The decision to do business in China presents complex challenges for many companies in the European Union (EU) and the U.S. China now leads in 37 out of the 44 technologies listed on the Australian Strategic Policy Institute’s Critical Technology Tracker1. Sectors in which China has a nominal lead include photonic sensors, photovoltaics, and advanced optical communications, among others. In addition, China offers significant market opportunities, manufacturing capabilities, cost-effective production, and supply chain efficiencies. Many photonics companies rely on Chinese suppliers for components, which makes it difficult for these companies to entirely sever ties with the country. China’s role in the global economy should not be ignored. However, various factors might lead Western companies to hesitate before engaging with the country, such as concerns regarding intellectual property rights, data security, market access barriers, divergent technological standards, trade disputes, and geopolitical tensions. Courtesy of www.iStock.com/dongfangzhao Some level of cooperation with Chinese partners is necessary for technological advancement and market access. Striking a balance between safeguarding proprietary technologies and leveraging China’s tech prowess, however, creates a challenging landscape to navigate. In response, businesses from outside of the country often adopt strategies to balance their engagement with China while mitigating risks. These strategies might involve measures such as diversifying supply chains, conducting due diligence on partners, safeguarding intellectual property, and staying abreast of changing regulations and geopolitical dynamics. Nevertheless, the dichotomy between engagement and risk mitigation mirrors the intricate interplay between the need for technological progress and the cautious approach warranted by ethical and security concerns. Opportunity and risk Companies from the global community began outsourcing manufacturing to China decades ago, primarily due to its abundant labor force, lower labor costs, favorable regulatory environment, and its government policies supporting foreign investment — all of which offered foreign companies significant cost savings compared to manufacturing in the U.S. and Europe. China’s policies and infrastructure also benefited its domestic economy, and the country quickly gained leadership through rapid advancements in tech sectors, including artificial intelligence (AI), telecommunications, and semiconductor manufacturing. Whether China should be feared or sought after for its technology leadership remains a subject of debate. Although the country’s technological advancements raise concerns about competition and security, some Western companies argue for more cooperation and engagement to harness the benefits of global collaboration with a technology leader. The trend toward globalization in technology and business began its ascent in the latter half of the 20th century. This was helped by the rise of the internet and advancements in communication and transportation technologies, which significantly accelerated the interconnectedness of global economies. This period witnessed a surge in multinational corporations expanding their operations across borders, facilitating the exchange of goods, services, and ideas worldwide. However, in recent years, factors such as trade disputes between major economies, geopolitical tensions, and the effect of events, such as the global financial crisis and the COVID-19 pandemic, have led to more calls for deglobalization, or at least a slowdown in certain aspects of global interconnectedness. The notion of a complete decline in globalization remains debatable as certain sectors and regions continue to maintain their interconnected markets, despite this century’s evolving geopolitical and economic landscapes. China still represents a significant opportunity for photonics companies in the EU and beyond, due to the continued growth of its technological infrastructure and market demand. To establish a competitive advantage in the short and medium term, photonics companies can strategically focus on serving the specific segments that are most aligned with China’s needs and market trends. One potential segment is telecommunications and 5G technology. China is aggressively expanding its 5G network and infrastructure, which presents opportunities for photonics companies specializing in optical communication systems, fiber optics, and high-speed data transmission. Developing innovative components or solutions to enhance these 5G networks could offer Western players a competitive edge when engaging with China. Another promising area is health care technology, where photonics plays a crucial role in medical imaging, diagnostics, and therapeutics. There, companies developing advanced medical imaging devices or photonics-based diagnostic tools can cater to China’s growing health care industry and its increasing demand for high-quality medical services. Renewable energy is another sector with potential opportunities for international companies. Photonics technology is integral to solar energy systems and other renewable energy applications. Companies focusing on improving the efficiency and cost-effectiveness of solar panels or exploring innovative energy storage solutions can find opportunities in China’s pursuit of sustainable energy sources. Courtesy of www.iStock.com/123ArtistImages. Identifying niche segments, fostering innovation, adapting to local regulations and market preferences, and establishing strategic partnerships with local entities can significantly contribute to photonics companies’ abilities to gain a competitive