A source of light

Interestingly, a couple of days after I stumbled upon the media report on Foursquare and came up with a paranoid conspiracy theory, I did find the first Chinese clone of Foursquare… No, I’m not promoting myself as sort of oracle or fortune teller. From the look of it, it’s been there for some time, not long, but definitely before April 8th. In fact it seems to be born on March 18th.

The clone, or technically half-clone or double-clone, depends on your perspective, is called 拉手 (la1 shou3, “holding hands”). It’s about 50% Groupon clone, 50% Foursquare clone. You can find the website here.

Sorry, you will have to register to do anything on the website. I’ve tried it a little bit though, and the hands-on report comes as this:

Interesting name. The name of the Foursquare-clone part is “拉手四方” (La1 “holding”, Shou3 “hands”, Si4 “four”, Fang1 “square”). Actually I was thinking 四方 was a good name if Foursquare makes a Chinese manifestation. Four is 四, square makes 方, and combined the two characters mean “everywhere in the world”. Now it seems the initiative is lost. If Lashou has registered the term, there will likely be an unpleasant fight over a simple name. Meanwhile, the “Check-in” function of Foursquare has been mapped into a bilingual term, with English aspect exactly “Check-in” and Chinese facet “踩点”. Coincidentally, this is also what I thought best translation for the function of THE Foursquare. Another initiative lost.

Limited but essential client support. Lashou’s Foursquare-ish client comes on S60, iPhone, and also on web if you don’t have the right phone. Both clients are downloadable on official site, with the iPhone version also available in Apple’s App Store. My HD2 is rendered rather useless in this case, thus all tests has been done on its web version.

The game rules are pretty much the same as Foursquare’s, with extra tweaks to support the other (Groupon-ish) half of Lashou:

• At least the web interface has absolutely nothing to do with GPS. You can check-in to anywhere sitting in your office. And those check-in all count.
• Each check-in grants 6 points. Check-in and leave a tip gives 8 points.
• Users who have bought stuff with this website’s Groupon Clone service have extra treat. Adjusted points granted = 6 + (6*0.3*how many times you bought stuff on Lashou). You bought three items there, your average check-in will be worth 6+(6*0.3*3)=11.4 points
• Active user who SPENT MORE MONEY on its Groupon aspects also has a 1% extra bonus to check-in points.
• Users who installed the client on iPhone, and bound the account to a Sina Weibo (the leading Twitter clone), and have over 1,000 followers on Weibo, also gets 1% bonus to check-in points.
• The website ranks users in accordance with check-in points every 24 hours (0:00 to 24:00). Top 3 point bandits get CNY 25 coupon at a rather popular hotpot franchise (呷卟呷卟, if you are interested). User points are cleared every midnight.
• Yes, there are also badges to unlock, you bet. It’s not clear how many badges are available and how exactly to unlock them yet.

Some interesting findings during the experiment:

• For the lack of GPS factor, you can check into wherever you like, or invent places out of thin air to check-in. I saw funny venue called “Abcd” with an address “asdf, Beijing”. And sure, there are duplicated venues.
• There doesn’t seem to be any check-in limit counter. You can check-in every single venue available everyday.
• The real-time check-in board pops up at least 1 new check-in message every 2 seconds. The board was still rolling rapidly after 3 hours into the observation.
• Threw a peek at leader scores during the process: top star had 974.9 points. Big white hot “WHUT?!”.  Dare you challenge this record on THE Foursquare, man?
• After one morning’s observation, there were at least 10 new users popped up in the check-in board.

Conclusion

Pro:

• One-two punch, nice. Rally Groupon-clone users into Foursquare-clone, and maybe vice a little versa.
• Great choice of client platform. iPhone is getting popular, and S60 is the emperor. Let’s forget WinMo (sort of minority), Android (absolutely minority), BlackBerry (you ever heard of this thingie, bro?).
• Solid stimulation. Hotpot coupon! Yay! And that’s from the service provider, it’s always available.
• Encourage cheating. Heats up user competition for the current stage. Users were dedicating a whole morning checking into hundreds of places.
• Chinese UI for everything. Of course.
• It’s getting media heat! Dubbed as “the Foursquare of China” and kind of regarded as the next golden boy.

