Market Entry with Strong IP: Not Always Recommended

Western companies are often enthusiastic about their innovative technology and rely on their strong patents to be monetized globally. But what about the company’s own competitive advantage in the Chinese market and in third markets already served by strong-patent Chinese competitors? Does the company have freedom of exercise there, or does it infringe already existing Chinese IP rights?

How successfully IP can be commercialized internationally depends not only on the technology, but also on various economic factors. The first issue is market size and market growth. It makes little sense to enter a too small or stagnant market with a strong IP if the return on investment is too low. Another economic variable is the profitability of the market. Is an investment in IP worthwhile at all, or is the effort too high?

Chinese alternative products are critical to the monetization of IP. Are there already substitutes in the target market that can take the monetary wind out of the sails of the innovative technology? The best IP will not generate much revenue if there are too many alternative offerings in a large market and the expected market share is therefore kept within narrow limits.

A critical parameter is the breadth of potential use of the IP in new markets. Is there only one application and one or a few users for the patent, or can the technology be licensed in a versatile way in the target market? This raises the question of the maturity of the various target markets and the number of potential buyers. How developed are the target industries and companies in China, India or Brazil?

Finally, there is the intensity of competition in the target market. If it is aggressively contested, a comparative competitive advantage based on strong IP could be quickly lost if it cannot be defended over time. Many Chinese companies are now known on the international stage for their innovative strength and aggressiveness. The international commercialization of IP must always be viewed holistically – especially in competition with China. Whether a market entry is worthwhile on the basis of strong IP always depends on the attractiveness and readiness of the market.

Photo: iStock

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