Thursday, August 04, 2011

Wrong Reasons, Right Conclusion: Why China Imitates Western Brands

Global branding, local marketing
Genuine IKEA in Hong Kong offers "lucky bamboo"
Photo: Danny Friedmann
Panos Mourdoukoutas, professor of economics at Long Island University, gives four reasons why China imitates Western brands. See his Forbes article here. Since I do not agree with all of them, I have given my comments below his assertions:

Mourdoukoutas: 1. "A get rich quickly mentality. After suffering for many decades from the failures of communism, some Chinese people have been trying to improve their standard of living, but they have yet to grasp the meaning of modern capitalism: a system of wealth creation within certain social norms, including respect for other people’s property."
Friedmann's comment: The countries of Eastern Europe also suffered for decades from the imposed plan economies when they were satellite states of the Soviet Union. However, after the wall fell, the intellectual property rights were not as widespread infringed as in China. Precisely because Chinese completely "grasp the meaning of modern capitalism" they make use of every leeway possible. Especially so, since a sufficient safety system by the state is lacking.

Mourdoukoutas: 2. "The belief that intellectual property is a social good. Coming of a communist rule, where many commodities belong to society, and therefore, could be shared among all society members, some Chinese people believe that intellectual property, including brand names can just be shared for free."
Friedmann's comment: See my comment above. Mr Mourdoukoutas does not mention the evolution from trademark counterfeiting to copying design and business methods. This shows that a growing number of Chinese companies understands the value of brands and are starting to develop them.  

Mourdoukoutas: 3. "Weak enforcement of property rights. Intellectual property receives little protection in China, especially when it comes to prosecuting and punishing violators."
Friedmann: Intellectual property and enforcement in China has improved significantly over the years. One can argue that the authorities have a duty to enforce on their own initiative. But China is compliant to article 41 (5) TRIPs when it has other priorities to spend its resources on (see page 46 of my thesis). Therefore the proprietors should take the first step to enforce their IPRs. There are enough possibilities: enforcement via customs, the courts, administrative route or even criminal route, see here.   

Mourdoukoutas: 4. "A supply side approach to entrepreneurship. In western countries, developing a new brand is a form of demand side entrepreneurship that begins and ends with the consumer; it involves a great deal of consumer research and engagement that require the commitment of great deal of human and non-human resources—and that’s what makes western brands so successful. In China, brand development is a form of supply side entrepreneurship that begins with supply, with abundant labor and financing, but little market research and consumer involvement—and that’s why Chinese brands flip."
Friedmann: I do not agree. Chinese approach entrepreneurship from the demand side. As I pointed out in my article about 11 Furniture, the IKEA clone, see here, Chinese entrepreneurs in second and third cities are listening to what the consumers want. In these second and third tier cities they want high quality, safe goods (Shaun Rein even asserts that Chinese assume Western fast food is healthy, see here) that can be bought in a comfortable way. Many Chinese perceive that these product attributes are provided by Western brands.

UPDATE August 8, 2011:
Professor Mourdoukouras was interviewed by CTV and he argues that Chinese counterfeiters cannot replicate service of Western brands. Again I do not agree. See here.

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