in China Goes Global, Globalization

Some rules were made to be broken, but sometimes following the rules is crucial to achieve success. Companies going global need to not only look at applicable regulations in their domestic market but also the regulatory systems of markets into which they want to expand. This sounds pretty straightforward, but inconsistencies in implementation, ambiguities in interpretation, and different business norms can make international regulatory compliance a headache in itself.

The case of Sinovel, a Chinese wind turbine company, is a worst-case scenario story about how not complying with international regulations can have disastrous downstream effects on business.

Sinovel Globalization

View of the stand of Sinovel Wind during an exhibition in Beijing, China, in 2009. ZUMA PRESS. Copyright: Wall Street Journal.

In 2005, Sinovel began manufacturing wind turbines for American Superconductor (AMSC). The partnership was mutually beneficial. Sinovel, then a new company, was able to grow quickly into China’s second-largest wind turbine company because of the contract, while AMSC was able to produce its wind turbine designs efficiently. However, in 2011, Sinovel abruptly ended its contract after AMSC discovered the Chinese company had begun selling its own wind turbine designs using trade secrets and intellectual property taken from AMSC.

A US federal investigation into the case revealed that Sinovel had paid off a former AMSC employee to steal and then install AMSC source code into Sinovel’s own wind turbines, which they then sold in the Chinese market. After the theft became public, AMSC’s market value dropped by $1 billion.

Since then, Chinese companies trying to break into the US market have been continually dogged by accusations of espionage and unscrupulousness. Huawei, a China-based telecommunications company, has repeatedly been denied access to American customers because of security concerns. In 2010, the US government advised Sprint to drop a $5 billion deal with Huawei that would have allowed Huawei to build Sprint’s 4G networks in the US. In subsequent years, Huawei has been accused of trade espionage by the American and Australian governments, allegations the corporation has frequently denied. Unfortunately, this has set the bar higher for Chinese companies going global, who have to go the extra mile to demonstrate their regulatory compliance and transparency.

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Sinovel very clearly ended up on the wrong side of the law; there is nothing ambiguous about the legality of stealing and passing on trade secrets. However, not all cases of regulatory compliance are as clear cut as Sinovel’s. Unintentionally not complying with a country-specific law may be less the result of malicious intent and more  a consequence of ignorance.

That’s because regulatory differences may not be as apparent from country to country. Even small details, like product terminology, can fall under the scrutiny of regulators and auditors. Here, a localization company like CSOFT can help companies learn which unique sets of regulations they must comply with in different markets. CSOFT helps its clients navigate the more opaque process of making sure their product terminology is up to regulatory compliance standards wherever they are operating.  For example, the booming life sciences industry requires a paper trail documenting creation, review and alteration of any product terminology. This is a complicated process that becomes even more complex when product terminology has to be translated into multiple languages.

When going global, companies need to make a concerted effort to comply with country-specific regulations, from the very big all the way to the very small. Being the good guy just might be the thing that gives you an extra edge.

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