Seven Strategies to Beat the Pirates in the China Market
Seven Strategies to Beat the Pirates in the China market
By
James Chan, Ph.D.
Asia Marketing and Management (AMM)
Copyright © 2010 James Chan
There is real money to be made exporting to China. China has $2.5 trillion worth of foreign currency reserves, about one-third of the world’s total. China wants and needs a wide range of American-made products and services that range from high-tech to high-touch.
There can be no denying, however, that there are serious obstacles to prospering as an exporter to China. And no obstacle is more widespread or worrisome than the matter of intellectual property rights violations—otherwise known as pirating.
Still, some firms have developed creative ways to beat the pirates. There is no reason to surrender to fear and unfamiliarity and not sell in the China market. Those who do will lose major business opportunities and let competitors in Europe, Japan, and even Chinese companies dominate that marketplace. In other words, to tap the riches of the China market, you have to know how to fight the pirates.
From nearly 30 years experience, I have found that there are seven key strategies to follow in dealing with the piracy challenge:
- Always assume that your product or technology will be pirated. The more successful your product, the faster it gets pirated.
- Don’t let fear of piracy keep you from introducing your product in the China market. If the product is attractive to China, some people there will try to pirate it anyway.
- Travel to China and study the weaknesses of the pirates and the real needs of your customers. Based on such field knowledge, design and improve your product and technology to stay ahead of the pirate’s capabilities.
- Don’t compete with the pirates on price. If the pirate’s price is 20% of yours but his product is only 80% of your quality level, focus your marketing effort on the quality-conscious segment of the Chinese market.
- Discerning China customers yearn for authentic foreign-made products once they see how much better they are than pirated products. Educate your customers and make them see the difference.
- Find creative ways to keep the secrets of your technology to yourself.
- Pick the most talented people whom you can trust to work the China market and duel with the pirates. Don’t send to China your weakest link.
The following two stories illustrate the application of these strategies.
The China Curve
I worked with a scientific database company that invented a unique method to index global scientific literature. We traveled to China, gave seminars, and visited research and development institutes and top-ranking universities. Within 16 months, we started to get orders. Sales grew dramatically year after year for next four years. Then, unbeknownst to us, sales began to plummet precipitously. The sales chart looked like an asymmetrical line that went up gradually, then plunged. The appearance of the “China Curve” is often the first sign that your products are being pirated.
To beat the pirate, we interviewed with our customers and discovered the weaknesses of our pirate-competitors. The paper they used in counterfeit books turns yellow and decays within months. Thus, the pirated “collections” have no archival value. Also, the copying of the scientific literature was done by illiterate workers. They missed pages, photographs, and charts. Furthermore, as a prestigious Chinese institution, the leaders of the library could not bring themselves to let Western scholars and scientists see what they were using. Based on such findings, we instituted a number of measures. We started demanding that each and every subscriber to our database product submit the name of a contact person, the name of the subscribing institution, and provide the institution’s complete mailing address. Having this information cuts through the anonymity shield that import agents provide for their pirating clients. Our leverage to force the release of this information is that we will not provide updates or after-sales service if the importer does not provide it.
Safeguarding Software in China
I worked on a case recently with a software company, a member of Vistage International, Inc… The company received an unsolicited order from a customer in Taiwan. A couple of years later, the general manager of the software firm had an opportunity to lecture at a top-ranking university in China. There, he discovered that his company’s program—which he did not recall selling to China—was duplicated and sold to a nationwide network of Chinese polytechnic institutes.
His representatives in China and Hong Kong were unable to get the university to stop using the software. They paid top dollar to buy it from a Taiwan firm, who pirated and sold the counterfeit program without the U.S. company’s permission. We appealed to both the highest authorities in the U.S. Government and the Chinese government in vain.
Armed with knowledge gained from the bad experience, the general manager adopted a more prudent mindset. The company has become less trusting of its distributors and even its own employees in China and Taiwan. The manager took to heart the fact that someone who had shown an interest in being his distributor played a significant role in harming his company financially. “You should know you will get very little if any help from anyone at any level of authority in business or government in China or the U.S. government if your business is small,” he said.
The company now visits China and other Asian markets more often. It has put in place additional restrictions on software shipped to Greater China. It questions any and every discrepancy in communication or paperwork and holds orders or requests until it obtains clarification.
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James Chan, Ph.D., is president of Asia Marketing and Management, a Philadelphia-based consultancy that coaches U.S. firms and mentors their executives and managers in marketing and exporting premium-quality, American-made products and services to China and Asia. He set up his Philadelphia-based consultancy in 1983. To view his profile online, go to: http://www.AsiaMarketingManagement.com. E-mail: JamesChan@AsiaMarketingManagement.com.
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