Con:

• Encourage cheating. This is bound to be bad in the long run.
• Badges seem to be limited, and lack of interesting ones like “Jobs”. Actually, I failed to find a complete badge list anywhere. Not knowing what’s around the corner isn’t good.
• Limited phone support. In case, just in case, some day Android or WinPho7 devices gain popularity here…

That’s about the size of it. Good over bad, by quite far. I don’t think it’s time to worry about the genuine Foursquare though. Initiatives are lost, yes; the clone is doing good, yes; the war is far from over though. According to my previous timeline, they are still in phase 2. The first clone is only less than 2 months old, and it doesn’t seem to have gotten any venture capital. For quite some time Foursquare doesn’t have to worry about clone swarm. Given proper action and timing, everything could be changed.

But this Lashou should not be overlooked either. As previously mentioned, Chinese netizens are super faithful to the 1st thing they stick to. Like the Parking War and Friend for Sale game module on Facebook, they were cloned into Chinese websites, too. Unlike elsewhere, those two petty “games” went through “popular” stage into “frenzy” land. People were giving up sleep time trying to outdo their buddies over a virtual parking slot. This phenomenon (right after World of Warcraft) contributed to the “internet addiction” fuss haunting the whole society. That’s how far dedicated Chinese users can go. Things can be quite tricky if Lashou reaches that goal.

OK. So far, I’ve written a big chunk of subjective observation and assumption. Personally I’m rather interesting in what direction this not-really-competition would go. Lashou will be paid close attention. Interesting twists and turns will be covered.

Post by Kane Gao, Illuminant’s head of research

This post is about internet, business, and China. Not how to do internet business here, but rather discussing how to ready yourself if you happen to own an internet business, and may someday want to try your luck in the Orient.

It’s going to be lengthy, and mostly I will spin the whole thing around the case of Foursquare, the rapidly emerging location-based social network, or I’d rather call it a social game. In case you feel bored in the reading process (I’m quite positive you will), I guess it’s better to put my conclusion before the actual body, to save you some time, or maybe create a little suspension. I believe that:

China is not a piece of virgin land with infinite opportunity. Actually it’s sort of a closed parallel universe. Everything has a counterpart here, or will soon have a couple of them if there isn’t one already. Residents seldom get out, but whoever ventures inside the border must fight its shadow self before anything. Shadow self here means those who clones foreign services atom-to-atom, in order to duplicate their international success.

Now let’s cut into the boring part.

On the morning of April 16th (Beijing time), 163 Tech, one of the major tech portal sites in China, posted a story about Foursquare. Link here.

It’s not even worth translating. The whole article is about Foursquare releasing a new version of client pack and gave a thorough instruction on what Foursquare is. To my knowledge, this is so far the first time Chinese web media covers Foursquare. 1:54pm the same day, QQ tech, another major tech portal here picked up a similar story from Forbes. This time it’s not on the front page though. But given the copy/paste spreading nature of Chinese portals, with some luck, there will be a chain-reaction soon. And unlike the western world, portals are what’s big here. SNS and micro-blogging fall into the secondary team.

Media coverage is good, however, not always so. Current stories about Foursquare on our portals emphasize that Foursquare is “fresh start, fun, growing at stunning speed”, and most importantly, “been shown a lot of love by venture investors”. According to 163 Tech story, it has already got 1 million US dollars from VC. Typical Chinese chemistry of business works like this: you get a glass of pure business, put in 1 pinch of venture investor love, 1 teaspoon of rapid growth, 0.5 gram of fresh start, and finally add 0.1 gram media coverage. Boom! You get an assembly of nice carbon-clones. Foursquare has already got everything. Give a little more here and there, a swarm of clone legion will shut it out of China for good, in case it may want to join the “let’s conquer China singlehandedly” team somewhere in the future.

