China counterfeit productsMy hometown newspaper, the Seattle Times, recently ran a story,  Inside China’s Teeming World of Fake Goods, focusing mostly on knock-offs sold at Shanghai’s Xiangyang market. This article is definitely a cut above the usual “China is rife with nothing but fakes” article. First off, the reporter (Kristi Heim) clearly has spent considerable time in China and this story actually reflects her own experiences there. Second, the article does more than just talk about counterfeiting in China; it also talks about how the situation is improving, and it even talks about how “China has its own business giants, such as Huawei (telecom), Lenovo (personal computers) and Li Ning (tennis shoes), that have a growing interest in protecting their own valuable brand names and technology.” It also mentions how both “well-to-do consumers and ambitious corporations may propel a shift in attitudes [regarding IP protection] in the broader Chinese society.”

It discusses counterfeiting of computer software, which is indeed a huge problem in China.  Huge. Estimates are that up to 90% of software in China is counterfeit. Counterfeiting of movies on DVDs and music on CDs is also rampant.

And yet, I still take some issue with the Seattle Times article, more for what it does not say, than for what it does say.  I went to the Xiangyang market my last time in Shanghai, armed with a list of brand name clothes and purses given to me by my terminally hip fifteen year old daughter. I went just because I wanted to see the market for myself and, based on the fakes I had seen elsewhere in China (and in Seoul’s Itaewon Market many years prior), I wanted to be able to truthfully tell her I was coming back empty-handed because the market had nothing good.

Just for the record, there is no way I am going to feed the counterfeit industry, in China or anywhere else.

With the exception of DVDs and software, the market did not have anything good. The North Face jackets my daughter had requested were junk. Not a one of them would ever pass muster at any Seattle high school, and there would be no way my daughter (or any of her friends) would be caught dead in one of these. The same is true of all the fake watches and fake purses in the market. None of them looked even close to being real, and that was to me who buys the same shirt in 10 different colors just to keep life simple. I find it difficult to believe Prada is losing sales of its $600 purses to the people paying $15 for obviously fake Prada purses at this market. I have to believe everyone at that market who knows Prada knew they were looking at fakes. Indeed, that is why they were there.

The Times article also does not account for the fact that the market for mid-to high end foreign brand goods in China is flat out booming. Nike, Nokia, Dell, Motorola, Coca-Cola, Gucci, etc. have all been reporting double digit sales growth in China.

Software, DVDs, and CDs are constantly counterfeited because it is easy to do so and because the Chinese consumer can be relatively confident of getting either the real thing or something close enough. There is an acute awareness in China that brand equals quality and once a foreign brand becomes well known, the popularity of its fakes declines precipitously.

This article implicitly makes it seem that the onus is on the Chinese government to monitor markets like Xiangyang. Though the Chinese government does have a role in stopping counterfeiting (particularly in goods like medicines and baby food), the foreign companies themselves also have an obligation to protect their own brands.

Nike has been very aggressive in registering its trademarks in China and in going after those who violate their trademarks. I have yet to see fake Nike products for sale in China. Though I certainly do not know this to be the case, there is even the possibility those companies whose faked clothes are on display in the Xiangyang market have made little effort to stop the fakes because they are not yet selling their own products in the Chinese market.

Foreign companies that properly register their trademarks in China and vigorously seek to protect them can and will eventually prevail in the courts there. Isn’t that essentially all one expects in the United States or the EU? The following posts all discuss foreign company trademark successes in  Chinese courts:

Global management consulting firm, ATKearney recently did a report on Chinese counterfeiting, entitled “The Counterfeiting Paradox,” in which they graphed Chinese counterfeiting with one axis labeled “global” and the other axis labeled “local” and a trend line indicating the sophistication of the counterfeiting. At the bottom (most local, least sophisticated) were the clothing items one finds at the Xiangyang market. At the top: “mutant brands in global markets,” with the Chery QQ copy of the Chevy Spark as the example. It is the top of this graph that is the most dangerous, the most pernicious and, I believe, the most economically damaging as well.

The big problem with counterfeiting is not so much the badly done North Face jackets at select markets in China’s larger cities. The big problem is the international counterfeiting of high end goods like drugs or car parts for sale throughout the world. This counterfeiting does go on in China, but much of it goes on in places like North Korea, Russia, and many other countries as well. China seems to be trying to get its counterfeiting under control, but it has been, and almost certainly will continue to be, slow going.

I am not in any way trying to minimize the importance of cracking down on the counterfeiting that goes on in the Xiangyang market, but, I believe Xiangyang type counterfeiting will decrease as China’s GDP rises. Those Chinese buying fakes at the Xiangyang market are doing so because they cannot afford the real thing. I am not convinced that time will have much impact on the counterfeiting of goods at the top of the ATKearney graph and I believe it will take an increased and better coordinated worldwide law enforcement effort to stop that.

What do you think?