Seems to me there's a lot of hullaballo about whether or not Chinese co's will pay royalties to Qualcomm.
This kind of flap goes on for just about every investment in China made by just about every "foriegn multinational", and the thread seems to be totally caught up in what in my mind amounts to political positioning statements.
IMHO what we are seeing is the negotiating position of two large concerns, each using the media to declare entrenched positions. China's position that it can use this "made in China IP" to bypass royalty payments is a threat with teeth in a weak jaw. Just like IJ's position that he can invoke the WTO if China doesn't pay up. Both are true to some extent or another, but the point is that neither party wants to go there, and neither party wants the other party to go there.
Irrational behavior by large and powerful organizations hints of deeper unstated agendas. Why are they being so silly? IMHO these are not statements of intent or direction, but are merely preludes to announcement of a negotiated settlement. Where each party will be able to declare itself a winner against fiercely contested public battles. We are merely watching the process of gigantic golden bridge construction, to improperly paraphrase Sun Tzu.
The whole point of such an exercise is to construct a bun-fight that both parties can win. This ensures that attention is drawn away from the central issue being negotiated, which is whether or not money leaves China, and if so, how much. The answer is no, or at least not much, and even then, only indirectly. That's a condition of doing business in China. But it has far reaching consequences for Qualcomm to just come out and say that. Not the least of which is a backlash by US investors who seem to think they are going to be enriched by a vast royalty stream being paid into their pockets by billions of Chinese.
IJ can let investors continue to assume it naively themselves if he can make an otherwise very public victory. That is, by focussing the issue on whether or not the chinese will pay royalties, and whether or not they will adopt CDMA, he shifts attention off point and onto a battle he can win. Namely that the Chinese will adopt CDMA, and yes they will pay royalties. He gets to be vague about the details such as how much and to whom and under what ancillary terms and conditions. If the battle is sufficiently hard-fought, these "details" will be lost in the euphoria of victory.
He wants to issue his press release: "The Chinese have settled on CDMA and in an historic accord, agreed to pay royalties to Qualcomm". Or something remarkably similar. And in this carefully constructed press release there will be no mention of bilateral or neutralizing balance of payments terms (e.g. employment guarantees, investment, local presence...) which will inevitably be part of a collateral agreement.
And provided that the Chinese government win their side of the battle (no money leaves China), they don't mind at all shouting and screaming and making all kinds of noise to help IJ create the battle that he will win. Meanwhile, the US government is involved because bigger things are at stake, but not necessarily on IJ's side 'cause bigger things are at stake. And so the whole thing is just a big gigantic time consuming mess.
The number of large multinationals that have been there and done that is staggering. I was merely making the observation that this seems to be deja-vu and following a predictable pattern.
Hence my opinion of what the solution to this flap will turn out to be: Chinese industry will pay royalties to Qualcomm China LLP (name is hypothetical); Qualcomm will structure Qualcomm China LLP such that every penny paid is "reinvested" back in China.
So technically royalties are being paid to Qualcomm, although shareholders of Qualcomm don't get a dime, and technically Chinese companies don't pay royalties to foriegn nationals.
Qualcomm declares victory in a battle it can't win and everyone is happy. As long as nobody discusses the central point, which is how much will Qualcomm Inc's shareholders benefit.
Although, IMHO, that's the one we should be discussing. And so far, the number of posts devoted to figuring out how many dollars might flow out of China are precious few. |
