Building trust in China – a letter to a prospective client

What people are saying about Mulberry Fields
“Your blog speaks to the many issues I have experience with when doing business in China.”   – a company in California

I had someone come to me this week asking me about helping them out in China.  This is a startup consumer products company and they are worried about protecting their IP as they begin to look to China as a manufacturing base.  They seem to be genuinely concerned about this so this is how I responded:

Dear So and So:

One of the realities of doing business in China is that you may lose your IP.  In fact a client of mine just skyped me two nights ago and told me that someone had seen his product ( currently only  sold in the US and Canada ) on an online B2C site in China. I looked into it and sure enough, there it was. But my advice to him was simply that, hey, if you have to lose your IP in China in order to build your business in North America it is probably worth it. He agreed and was even able to laugh about it at the end ( a good thing because he is currently on vacation in the Caribbean ).  Having said that there are things you can do to protect your IP but they are very expensive, time-consuming, will give you a lot of sleepless nights and more often than not are ineffective over the long-term, if you go by all the trouble big multinationals have protecting their IP in China. The example I like to point to is the Subway Sandwich Corp which spent how many tens, if not hundreds, of thousands of dollars and eight long years trying to close down a fake Subway shop right in the middle of the financial district in Shanghai ( the fascinating story is told  in a new book,  The End of Cheap China by Shaun Rein). 

Doing business in China is difficult to begin with esp for the issue you mention, trust. There are many good people in China but trust is NOT something that comes easily. I have ex-colleagues and friends in China that I have known for 20 years.  They are wonderful people and I truly value their friendship. I trust them but only because I have worked closely with them and known them for 20 years.  So for this reason your attitude going into China should  be ” I will try to build up trust but will ALWAYS verify.  I will NOT trust people blindly. Yet I will NOT be paranoid about being ripped off or having someone steal my IP.  I understand that it may happen but if that is what it takes to put me on the map in my industry in the US, then so be it.”   Companies that think like this tend to do well in China because more than anything else they are practical. Companies that go into China seeking to impose their value systems and business culture on their Chinese partners tend not to do well. 

I am sure you know a lot of lawyers who would disagree with this and tell you that you should always take steps to protect your IP in China. I read blogs by China-based lawyers and consultants and they often, though not always, give this advice ( as is to be expected because that is their bread and butter). For big companies with a lot of resources and clout IP protection is probably a smart thing (though the Subway example does not inspire confidence). But for startups and small companies on a shoestring budget it may not be.  As I said it is very expensive and it may not be effective at all – depending on your product and the extent of the protection you afford it. Your time and energy would probably be better spent working with your vendors on quality and other issues so that you can deliver the best possible product to your customers and grow your business where it counts most, in the US. When the time comes and you really have something to protect and then means to do so then you can worry about IP

Good luck ! 






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