For many of those considering to set up a business in China or those already doing business in China, copycat syndrome is a major concern. But is it as bad as people think?
From a Western perspective, China is considered as a breeding ground for copycats, counterfeits and IP violations. It is a “culture” that is being increasingly condemned against the backdrop of the aggravated US-China trade war. From a Chinese perspective, however, this “culture” is in fact an opportunity that is seized upon by 900 thousand peasants, who cannot afford the luxurious branded phones or other services.
Satisfying different market segments
The Chinese market is socioeconomically diverse and in this diversity there lie different consumption trends and patterns. Despite the general rise in the quality of living in China and the growing middle-class population, the gap between the top and bottom is still a massive one.
For instance, consumers in major cities will not compromise on quality and will always seek out the better-quality product. But the average consumer in a tier 4 city is less likely to be able to afford the original and ultimately better product and would more likely settle for an imitated or ‘fake’ replica.
In other words, the two products, the original and the copied version can coexist, as they are designed for different audiences.
How can you protect yourself?
Operating in China with complete protection from any IP violations is wishful thinking. Avoiding the copycat risk is simply impossible –it’s not a question of “if”, but rather of “when”. There are cases of companies and brands discover upon their China market entry, that there are already Chinese replicas for their products out there.
But, some protective measures can be taken:
Register your patent in China
Even before arriving in China, it’s wise to register a patent locally (the international patent doesn’t guarantee full protection in China). Patent registration will not prevent copycats but will certainly help prevent the mass trading or commercialization of the replicas. Also, it is necessary to have a patent registered locally should a company wish to pursue a lawsuit of any kind.
Register your brand name correctly
When thinking about launching China operations, and especially when networking with Chinese businessmen in international exhibitions, the company has to put some thought into registering its brand name and logo in Chinese and English. This stage is required not just by Chinese law, but also for IP protective reasons. There’s a big chance that by the time a company gets to China, its brand name will already have been listed by someone else, who will try and sell it back to them for a small fortune.
It is therefore advised to seek the help of a reliable and reputable lawyer to ensure proper brand registration, and not to be tempted by the cheap prices of the less vetted and reputable agents.
Secure your product with an NNN agreement and a contract
When working with a Chinese manufacturer, having a localized Chinese contract is a must. Also, having a signed NNN agreement (non-disclosure, non-use, non-circumvention) is advisable, since the Western NDA agreement is not valid in China. This agreement has to be written in Chinese, and in a manner that is enforceable in China. And don’t forget to stamp all documents with an official Chop.
Minimize the copycats’ window of opportunity
Getting the China market entry phase correctly is crucial, as this is the time when a company is at its most vulnerable to being replicated. During this market-entry phase companies need to set up operations as quickly as possible, constructing a strong marketing and distributional infrastructure as well as building a loyal customer base. All of this works to seize market share and ensure that the company is well on its way to consolidating itself in the Chinese market.
I was copied – now what?
Though frustrating, acting impulsively might not be the best reaction. Some of our past clients have unfortunately found out the hard way, that lawsuits are usually to no avail.
Here are three insights to bear in mind in such situation:
- Copying is not necessarily a bad thing. In fact, if you are not copied, then you are not needed in China. Whoever copies you actually helps your market penetration directly and indirectly. It creates market awareness for your brand. Oftentimes locating where and how the copied product is being sold can serve as a pointer to a new and potential market or audience.
- China is such a big and diverse economy, that even if someone copied you there is still more than enough room for your products. Cheap products can be found easily, but when potential customers are interested in better and genuine quality, they will always seek out the original.
- Concentrate your efforts and resources on sales, marketing and maintaining brand awareness, rather than on chasing copycats in the courts. Hire skilled salesmen who will be able to reach larger crowds and open up new markets.
Today an independent operation in China is easier and more accessible and it is precisely why it’s more crucial than ever to maintain stability, cultivate your brand and use a trustworthy local partner who can protect your interests in China.
PTL Group Team