The thing is, overgrown population leads to heat competition (for everything), which in turn leads to the high demand on response speed, ready-for-use business model and cash support for mere survival. Thus Chinese start-up businessmen are always keen on internet sector (fast to deploy and profit), on venture capital (to make start-up business boom a.s.a.p.), and successful templates from the western (saves a ton of feasibility research, also works as material for lobbying more and more careful venture investors).

The now-massive Instant Messaging giant QQ started off as an ICQ clone. World-dominating Alibaba (Taobao) was an eBay clone (good job though, it got much better than eBay in the long run), Dangdang was an Amazon duplicate, and the earliest 3 portals (Sohu, Sina, 163) were all “inspired” by Yahoo. That’s only the early days of Chinese internet sector. Facebook was cloned as Kaixin001.com, which was later further cloned by a couple of other companies into Xiaonei.com, 51.com, etc. Now Facebook the GFWed is said to be plotting a China entry, guess who’s daddy when it lands here? Twitter was cloned as Sina Weibo even before it got GFWed. Not to mention the micro-blogging frenzy rallied by 163, Tencent, and Sohu. Craigslist inspired a swarm of classified information sites a couple of years ago which unfortunately all died out. With everyone getting into the clone-VC-marketing-dominate model, newbie starters are more than ever paying attention to foreign examples of success. Chatroulette was discovered by majority of Chinese netizens about a month ago, and its stories spread rather wide. Now there is at least one Chatroulette clone working full force to duplicate its success and attract VC here in China already.

Now Foursquare has been proven to have remarkable growth, and VC-charm. I’m quite positive Foursquare clones will begin to show up in about 3 months (it’s technically harder to clone than Chatroulette). My suggestion is, if Foursquare would ever possibly consider gaining a share of Chinese market in the short or long future, it should get into action now, to defend its not-really-presence here. Chinese internet users have some unique natures: A) as a group, they tend to pick up new stuff much slower than westerners B) once they do, it will be harder than moving mountains to make them switch to any other equivalent, except if God wills so. It would be a good idea to start the defense battle right now, gain some distance before the Attack of the Clones could ever hit the big screen. I’m not talking about all those trouble incorporating here. It could be achieved easily: make a Chinese UI for Foursquare client.

English-only is a hell of a deal breaker here. Why so little Chinese (consider the population) use Twitter even before it’s GFWed? Why, despite the fatal lack of utilities on that platform, are Chinese Android users refusing to install Advanced Task Manager? More on Android’s case, why users here tend to avoid the stock app market at all? It’s all about language barrier. Chinese are mandated to learn English from junior high, and we can’t get a bachelor diploma without passing CET level 4 English test. Getting master degree requires even higher marks. The majority of Chinese are *forced* to swallow it, and they resent this language once they no longer need it, which in most people’s case means right after graduation. And you know people lose language skill faster than a free falling hippo when they don’t use it, or even hate it, right? With years spent on game/software localization and movie subtitle making, I’m rather confident to say that a general Chinese will automatically reject any software with more than 5 English words, or 1 full English sentence on its UI.

If that is done, they could do some extra work to sweeten the situation up: the phone client. Right now Foursquare has a client for iPhone, BlackBerry, Android, webOS, and Windows Mobile (this buggy WinMoSquare thing doesn’t seem to be official release though). Of all the major smartphone platforms the only one missing is Symbian S60. I know Americans in general and geeks everywhere laughs at Nokia. Me, too, thinks S60 is a pathetic piece of cultural relic. However, not even 65,536 gigawatts of distain can warp the reality. Outside the United States, Nokia and its S60 legion rules, reigns, and kills, particularly in China. I’ve been doing a hobby project #PhoneWatch on twitter (@chassit). Put it simply, I identify every single smartphone or other smart-looking gadget bumps into my sight on my evening subway trip back home (Beijing, Sanlitun – Dawanglu, Line 10 then Line 1 through the busiest CBD area), and count them as groups. Not a long trip, but quite good timing IMO. Actually I’ve been doing this for kind of an occupational disease for a couple of years, only not keeping clear record. To my knowledge, Nokia S60 is always the winner. Now I’m 2 days into data-keeping, each day ending up with S60 topping the list, with a number as good as all other groups combined (groups are: S60, WinMo, Android, BlackBerry, Palm OS/webOS, iPhone, Moto Linux, shanzhai phones, Kindle, Sony PSP, Nintendo DS/DSi/DSL/DSi XL, tablets). As to why S60 beats iPhone by so far, I think I’ve got some reasonable theory, but that’s story for maybe another day. Anyway, not supporting S60 in China is quite far from a wise move.

