There is evidence that Chinese enterprise and government policing are slowly helping to deter counterfeiting, whereby profit flows from imitation. This is forcing enterprise to truly innovate new offers that have global relevance. China has the ability to originate new products and services at an impressive rate. The country is now the third-largest investor in R&D, after Japan and the US, and this bodes well for new product development and truly unique brands. Once the laws and enforcement have greater impact, the more truly Chinese brands will enter the world market.
Though this is encouraging, it is not an overnight fix. China still is still a haven for knock-offs. The most brazen was the recent NEC case, where it went far beyond poor-quality product counterfeits. In fact, after a two-year investigation, involving law enforcement from China, Taiwan and Japan, it was discovered that sophisticated pirates were faking NEC itself. The criminals had established a parallel NEC brand with links to 50 electronics factories. Using the NEC name, they copied NEC products and, what’s more, they even created their own line of NEC-branded consumer electronic products!
The counterfeiters carried NEC business cards, commissioned product research and development in the company’s name, and signed production and supply orders. This scheme went so far as to issue warranty and service documents. “These entities are part of a sophisticated ring which has attempted to completely assume the NEC brand,” says Fujio Okada, NEC Senior Vice President.
Acquisitions, Investment and Rationalization At the outset, Chinese companies were acquiring other companies for production capacity. That is no longer the case. The interest now lies in gaining new product designers and processes to compete globally. Another key reason for acquisition is to access more expansive sales networks for Chinese brands. The buying binge is just starting and, with a war chest designated by the central government for such activity, the next three years will see many headlines of established global brands being purchased by Chinese enterprise.
China’s increased investment in the developing world, including Asia, Latin America, Africa and the Middle East, is a deliberate strategy. As covered in the first paper, the intent of this investment is to obtain raw materials and resources, achieve market entry, and gain established skills and experience.
A third tactic employed is the rationalization of offerings in foreign markets. Haier, a manufacturer of major appliances and electronics, has experienced low profits in the US and plans to eliminate products that are identical to those of competitors. They learned this in the fierce price-cutting environment of their home market. It will contribute to differentiating the position of their corporate and consumer brands, and is a signal that Chinese enterprise is not interested in solely being viewed as a low-cost alternative.