advantage in the Chinese market for both the short and medium term. Market manipulation Certain countries, as well as members of the European Photonics Industry Consortium (EPIC), have raised concerns regarding China’s practices around technology acquisition and product pricing. Specifically, the allegations involve intellectual property theft, forced technology transfer, and other unfair business practices, often with alleged government support. There are also claims of price dumping, in which companies sell products in foreign markets at prices lower than their production cost. Such practices are said to be enabled by China’s economies of scale or even by subsidized support from the Chinese government. The aim of the practice is to gain market share or drive competitors out. It is important to note that discussions about China’s practices related to technology acquisition, trade practices, or pricing strategies can be controversial. Such allegations are often complex and subject to debate. Further, specific instances related directly to the field of photonics have not yet been explicitly highlighted by any public sources. Price dumping of high-tech components by any country can have both negative and positive effects depending on where you are in the value chain. Dumping reduced-cost, high-tech components or equipment onto the market drives overall prices down significantly. This benefits customers downstream in the value chain, such as manufacturers or integrators, as they can procure these components or equipment at lower costs. The reduction in costs also allows downstream manufacturers to produce their own products more competitively and at a lower overall production cost, which they can potentially pass on to end users in the form of lower prices for final products. Applied to the photonics market, these benefits to consumers can lead to an increase in the market size for photonics-based products. However, while price dumping might benefit downstream integrators and consumers, it can negatively affect competitors involved in the production of similar components. These competitors might struggle to compete against the artificially lowered prices of price-dumped components. This can lead to reduced market share, lower revenues, and potential job losses. Additionally, it can hinder further innovation and investment in research and development by companies that can no longer compete with the drastically reduced prices from price dumping. Collective benefits Though Chinese companies have reportedly engaged in technology acquisition and price dumping practices, it is both unfair and unwise to assume that these practices are routine or widespread. China’s industrial infrastructure, workforce, and business environment offer too many potential benefits for Western companies to ignore. Though there are always risks when engaging with partners in a foreign market, there are ways to help mitigate those risks — most notably by working through regional industry groups, such as EPIC. Some of the advantages of this approach follow. Access to networks and partnerships. Regional industry groups, such as EPIC, have often forged extensive networks and connections in several global regions and markets, including established relationships with local distributors, trusted partners, and industry stakeholders. This can significantly ease the search for foreign partners looking to expand their business into new territories. Market insights and guidance. Industry groups and their members can indirectly provide market insights on industry trends, regulatory information, and business practices that are specific to different regions. This guidance can help member companies navigate the complexities of entering into new markets more effectively. Exhibitions and networking. Regional advocacy groups offer support with identifying suitable exhibitions and facilitating networking opportunities, which are crucial for companies aiming to showcase their products, build relationships, and gain visibility in new markets. Participation in relevant exhibitions can help companies establish their presence and connect with potential customers and partners. Reduced barriers to entry. Working with a group can help ease entry into new markets by overcoming barriers such as language and cultural differences, unfamiliar regulatory compliance, and local business practices. Global reach. By leveraging the global network and resources offered by groups like EPIC, member companies can enhance their global reach and competitiveness. EPIC’s support in facilitating global partnerships and collaborations can open doors to new opportunities and foster business growth. Overall, the support offered by regional industry associations can play a pivotal role in assisting member companies in their expansion strategies by helping to mitigate risk and providing valuable resources, connections, and guidance toward navigating and achieving success in new markets. Despite being an association that represents European companies, EPIC recognizes the importance of global connectivity and collaboration in today’s interconnected business landscape. Though regional in focus, EPIC plays a role in fostering international connections and partnerships beyond Europe’s borders. It acts as a facilitator, bridging European photonics companies with global markets, networks, and opportunities. By acknowledging its European base while emphasizing a global outlook, EPIC provides a platform for domestic businesses to compete globally while bringing new business to the continent. References 1. Critical Technology Tracker. Who is leading the critical technology race?, https://techtracker.aspi.org.au/.