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August, 2018

Knock-offs vex Chinese TV brands

Original article: Caijing

Chinese TV brands are struggling to contain a surge in knock-off products sold on the country's vast e-commerce network. With a complete supply chain available domestically, small-scale manufacturers can easily produce cheap TVs for low-income buyers. Xiaomi, Konka and Skyworth are among the Chinese brands lamenting about the proliferation of knock-off displays

Analysis:

We have long argued that Chinese companies would start to worry about counterfeiting when they had brands worth protecting. Well, Xiaomi, which recently raised $4.7 billion on the Nasdaq, has plenty to protect. Ironically, the Beijing-based smartphone maker rose to fame partially on the back of imitating Apple. Even today, Xiaomi channels the iconic U.S. tech giant: Xiaomi's latest flagship smartphone looks eerily like the iPhone X. 


Perhaps Xiaomi can now see that a lax IPR environment foments a vicious cycle. Research by Caijing on an unnamed Chinese e-commerce site found a bevy of knock-off TV brands selling at rock-bottom prices. Instead of Samsung, there were "Sumsung" and "Svmsung" (perhaps a Latin transliteration?) TVs priced as low as RMB 1500 for products that normally retail for RMB 7,000. There were laughable Xiaomi knock-offs too, like "Xiaome." Caijing found knock-offs of all different products in Xiaomi's smart-home line.


According to Caijing, knock-off brands are taking advantage of a loophole in China's Trademark Law. It takes about seven months for China's National Trademark Office to process an application. Even if a manufacturer knows its trademark application - such as "Xiaome" - is likely to be rejected, the company can still sell the products legally while it is awaiting a decision. If Xiaomi sued Xiaome for trademark infringement, the latter could argue that it had a legitimate trademark application in process. 


Peng Juhan, a senior display analyst of Qunzhi Consulting, told Caijing that demand for cheap TVs is robust globally. White-labels and knock-offs exist "because there are still many low-income people in the world," he said. "They don't care about buying a brand. They just want a TV with basic functionality." 


Small manufacturers in China, which has a complete supply chain for televisions, can produce the cheap displays easily, Peng said. "The assembly process is relatively simple." 


Caijing interviewed one manufacturer who said he produced televisions certified by China's national 3C certification in a Guangzhou factory with fewer than 10 workers. He opened a store on one of China's e-commerce platforms last September. 


Sources close to Shenzhen-based Konka, an electronics manufacturer, told Caijing that the knock-offs hurt legitimate brands. "Some people say that [low-income] Chinese consumers in 4th, 5th and 6th-tier cities don't value brands and knowingly buy knock-offs, but that's not necessarily true." 


Those consumers cannot always distinguish between a genuine and knock-off product. They make the purchase because they trust the brand, the Konka insiders said. If a knock-off product is defective, "it will definitely affect the reputation of our brand." 

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