China has already taken a sizable piece of the small-battery business away from leading Japanese manufacturers in recent years, thereby pushing battery prices down by 40 percent or more. The country is also a leading producer of electric motors. China is just the place, in other words, to drive down the price of the Prius’s battery and motor, and if that happens it will give Toyota an even bigger jump on the rest of the world’s car makers struggling to design and produce their own hybrids. Toyota’s move into China could even transform the automotive industry by luring car buyers into hybrids faster. In effect, Toyota may be hoping to ride China’s copycat tendencies past American competitors and into the top spot among world car makers — provided, of course, that Chinese manufacturers do not do to Toyota what they did to Japan’s motorcycle makers.

It’s a good article, generally, though it would have been much stronger had the author bothered to discuss the big differences between various forms of intellectual property, rather than just lumping in drug manufacturing with CD copyring and knock-off trademarks.

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