What’s done is done. Under the current situation, which is not bad actually, if Foursquare will someday be interested in a China-entry, my suggest plan is (as in phases):

Phase 1 – right now: Grant the software a Chinese UI, also give a Chinese facelift to the website if possible. Stop here, wait for to-be cloner’s move. Do this as early as possible. Save energy, stay alert. Develop a S60 client pack if time allows.

Phase 2 – marked by the 1st sign of cloners: Post the install package (BlackBerry, iPhone, Android) on pirate app sharing hubs. BlackBerry users are the minority. iPhone users (those who actually use them as a smartphone) all rely on jailbreaking. Android users, as mentioned before, resent the stock market as a whole. Pirate app sites (mostly BBS) are the major resource of phone applications here. Foursquare doesn’t count on sales of app for revenue anyway, so no hard feelings.

Phase 3 – marked by any cloner getting the 1st batch of venture capital: Dig further into Chinese smartphone user communities. Influence them in QQ chat groups in addition to piracy share BBS. Offer prize to most active Chinese users. Incorporate in China if necessary, as required to start further cooperation with venue owners.

Phase 4 – marked by Tencent joining the war: Unlikely, but highly dangerous if it happens. All-out war is required. More viral marketing. Spread advertisements if things are not going well. Tencent is the most horrible enemy out there. Their QQ IM service has hundreds of millions of users, and they are surprisingly faithful. Spiraling from IM service, Tecent has attached online games, SNS, blogging, search engine, C2C sales platform, email, file sharing, news portal, and various “big things” at different times to the QQ client. Stimulate QQ IM users -> rally them to the new (closely bound) service -> instant boom -> kill competitor in mere months. This is the normal routine for it. Up to date, their clone products have claimed kings of hills, with only less than a handful of unbeaten opponents namely Google, Baidu, and Taobao. Foursquare could stand on an even ground with those three giants? I doubt so. QQ mobile client is a must-have for Chinese smartphone users, and Foursquare sound like a rather nice and easy-to-implement add-on to its current clients. They don’t even have to do any marketing, just send a system notification “have you updated your QQ to the latest version?” Without the human power and user base of Tencent, response speed is the only weapon if Foursquare ever gets in a toe-to-toe deathmatch with it.

Well, that’s it. If Foursquare marks China-entry as a mere possibility, they should start making small things happen right now. Here the key rule is: the 1st to capture the flag always have a better chance of succeeding. The same also applies to other rapidly emerging service providers. If you have a plan of getting a Chinese branch down your schedule, start planning *right now*. Do not treat China as just another country. It’s more like a parallel universe where things tend to be self-dependent and seldom go out. Always be prepared for your shadow self.

Post by Kane Gao, Illuminant’s head of research.

An introductory note from the author:  Firstly, ladies and gentlemen, it should be made clear that everything in this post is discussed within the scope of the Chinese marketplace, and that the opinions expressed herein are mine personally.

Think with foot. GWEAT

Brand is an interesting thing. Brand is many things, including the personification of a product or service.  Brand is like the name or nickname of a person for the product or service.

Branding gives others something to remember and address this very person by, especially when he has done something great and expect others to be grateful.  Thus the fundamental purpose of brand marketing is to make consumers remember it, consume it, and continue to consume it.  This should be very easy in theory.  Just expend your effort build something really fantastic, and go around shouting “hey guys, please be aware that this piece of work is proudly brought to you by [insert your brand here], and we will do even better in the future!”  But in the China marketplace, things always have some tendency to go wrong, especially in a market where everyone speaks a language very much different from most other languages available.

