China Law Blog

China Observer just did a fascinating post, entitled, "Reverse Innovation: Made in China - For China," on foreign companies innovating for China. The post is written entirely from a business perspective and its gist is that because you cannot just take a high priced product made for a wealthy country and plop it into a country like China or India, you must glocalize it:

Glocalization is a combination of “globalization” and “localization” and is the traditional approach adopted by multinationals. Initially for US companies “going global” meant developing products in the US and localizing them for European and Japanese markets where local consumers have similar purchasing power. Govindarajan argues that the consumer markets of emerging economies like China and India are fundamentally different from those of developed countries. He questions “How can you take a product that was originally designed for a US consumer with a median income of $50,000 and profitably adapt it for a middle-class consumer in China whose earnings are significantly less?

But glocalization can have serious legal and other implications that should be considered.

A few years ago, I represented a medical product manufacturer that made a relatively high end, very profitable and ubiquitous product for doctors and hospitals. For confidentiality reasons, I am going to have to stay really vague here, while keeping the thrust of this story intact. This product sold for about $200 in the United States and in Europe, but my client saw a massive need for this product in places like Africa, India, and rural China. But it knew $200 would be way out of reach for these places. On top of that, this item needed to be sterilized after each use, making it not only cost prohibitive for the world's poorest regions, but also not a good choice medically.

So my client developed a disposable version of the same product and had it made in China at a price point that would allow it to sell them for less than $10 a pop. But that is hardly the end of the story.

Though the disposable version would no doubt save lives by bringing a medically important product to regions that previously lacked it, this sort of massive product differentiation in a high risk area like medical treatment can have massive legal and public relations implications for a Western company. Just some of the questions we had to consider:

1. What are the legal ramifications if a Westerner gets poor treatment and a subsequent injury using one of the $10 devices? What happens if this happens in a place like Ghana? What happens if someone starts reselling these $10 devices into Western countries like the United States and someone gets injured there? What are the legal ramifications if someone sues my client in someplace like Pakistan, claiming that they were provided with an inferior product simply to save money? What happens if physicians re-use the device against all instructions? What happens if hospitals seek to sterilize the device, against all instructions? What if the $10 devices are improperly disposed of and that leads to the spread of disease?

2. What are the public relation implications if my client gets sued (or even if they do not get sued) if people start complaining how company X cares far more for the people in the United States than it does in rural China? I know this sounds silly on one level, but trust me this sort of thing does happen and it is why so many top companies maintain worldwide standards in various areas like environmental and human relations.

Though I cannot reveal how my client ended up resolving these above issues (again, I do not want to say anything that might allow anyone to figure out the company I am discussing here), I throw them out there (and there were plenty more) just to give a flavor of how creating a "lessor" product model for a developing country can have ramifications that extend far beyond just production, pricing and sales.

What have you seen out there?

UPDATE: Kenneth Ross, a product liability prevention attorney in Minneapolis, sent me an article he wrote for the Defense Research Institute's (DRI) Product Liability Committee Summer 2009 Newsletter, entitled "Is There Anything Optional About Safety?" This article addresses the safety and product liability issues that can arise from one company having the "same but different" product around the world.