If you want to source in China, be prepared to take risks

A friend of mine reached out to me recently asking me to help him apply for China patents for a new product.  Apparently someone had approached him because he used to work for a FORTUNE 500 company in China and wanted to enlist his expertise. So my friend came to me, thinking IP protection was the place to start.  I told him what I tell a lot of people, namely if you are going to be paranoid about losing your IP in China then you shouldn’t be doing business over there in the first place. It is simply one of the endemic risks of doing business there, much as mosquitoes are one of the endemic risks when you go camping.

My friend left China in 1997 and since his return to the US he has worked in Silicon Valley, doing non China-related stuff.  I think he has forgotten that when you do business in China you cannot expect Western principles of transparency, accountability and integrity to apply there, because they often do not.  In other words, just because you apply for and are granted a China patent does not mean that you will be home-free to manufacture your product in China without problems.  Someone will always come up with something similar to your product and exploit a loophole in the Chinese patent application (which is a complicated and time consuming process)  and there would be little you could do about it,  short of costly international litigation.  Are you going to be able or willing to do this?  If you are a small business with a limited budget the answer is no.

I gave my friend the advice which I always give to others, namely to focus on securing IP in the country where you will be selling your product so as to protect your own market.  If you have registered trademark and patent here in the US no one can sell your product but you.  If you want to take your designs to China then don’t be overly concerned about IP and take refuge in the fact that unscrupulous individuals in China who are bent on appropriating someone else’s IP are usually focused on bigger companies where the payoff is much larger.  When you grow that is the time to start worrying about IP and taking the necessary steps in China to protect yourself such as Trademark protection.

I have written a lot on this subject.  Here are some other posts you will find useful.

China’s Great Leap Forward with IP

Trademarks in China

Some advice on IP protection in China

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Book Review: The End of Cheap China

A few pages into this book I was skeptical about it, beginning as it does with a scene in a Changchun hotel many years ago where the author is being hounded by a woman of ill-repute. Hardly how a book on the Chinese economy should begin I thought. But in fact the book gets better.

Shaun Rein is a half-Chinese, half-American, Harvard educated consultant who has worked in China for many years and who is a frequent contributor to the WSJ, MSNBC and Bloomberg. There are valuable insights in this book on evolving consumer attitudes, Chinese manufacturing and an especially riveting chapter on China’s food safety. According to Rein many Chinese, and especially those with kids, are very concerned about food safety, as they should be. If they don’t make trips to Hong Kong to buy special foods they rely on western supermarkets and fast food chains in China, with their sophisticated supply chains, as safe havens. And so Rein thought as well as he took to the habit of patronizing his local Subway sandwich shop in the financial district of Shanghai. For eight years, Rein went to this outlet for lunch only to discover one day that it was not a real Subway store. Subway had apparently known about it and had even won a decision in a Chinese court but the fake store continued to operate for years. In other words, it makes no sense to be paranoid about your IP in China, a point I am making all the time to my clients and in online discussion boards about China business. If Subway cannot prevent IP infringements, then small businesses certainly cannot. The chapter on food safety is ironically entitled “Why Chinese consider KFC healthful.” Of course Rein’s account was written before KFC’s problems in China came to light. I hope for Rein’s sake he did not eat there as well.

As critical as he is of some of China’s changes, Rein nevertheless has a very positive view of China’s vast potential. This probably is owing in part to his mixed Chinese heritage, and the fact that he has married into a prominent Chinese family. But he has also lived in China for some time, speaks the language, and has seen first –hand the transformation of post-Mao China. There is a strong tone here on China’s development, from its entrepreneurial women to its mega malls and billionaires. The author seems critical of those who don’t see China the same way he does. But who can blame him. Anyone who has been travelling to China for some time knows what an incredible place it is. And of course this is why China is becoming more expensive.

The only criticism of this book is that it does seem to portray Shanghai, where Rein lives and works, as the microcosm of China, which it is certainly not. The challenges faced by a US owned and operated furniture company in Shanghai, as detailed by Rein, are not the same challenges facing furniture makers in other provinces. Prices, wages and the cost of manufacturing in Shanghai and other big cities in China are rising to be sure, but there are still many areas of China that are as yet untouched by development and look like Shanghai did 20 years ago, when you could live comfortably on $ 60.00 a month.

But overall, this is a very readable account of modern China ( or at least modern Shanghai) and recommended to those who are interested, travelling or doing business in China.

Here are some other book reviews:

Poorly Made in China
The China Price
China Shakes the World
One Billion Customers

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