Intellectual Property Challenge in China

It wasn’t for the project which I am currently working on for a China plant tissue culture (TC) company, I would never have experienced the challenge from the weakness of Intellectual Property (IP) protection in the Chinese market.

It is the first time that I am working so closely on IP issues in China. The plant Tissue Culture company, Jin Bei (aka, JBSbio), based in Shanghai, China, has been focused in the Chinese domestic market for the past two decades. They have been very successful as a market leader in the region with a reputation of reliable high quality. Last year, with a new investment of $4.5 million into world class new equipment, the company was ready to expand into the overseas market. Through a friend’s connection, they asked me to help them break into the U.S. market.

I have been traveling for the company to meet the potential clients, not only to promote the propagation service that the company can provide with its’ Tissue Culture technology, but also to connect with the U.S companies who are interested in getting their products into the Chinese market. With the booming economy in China, needs for gardening and landscape are booming as well, in parallel with the rising market of housing and public construction.

So anyone would think that selling into China will be an easy task once we have good products. The answer is no, absolutely not, because of the weak protection of intellectual property in China. Piracy in China is not something new. It’s sad for me to say this as a Chinese, but China has a reputation of counterfeiting design or content of patented products. We are all familiar with those knock-off products such as luxury handbags, watches, electronics, and clothing. The knock-offs are sold at a much lower price, so consumers can choose to pay much less for fake premium products if quality is not a concern to them.  There are even some tragedies that people consumed counterfeit food and were poisoned! Many foreign companies come to China and have been fully challenged by the culture of deficient IP awareness. So, China, a country of invention only in ancient times, becomes a well-known country of “stealing” IP. Even though more regulations and laws are created after China entered the WTO, the IP control has not become easier for many investors.

I am facing a huge obstacle to introduce new horticultural products into the Chinese market.  Breeders normally spend thousands upon thousands of dollars in developing a new plant variety through years of experiments and growing. That is why we can see more and more beautiful, colorful plants around us. In the past 30 years, the IP regulation has been well developed in U.S. so most businesses are playing the game by the rules. However, the Chinese market is like the Wild West, which can be easily out of control for horticulture products. Think about it, any plant grower can take a branch of a plant and duplicate it through cutting technology. Learning from the painful experience of losing IP in the Chinese market, some companies choose to give up on China altogether, or only bring to market the second tier quality products, which in result make my objective of introducing new products to the Chinese market more challenging! When I see those beautiful new flowers and plants which can be easily duplicated, I can’t help to feel regret about the fact that Chinese consumers may not have much chance to enjoy those nice and beautiful flowers in the near future.

However, the existence of risk does not mean one should not take any risk at all. Actually it is a good thing the Intellectual Property issue is not a hidden risk so we all know it is out there and we just need to take more cautious approach when we go to the market. The following are my suggestions on how to deal with the IP issues in China:

First, choose a reliable partner with a good reputation. It may not be an easy thing sometimes because Chinese hardly says “No” to opportunities. So, if a company tells you “No” for some reason, it is actually a good sign that this company is doing business honestly. At the same time, spend time to research the background of the potential partner, to visit their facility, and to observe how the owner or manager works and treats their employees. A company that treats their employees well will also respect their business partners, which is potentially a long-term trustworthy business partner. Don’t feel frustrated if you have a bad experience in the Chinese market. There are plenty of honest businesses out there looking for a long term partnership.

Second, utilize key technology to prevent easy counterfeiting especially when R&D is a big part of the product development. Intel is a great example for this approach. No one can counterfeit their CPU due to their technology.  A company can develop complex products unique characters from which core technology cannot be duplicated.

The third approach is to use the trade mark and a branding strategy. Believe it or not, China has a culture of brand awareness and will pay a premium for a brand which is associated with high quality and a high social status. Not to mention those well-know consumer goods, JBSbio, the Chinese Tissue Culture company, uses the branding strategy for their own breeds and has been successful to protect their products in their homeland. The foreign company going into the Chinese market should definitely use a branding strategy at the beginning of entering the new market to establish their name and increase brand awareness.

The last strategy will be entering the market with a second tier product or with products which are going to be out of patent if an IP violation is inevitable.  Charge premium prices at the beginning of market introduction and then lower the price when the market is flooded with knock offs. Meanwhile, introduce the market quickly with new products to sustain its market leader status..

As a conclusion, it can take another decade for China market to have Intellectual Property regulation well enforced. However this obstacle should not become a barrier for any international business to wait for a safer environment and miss the growth opportunity. Understanding the market risk and taking the appropriate approach to go with the flow and capture the opportunity in a new market can be highly rewarding and profitable.

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