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May 3, 2012

Advice on Foiling Chinese Counterfeiters

Western companies wanting to tap China’s manufacturing do so at their own risk.

Sharon Kahn
Topics: China, Management

Few experts dispute that if you make your widget in China, it’s likely to be copied without your permission. Despite pledges to protect intellectual property that the Chinese government signed when it joined the World Trade Organization a dozen years ago, “nothing has changed at the point where it matters — in the factories that make the goods,” said Tim Wu, professor of law from Columbia Law School in a panel discussion titled “Manufacturing and Misappropriation: Does China’s Manufacturing Prowess Depend on Intellectual Property Violations?” The panel was held in late March and was sponsored by the Richard Paul Richman Center for Business, Law, and Public Policy at Columbia Business School.

The problem isn’t going away any time soon, thanks to technology that has made reverse engineering easier. Willy Shih, professor of management practice, Harvard Business School, reported that so-called “coordinate measuring machines” that can exactly copy products “is the best thing that’s ever happened for counterfeiters,” he observed.

Still, few Western companies willingly pass up China, with its inexpensive labor and its massive consumer base. Moderator Jesse Greene, executive in residence and senior fellow at Columbia’s Richman Center, pointed out: “American companies see tremendous opportunity from what will eventually be the leading economy in the world.”

The panelists noted that multinational companies have grown more sophisticated in efforts to foil Chinese counterfeiters. Strategies include:

  • Modular manufacturing. Instead of contracting with one manufacturer to make all the components, spread different aspects of your product among different factories — competitors if possible.
  • Withholding key components. Even if making an important part is more expensive outside the country, some multinational companies say it’s worth it to foil copycats.
  • Practice secrecy. Beyond having in-country meetings in parks or restaurants rather than in the offices of joint venture partners, some executives go so far as to leave their PCs, tablets, and smartphones at home, bringing only pristine laptops without email trails that can be hacked.
  • Innovation. The panelists point out that most Chinese copiers have learned how to put the pieces of a product together but lack the scientific know-how to understand how a product works. Even in the West, many electronic manufacturers, in particular, have more or less given up on patents, which promise market exclusivity in return for product disclosure. By continually tweaking a product, they frustrate counterfeiters and competitors alike with innovation.
  • Branding. As ironic as it may seem, Chinese consumers don’t like knockoffs and often don’t recognize that they aren’t buying the real thing when they purchase a copied product. Western and Japanese auto manufacturers and makers of luxury goods have had success by stressing their quality and product performance, encouraging consumers to shop for the “real thing.”

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