Reaction to Shaun Rein: Consumers Not Always Fake It 'Till They Can Make It

Shaun Rein of China Market Research Group wrote an interesting article 'How to Win the China Piracy Battle' for BusinessWeek, see here.

Mr. Rein asserts: If a company wants to have success in China, in the face of counterfeit and piracy challenges, it has to focus on economics, instead of enforcing IP law and morality.

If a company can do this, great.

Mr. Rein proposes that companies decrease their prices to be more competitive to the pirated products or keep the price unchanged and add more value so they will be irresistable.

If a company can do this, great.

The rationale behind dropping prices for the time being is that when people become richer, companies can sell the product for a higher price. This might not always be the case, since some people with middle class incomes still go for a bargain and the counterfeit products might be as good or even better than the genuine goods (since the counterfeiters don't have to invest in R&D, design and marketing and can focus only on manufacturing). People might not always fake it 'till they can make it. Another problem is that the raison d’être of some luxury goods is the high price you have to pay for the them in order to be associated with the prestige that you can afford it.

Mr. Rein focuses his article on products sold in China which IP rights are infringed. At the moment the damage from counterfeit and pirated goods that originate from China but are consumed overseas is bigger than the infringed goods that are consumed domestically in China. However, even foreign companies who do not even sell or manufacture their goods in China can get their products counterfeited or pirated in China. They can try to solve their IP problems by exposing this amoral behaviour and enforce their IP rights in China. Another possible venue might be that such a company decides to start selling its products in China, in order to compete with counterfeiters and pirates in China.

In fact I think it's not an either or question: moral/IP law enforcement complements economic logic.