Qualcomm, IBM Try Conciliation In China Clashes

IBM in new partnership with Inspur

After months of hostile exchanges, accusations and negative publicity, the tone in a series of disputes between Chinese and foreign companies and governments abruptly shifted late last week with new signs of conciliation from both the foreign companies and Chinese government. One case involved leading global smartphone chip maker Qualcomm (Nasdaq: QCOM) , which is being probed by Beijing for anti-competitive behavior. The other involved computing giant IBM (NYSE: IBM), whose hardware could soon be shunned by many state-owned banks after Beijing warned of national security concerns earlier this year.

This shift to a more conciliatory tenor in both cases is long overdue, and represents a much more constructive way to resolve disputes than the accusations and threats that were becoming the norm. All sides in this kind of situation, including western governments leveling their own accusations against Chinese firms, should adopt this kind of approach to resolve their disputes.

Such a tack would benefit the many companies whose sales were at risk, allowing for mutually agreeable solutions to settle the matters. It could also smooth broader bilateral relations between China and the west by addressing concerns from governments worried about threats from unfair trade and national security issues.

China and the west have been embroiled in a growing series of trade disputes over the last 2 years in a wide range of areas. One group of disputes is trade-related, involving western accusations that China unfairly subsidizes its exporters through policies such as low-interest loans and cheap land use. Another, newer group of disputes involves national security, and has seen Beijing and Washington trade accusations of cyber snooping and ban or curtail the import of high-tech equipment from each other’s companies.

Yet a third area of friction has cropped up in the last year, which has seen Beijing probe a wide range of major multinationals for allegedly using their strong market position to engage in anti-competitive behavior.

Against that wider backdrop of friction and accusations, IBM stepped in with a different approach last week by announcing a new partnership with a Chinese firm aimed at easing some of Beijing’s security concerns about its hardware. Beijing had previously signaled that China’s big state-run banks should consider abandoning IBM servers in their IT networks due to unspecified security threats. Some saw the move as retaliatory for an earlier US decision to ban the import of Chinese telecoms networking equipment for similar reasons.

Under the new IBM plan, the company is partnering with Chinese firm Inspur Group, which had been trying to lure away IBM’s China customers with an IBM-to-Inspur marketing campaign. (English article) The deal will see the pair combine Inspur servers with IBM’s software products, in a move that may ease Beijing’s security concerns through the insertion of a local partner into the process.

Meantime, media also reported that Qualcomm had approached the regulator conducting an anti-trust probe against it and offered to improve and correct its pricing practices in exchange for ending the investigation. (English article) Most significantly, word of the conciliatory move came in an official statement from the media-shy regulator itself, the National Development and Reform Commission, hinting that the 2 sides might be able to work out a compromise to end the hostilities.

Such conciliation is far more constructive than unilateral action because it addresses everyone’s concerns with minimal impact on companies’ business. But agreements reached through such compromises also carry their own risk, as evidenced by the rapid unraveling of an agreement last year in a high-profile trade dispute involving China’s solar panel industry.

In that instance, the European Union accused Chinese solar panel makers of receiving unfair state subsidies and threatened to levy punitive tariffs. A trade war was averted only after several EU leaders intervened and pressured the 2 sides to open talks that resulted in a landmark compromise agreement. But now that agreement is quickly falling apart, as EU solar panel makers accuse their Chinese counterparts of failing to implement the voluntary price hikes that were promised.

Compromise is never easy, and requires sacrifices from both sides that address everyone’s core concerns. These most recent actions by the central government in Beijing, along with steps by global giants like Qualcomm and IBM, show that nations and companies can work together to find solutions to their disputes that are agreeable to everyone. Such an approach involving compromise is far more productive than the current air of hostile, unilateral actions, as long as both sides are sincere and follow through with their promises.

Bottom line: Companies and governments should follow IBM and Qualcomm’s lead in finding conciliatory solutions to end their disputes over trade and security.

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