One such occasion is when one company has too many brands. In a recent market research project for an Illuminant client, I was surprised to learn that most consumers we interacted with did not know that Gatorade is a Pepsi brand. This isn’t necessarily bad, but in China, attaching a small brand to a globally respected name could have even better effect.

Or on other occasions when there are so many brands involved, it’s rather hard to maintain one single brand from the hellish brand warfare.  An example would be the computer industry in China.  In early 1990s, when Great Wall was the dominant PC brand, everyone was referring to computers as “386” and “486” (as in 80X86).  Manufacturers such as Great Wall and Compaq were so easily overshadowed by the processor maker. Things didn’t go better until, according to my observation, the coming of Lenovo (then named Legend: they changed their name years later when sued). Even “Intel” and “Pentium” went lost in the initial communication where the new processor brand was simply called “586” for habit’s sake. The problem was later solved by Intel’s carpet-bombing campaign of “Intel Inside” advertisements. And that’s good.

Things get even more confusing as time goes by and global collaboration becomes commonplace. Still taking our power-eating buddies for example, smart phones are the big thing right now. Currently there are brands for RAM, processors, OS providers, OSes themselves, phone manufacturers, cellular carriers. Putting them together, the a given handset’s brand profile could get really chaotic.

Take Android phones. The OS is called Android, and the maker goes by the name of Google. The ground-breaking phone manufacturer is HTC, and HTC’s phones are sold under a wide range of carrier brands such as T-Mobile (America), TIM (Italy), MTN (South Africa), and HTC itself. Product model names could also vary such as the first generation is called “T-Mobile G1” and “HTC Dream”, the second “T-Mobile MyTouch” and “HTC Magic”, while the latest two generations are simply “HTC Hero” and “HTC Tatoo”.  The chaos redoubles when it officially gets into China under HTC’s sub-brand Dopod. Consumers can now buy a Dopod A6188 (in other sense “HTC Dream”) and Dopod A6288 (in other words “HTC Hero”).  Arguably, the problems are: A) Too many brand names blind people. The brand-blind could be very serious when there are multiple mega-names among them. B) Language barrier. Chinese consumers are not so sensitive to English words or letters.

In many countries this shouldn’t be much of a problem since most people only care about their local version. But this is China, where local release, especially for phones, tends to be an expensive undertaking with newness equating to premium pricing, while consumers simultaneously have wide access to a black market. The brand war turns out to have an interesting effect. Here people always address all phones that works upon Android platform as “Google Phones”, and HTC’s great works are named in an unintended fashion as G1 (HTC Dream), G2 (HTC Magic), G3 (HTC Hero), G4 (HTC Tatoo). With HTC announcing or leaking new plans, I’m already expecting the wide usage of G5, G6, and probably G7. Gadget collectors are talking about the difference between “T-Mobile G1”, “TIM G1”, “MTN G1”, oh, and “HTC G1” only when they don’t know how this particular phone should be categorized. Poor HTC becomes the invisible man, and everyone is feverishly thanking Google for the hardware as well as software. This isn’t so great, by my standard, when HTC is selling phones under its own name and the Dopod alterna-brand.

The point here is, it’s necessary to have a brand identity, but it’s also important to make sure the brand is put into proper usage. You’ve got to pay attention to how people are talking about your stuff. Not only comments, but also how they recognize it. Advertising and other above-the-line marketing is one way to sort that out, however effective management of media exposure and other below-the-line techniques are of high importance. A failure media management program could result in something like this:

iPhone. This is the name that completely changed the smartphone business. Even before it’s much belated release in China, there were already around one million smuggled units running on the GSM networks of various carriers here. For traditional lack of creativity and marketing-oriented thinking, both China Mobile and China Unicom now are busy developing their home-grown (although technically on Android) smart phone OSes called “OPhone” and “UPhone” respectively in order to catch up with the trend begun by Apple. Intended unimaginative branding caused a brand avalanche. Since there are “iPhone”, “OPhone” and “UPhone” already, Chinese journalists begin to automatically re-brand every other player in the field on their own accord. In this fashion, Microsoft, who so proudly announced its “Windows Phone” campaign not so long ago, is now called “WPhones”. And Android is now commonly addressed as “GPhone”. Multiple tech portal websites (Chinese) have worked out thrilling big headlines going like “FIVE [X]Phones fight to be king of the hill in China!”

