China's own brands increasingly falling victim to counterfeiters
As Chinese firms build stronger brands, they are increasingly in the crosshairs of counterfeiters. What was once largely a problem for established foreign brands is now a vexing concern for Chinese businesses and consumers. Counterfeiters stymie the virtuous cycle of innovation China's businesses and policymakers are working hard to cultivate. A more robust IP protection regime is essential to safeguard the integrity of Chinese brands and the interests of consumers.
Chinese counterfeiters are driven by just one motive: a desire for quick profits. They aren't worried about how their activities undermine the brand value legitimate companies work hard to build. Chinese counterfeiters are targeting an ever-larger number of domestic firms precisely because demand for those companies' goods and services is rising.
For years, foreign brand owners have sought stronger IP protection rights in China. They have made inroads, especially in Chinese courts, where plaintiffs in trademark infringement cases are winning more frequently than ever. Yet counterfeiting activity shows no sign of abatement. Now that domestic brand owners face the same problems as their foreign counterparts, we can expect Chinese policymakers will devote greater attention to fighting counterfeiting. They understand that rampant IP theft will sabotage China's drive to become an innovation-driven economy.
IP theft affects Chinese firms big and small. Sorghum wine maker Maotai, China's top alcoholic beverage brand, estimates that it incurs about RMB 200 million in expenses every year because of counterfeiting. Speaking at China's National People's Conference in March, Maotai deputy general manager Zhang Deqin said: “China now occupies a central position on the world stage, and the nation should have confidence. If Chinese companies intend to gain a foothold in overseas markets, they must value their own brands. They should abandon counterfeiting and trademark infringement, a short-sighted approach that only offers them temporary benefits."
In Hebei Province's Qinghe County, renowned for cashmere production - annual cashmere sales total RMB 20 billion - counterfeiters are damaging local industry by producing phony cashmere garments and accessories made of rabbit hair and ordinary wool. An April commentary on people.com.cn urged local authorities to take action before it is too late. Building a brand takes years or even decades, but it doesn't take long at all for counterfeiters to destroy a brand, the commentary said.
Meanwhile, the prolific counterfeiting that occurs in China has repercussions outside of the country's borders, where Chinese consumer electronics makers are increasingly active. Smartphone makers Huawei, Oppo, Vivo and Xiaomi are ambitiously targeting Southeast Asia, India, Europe, the Middle East and Africa. “Counterfeiting is not a disease that only affects foreign brands, there are a lot of great Chinese brands that are also suffering from these issues,” Louis Houdart, director of the branding consultancy Creative Capital, told The Drum in April 2017.
Indeed, those ascendant Chinese smartphone brands now face the same counterfeiting issues that have long plagued Apple and Samsung. Further, with a reputation as the world's counterfeit factory, China will have trouble persuading consumers in advanced economies that it can produce premium products.
Of course, it's not only the supply side which creates the problem. Chinese consumers themselves remain avid buyers of fake goods and not always concerned about the rights of brand owners. A recent conversation between O2O Brand Protection and a Shanghainese sales manager in the media industry illustrates the problem. The person earns over RMB 40,000 a month (a high salary by Chinese standards), owns a comfortable 2-bedroom apartment in the city, drives a BMW and has a growing collection of authentic Rolex watches.
He recently sought to buy a new leather briefcase for work but didn't want to spend a large amount on the item. He decided on a high-quality fake Frye leather briefcase. "It's a really good fake," he says. "The material and craftsmanship are there, it's just not a legitimate product." He adds: "It's better than carrying an authentic Louis Vuitton briefcase like a small-time company boss."