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Piracy in the China marketplace

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James Chan offers advice aboutprotecting intellectual property.

It is said that the Chinese will copy any item with disregard to patents and copyrights. Why doesn’t the U.S. government enforce its own laws?

Responding to pressures from the U.S. government and private industry, the Chinese government has tried to curb rampant piracy. The severity of piracy in China might subside somewhat in one industry, but intensify in another. More than 90 percent of all copyrighted products sold in China are counterfeit. Piracy of copyrighted music CDs, computer software and movies cost U.S. companies alone $2.6 billion in lost sales.

It is crucial to know that Chinese companies pirate one another’s products all the time. The behavior is not aimed only at the United States. A successful furniture maker in Shanghai came out with a very popular wood wardrobe, and the product was so successful that the “pirates” copied it, made cheaper, look-alike wardrobes and drove the inventor out of business.

Despite rampant piracy, don’t become frozen by the fear of piracy and not attempt to sell in the China market. There are many ways to make handsome profits if you’re able and willing to conquer the fear of entering a new market.

How can a product design be protected if it’s being made in China?

Put it in writing. Make sure to have a written agreement (or order) with a Chinese partner. Even though law enforcement is shaky in China, it is important to prove that your rights have been violated. Chinese fear losing face in public, but you must be willing to go public.

Register your trademark. You can apply for trademark, copyright and other forms of intellectual property rights protection in China. This procedure may not give complete protection, but it can deter potential offenders.

Don’t put all your eggs in one basket. A high-end furniture maker in China said that his designs are often copied by pirates, who sell cheaper versions overseas, but he prevails because the pirates can only imitate the look, not the craftsmanship. Still, to protect his designs, he spreads his know-how among craftsmen in different departments. A pirate would have to hire his entire top management and craftsmen team to truly duplicate his designs.

Guard your core secret. A major U.S. company has a joint venture with a Chinese partner to manufacture cable equipment used with television sets. Everything is made in China except a crucial technical element, which the joint venture company must import from the U.S. company.

Sell what cannot be duplicated. I’ve helped a specialty bearing manufacturer market very sophisticated, high-end bearings since 1984. The Chinese are able to duplicate the low-end bearings, but they can’t duplicate the high-end ones because they use a specialty metal that the Chinese simply can’t make.

Be mindful of what you’re asked. Perhaps the most effective way to protect your secrets is to be aware at all times that your customers in China will ask for your source codes, machine tolerances, machining procedures or software that you use. Don’t answer them

Turn the pirate into a partner. For decades, a Chinese pharmaceutical company was able to duplicate a European company’s pills and sold them in the China market at such a low price that the European company could not compete. The European company sought out the pirate and offered to form a joint venture with the Chinese company and to teach them how to perfect the manufacturing process. The joint venture included the condition that the European company will market the China-made tablet in Western markets in which they have effective legal controls.

Turn the pirate into a distributor. I used to sell books and journals to Asia and I knew a pirate in Taiwan who printed Western-language scientific, technical and medical books and sold them there. As copyright laws improved in Taiwan, and as more students and professors could afford to buy the real, imported books, we signed him up as a distributor. After decades of selling pirated copies, he had the perfect customer list!

Find and groom a sales representative you can trust. If you want things to work in China, you must have a sales representative who can be your eyes and ears on the ground, giving you information from the marketplace.

Send the best and brightest people. If you decide to do business in China, send your best people to tackle the China market. You need people who are smart and intelligent, but who are also able to read people’s character and personality and manage them effectively. The China market is not for amateurs.

James Chan, Ph.D., is founder and president of Asia Marketing and Management, Philadelphia, a consulting business that specializes in advising U.S. firms on conducting business in China and other Asian countries and on global entrepreneurship. He has consulted with more than 100 U.S. exporters, importers, manufacturers, and trade associations on building relationships with customers and suppliers in Asia,

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