Although every bit true in OPhone’s and UPhone’s cases, this isn’t so good for Microsoft or Google (well, and HTC, Motorola, Sony Ericsson, Samsung, LG, etc passively represented by these two giants) because such unofficial branding renders them instantly, in the minds of millions of consumers as little more than iPhone copycats. You will see this concern stands when you see so frequently Chinese netizens commenting like “to hell with WPhones and GPhones. Our iPhone is the first and best!” A fundamental rule to market competition is, if you want to do better than iPhone, you first declare very clearly “we are definitely not an iPhone, and we don’t want to be”. Things will look much better if vendors are more serious about their media work, and spend 5 more minutes talking to the journalists which can simultaneously influence public opinion and help clarify these muddy waters.

Another solution to achieving brand integrity in China includes defining a real Chinese brand name that makes some vague sense rather than being plain transliteration. Then, and the most important, ensure that brand name is correctly used. Contributing all your good reputation to a partner is bad, but making yourself look like a no-brainer is worse.

So, behold, BlackBerry and Palm. You guys are talking with China Telecom for China entry right the moment. Do not make yourself into “BPhone” (or “BBPhone”) and “PPhone” by doing nothing! This is China, where many things could go wrong at the least unlikely point. Know what you are dealing with. Keep yourself known in a preferable way. And make sure the message is delivered correctly through the whole process.

Authored by Illuminant’s Head of Research, Kane Gao

SARFT.Headquarters, via Flickr

Last year China’s State Administration of Radio Film and Television (SARFT) caused a great deal of panic among the mainland’s video sharing websites by threatening to kick any operator without an online broadcasting license off the intertubes. Eventually, every video sharing website had a license granted, and the initial climate of panic tapered off and quietly died.

Yesterday, SARFT again unleashed its power, announcing a new set of regulations to further govern China’s online video sharing sector. Under the new rules, all films, TV series, cartoons and documentaries must obtain offline broadcasting licenses before being transmitted via internet media (and yes, mobile networks are included), even if the broadcaster has already licensed necessary copyrights from distributors. For the full story please refer to this helpful overview from Pacific Epoch, who we beleive scooped the story.

The new regulations instantly caused another panic amongst China’s netizens. Unlike YouTube, which relies on short video clips and user-generated content, its many Chinese clone-sites mainly live on (pirated) films and TV series. Obtaining an offline license for every single film would take more time than is left until the heat-death of the universe. Needless to say, offline licenses are based on the correct licensing of copyrights, which in many parts of the Chinese web do not outweigh the low cost/huge profit charms of piracy. If SARFT is really serious about this, then the whole business seems to be pretty much terminated.

But from my perception, we don’t have to be too serious about SARFT’s latest moves. Parallel with the new regulations, there is something called the “haven principle” in the whole Chinese internet sector (including video sharing). The principle works like this: an online broadcaster does not have any responsibility if any user-uploaded content causes trouble (such as violation of intellectual property rights). So long as the offending content is simply removed from the website, on notification, every problem is solved in a civilized and harmonious way.

This “uploaded-protested-notified-removed” principle has saved many Chinese video sharing websites from lawsuits they absolutely could not afford to defend.

From our perspective, it seems pretty obvious that in pursuit of almighty page-view, a large number of “helpful users” who upload tons of  stuff on daily basis are actually website editors in disguise, taking advantage of the haven principle to dodge ethical, legal and moral responsibilities. Personally I’ve formerly worked for a market-leading WAP site whose main business is was to “share” pirated (dumped, cracked, regged) mobile phone games totally free of charge, much like video sharing websites. An eye-catching disclaimer was placed on every download page saying “all content is uploaded by users, thus the provider has no responsibility for violation of intellectual property”. But guess what? They didn’t even have a user upload interface. All editors worked on a 8 hours/6 days schedule to collect, upload, and organize pirated games. The WAP site even established different servers and purchased different domain names for file storage to enhance the impression that all those games were located by its fictional “super advanced game search engine”. Gaming, indeed.

