Copycats threaten U.S. (and Chinese) firms
Posted: Thursday, May 24, 2007 7:33 AM
Filed Under:
Beijing, China
By Adrienne Mong, NBC News producer
Hong Kong -- You know you’ve hit it big when Chinese companies are trying to counterfeit your product.
At least that’s one way Lori Quon* might see it.
Late last year, she and her husband, Danilo - Americans who shuttle between Los Angeles and Hong Kong to run their small family business as well as parent two little girls - launched a new household product that has since taken off, landing in homes around the world.
This cleverly simple gizmo -- which organizes shoes -- has been featured in all the right media: TV shows, magazines, and newspapers. As a result, orders have flooded in from around the world and their product is on back-order.
Now they’re anticipating shipping every month at least a container’s worth of goods, which are made in China’s Zhejiang province.
It should be a great boon, but Lori is very attuned to that delicate turning point: when a great product becomes a victim of its own success -- by attracting copycats.
“We noticed a few Chinese guys [from business delegations] lingering around our booth at the Chicago trade fair [in March],” she said. “They were definitely poking their heads around the wall and looking very intently.”
China may look innovative, particularly from this Hong Kong vantage point, but observers say it's got a long way to go. (Photo by Adrienne Mong/NBC News)
China needs to innovate
Intellectual property rights (IPR) were supposed to play front and center at the two-day trade talks between the United States and China in Washington, D.C., that wrapped up this week.
No progress on that front, but there could be soon.
A veteran China-watcher says that in the long run it’s China that could suffer more from copyright theft -- and Beijing knows it.
Intellectual property rights is “a bigger problem for domestic (Chinese) firms,” says Andy Rothman, China Strategist at CLSA, a research and investment outfit in Shanghai.
The country’s economic growth isn’t sustainable just by being “the world’s largest workshop.” China needs to produce businesses that come up with the kind of “path-breaking innovation” that he says begins with technological breakthroughs.
“There isn’t a single innovative Chinese company,” he adds, citing the country’s low rate of patent applications. At last official count, in 2004, China still only filed 2 per cent of the world’s global patent applications.
Battling copycats
Entrepreneurs like Lori and Danilo are one reason America is still well ahead of China.
They’ve patented their product, but their combined experience working in the region has taught them to be cautious. Their patent covers the United States principally, but for other countries they need to file specific patents for individual countries.
But it becomes expensive to file patents. And until those patents are issued, “somebody could come along and copy it,” Lori says. “We have no recourse until that patent is filed.”
Their company could resort to lawsuits, of course, but that’s also costly for a small business.
“The whole thing is speed to market, and for people to associate your brand to be the original one, and hopefully it’s better quality,” Lori says. “That’s why you have to innovate, too. So when you have the copycats, people can see that you have all the different product variations and be associated as the market leader.”
Indeed the couple are rolling out variations of their invention at hyper-speed and hoping to establish a foothold with outlets in the United States, Europe, Israel, and elsewhere.
With the American press discussing the high stakes for big American companies like Microsoft and Disney, it’s worth wondering whether negotiations like this week’s result in any substantive legal protection for small businesses like that of Lori and Danilo.
“When you’re running your own business, you just have to focus on your own business,” says Lori. “You’re worrying about making your product, getting it to your customer, and making sure it’s good quality.”
*P.S.: Lori Quon is a friend of mine, but her story seemed perfect for illustrating the issues facing manufacturers in both China and the West.
Editor's note: NBC's Marisa Buchanan is with Adrienne on this trip to Beijing and wrote about the trade imbalace between China and the U.S. in The Daily Nightly.