Sorry for spinning off topic.

Back to China’s haven principle. Under the user-upload umbrella, China’s video sharing websites do not have to pay anything for violating SARFT’s new regulations. On the other hand, SARFT has to manually monitor every single video on each website to check if there’s any illegal broadcasting activity. In a country of 243 million broadband users, this is a monstrous job. And considering the normal slow speed for takedown notices to be generated, there will be enough time for users to have their fun and for websites to gain almighty page-view between the video’s upload and a demanded removal (if it ever gets found and put on notice).  Of course, even if an offending video upload is terminated, another “helpful user” will upload the video again under a different URL.

Some observers believe that SARFT should be extra-careful in the implementation of its new regulations. Practically all YouTube clones in China are launched, nurtured and generate page-view via pirated content. An overdose of administration may easily snuff the whole business out, and we don’t beleive that China would want to deliver this unto the nascent sector (which employs thousands) given the current condition of the world economy.

Disbelieving?  If you’re feeling in an IPR-violating mood, you might enjoy the 213th episode of popular Japanese cartoon Bleach, uploaded on April 1st 2009, which does absolutely not have an offline broadcasting license. Thanks, Tudou.com, for sharing!

NB: Imagethief’s view, well worth reading, is here.

Kane Gao, Head of Research, Illuminant Partners

FAKE, originally uploaded by Illuminant Partners.

The protection of Intellectual Property Rights (IPR) was a major chapter during China’s negotiations with the World Trade Organization (WTO) prior to its accession in 2001. Since then many reforms and improvements have been made and the Chinese government heavily promotes its achievements in the fight against product piracy. But according to the latest OECD survey, still 4 out of 10 counterfeited goods on the global market are “made in China”.

Interestingly to know, that not only the big names, such as Apple, Gucci, Nike or Universal, fall victim to product piracy and counterfeit – also small and medium sized companies lose immense amounts of money, because their innovative products get imitated in some Chinese backyard and are than sold at dumping prices. Repeatedly companies were made aware of IPR violations just because an angry customer called up the headquarters and complained about the poor quality of the product or asked for after-sales services.

C’est la vie en Chine?! Is product piracy merely one of the side effects one has to simply accept, when doing business in China? Not at all! Although one has to be aware that even the best strategies might fail on the Chinese market, there are 3 simple ways to reduce the potential risks for your company significantly.

1. Know the market!

Knowing the current market environment for your industry is the key for a successful performance on the Chinese market. IPR violations may happen in any industry, but the better you understand how your industry functions on the Chinese market, who your (Chinese) competitors are and what previous cases of counterfeit in the industry took place, the better you can prepare and protect your company against it.

If your company does not have the resources to get all the necessary information, you may be well advised on hiring a skilled local marketing or PR firm that is specialized in market research and truly understands the Chinese market.

2. Know the law

Since its accession to the WTO in 2001, the Chinese legal system improved significantly, although the actual implementation is far from perfect. On paper the Chinese IPR regulations do meet international standards, but most companies, when getting involved in counterfeit issues, do face a frankly unmanageable number of barriers, such as the Chinese language, the complexity of Chinese bureaucracy and the overall costs of a time-consuming lawsuit. Nevertheless, the best advice in case of an IPR violation still is to take legal action, instead of capitulating and depreciating the loss.

Be aware that the costs for an average lawsuit on IPR violations may be between USD250,000 (international law firm) and USD10,000 (local law firm). Therefore it is important to do some research and compare the actual cost-performance ratio beforehand.

3. Know your allies

Most national governments do offer some sort of investment protection for companies that are expanding their business to China. These agencies generally offer legal advice in case of IPR violations as well as financial support during a lawsuit.

Get in touch with the Chinese representatives of your home country’s chamber of commerce or the business section of your embassy for further information, or speak to Illuminant Partners for an obligation-free consultation.

Article by Anja Knass, Illuminant’s corporate affairs manager.