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China Mythbuster

21.12.2018
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21th December, 2018

There are a number of commonplace fallacies about the Chinese markets. Is the Chinese economy really in crisis? Could someone steal my trademark with impunity? Kolster China Desk™'s IP expert, Business Development Manager Zhangping Wu, reveals which persistent ideas are true or false.

1. The Chinese markets are too large, making expansion into the country too challenging. It makes no sense even to try.

FALSE

China is characterised by major regional disparities and the overall market is therefore difficult to grasp at once. The question of whether it is worth entering China also depends on the industry in question. However, it is not true that expansion into China is too challenging.

Careful preparation helps to avoid the pitfalls. You can build a strong foundation for your business by investing in the appropriate strategy and business partners, and engaging in thorough market research. The right IP strategy is also an important part of preparation. A strategy that covers all the angles and which is designed to meet the needs of your business will help you to overcome any obstacles.

2. It is pointless for companies to protect their assets, since registering IP does not lead to action against infringements.

FALSE

Supervising the use of a trademark is the responsibility of its owner. If the owner notices someone else using the trademark, the infringer can be prevented from using it. The Chinese public authorities and courts will become involved in this. You must therefore actively protect your property!

For example, China has a unique administrative body, the Administration for Industry and Commerce (AIC), which assists in the supervision of registered trademarks. The AIC has the power to investigate and stop infringements, and to destroy infringing goods and any equipment used to manufacture them. If a European company wants to stop the infringement of trademark rights in China immediately, the best way to do so is via these effective public authorities.

It is crucial that trademarks are registered before entering China, even before presenting the trademark to partners. You should contact Kolster when you are still at the point of planning business in the country. Together, we will work on a company-specific IP strategy and help you with issues such as registering and handling your trademark. We can also help you to detect infringements and resolve registration invalidation and cancellation processes in China In partnership with us, you can enter the Chinese market with confidence.

3. In China, piracy is rampant. Products are copied and trademarks stolen. Companies are powerless against piracy.

TRUE AND FALSE

China's laws and practices are progressively changing for the better. Although there is a great deal of piracy, laws and practices for its prevention and reduction are developing rapidly.

Chinese companies also copy from each other, not just from foreign companies. Most Chinese infringements and imitations occur in online retailing. China is already the world's most advanced e-commerce market and the Chinese are among the world's keenest online shoppers. This poses challenges for businesses, because other companies’ brands are easy to exploit online.

A good IP strategy is also a key issue in this respect: once you have registered your trademark, if an infringement occurs you can turn to the authorities and resolve the matter in your own favour.

4. The news states that China is in crisis. China's economy is no longer growing, so China is no longer an interesting and promising market.

FALSE

Talk of a crisis is an exaggeration, or at least premature. Foreign sources state that economic growth is slowing by 5%. The economy is therefore slowing, but even this will leave growth at 6%.

Talk of a crisis is probably due to the fact that the slowdown is a risk for China itself. The current growth rate may be insufficient to sustain national employment levels and maintain the economy’s momentum. However, because it is still a growth market for Finnish companies, the Chinese market continues to be interesting and have potential.

However, competition is becoming tougher as growth slows. This may take the form of dishonest practices, such as IP infringements, in in order to survive, whatever it takes, amongst tougher competition. Companies can anticipate and prepare for this with a comprehensive IP strategy to safeguard business activity in a toughening competitive situation.

5. Western products are of no interest to the Chinese. The Chinese do not even know Finland.

FALSE

The reputation of Finland and the Nordic countries has grown in China, where there is a clear niche for Nordic products. Although larger European countries, such as Germany, are still better known there, products from Finland are regarded as being free from toxins. The Chinese know that Finnish products are non-toxic, high quality, and made from uncontaminated raw materials. Food and cosmetics are regarded in this way in particular, i.e. the purity of Finnish products is a trump card! Nordic design is also now attracting more interest globally and in China.

6. Quality does not matter in the Chinese market; it is not worth investing in this land of mass-produced, cheap imitations.

FALSE

China's reputation as the land of cheap imitations is out of date. Strong Chinese electronics brands are emerging in the European electronics and automotive markets, for example.

Foreign products must be of high quality in order to live up to their price, which is usually higher than products originating in the Chinese domestic market. Because foreigners cannot succeed in price competition against the locals, they have to differentiate themselves through quality.

A high price does no harm, even if the brand is unknown to the Chinese. Even an unknown brand can succeed if the product is good, marketed through the right channels and local parties are committed to sales and marketing.

7. It is difficult to find reliable subcontractors in China.

TRUE AND FALSE

It is not easy to find subcontractors, but experts who know the Chinese markets and can provide companies with suitable networks can be found in both Finland and China. It is important to map out the field and list a range of potential options. Market entrants should build a personal relationship with subcontractors, since the key issue is building mutual trust. For example, a company representative could visit the factory to see and meet a subcontractor. Without the active building of contacts, the risks could increase and product quality reduce.

The company must be aware of who it will be working with and on what terms. A well-drafted agreement will ensure that both parties understand issues such as ownership of and user rights to trademarks, and what happens when new trademarks or activities emerge or a product changes. For example, when a trademark is created collaboratively, it must be clear to both parties who has the right to register the trademark, or whether it will be under joint ownership. In the case of licensing agreements, it is essential that both parties know what will happen after the cooperation ends.

8. Major cultural differences make it hard to do business. It is easy to offend partners unintentionally.

TRUE AND FALSE

There are major cultural differences between China and Finland, but there is no point in mystifying them. Various parties in Chinese business circles that trade frequently with Westerners already understand the cultural differences. Chinese companies are aware that our conduct is not exactly the same as that of their domestic partners. It is not the end of the world, even if you forget to use both hands when presenting your business card.

However, it is important to show respect for a business partner. For this reason, you should be aware of certain cultural issues. Being honest and genuine will take you far, but formal behaviour, exchanging business gifts, and taking good care of guests will show that you respect your guests and their position. It is worth having a Chinese member on your team, who can advise you on local practices such as arranging a programme or where to seat the host and guest at a business lunch.

9. The Chinese pursue their own interests and have no regard for others.

FALSE

The key issue is negotiating skills rather than self-interest. Because the Chinese are masters of negotiation and can haggle, the other party must also master these skills. You must prepare carefully for negotiations.

The Chinese always have a negotiating strategy and they know exactly what they want to achieve. They draw up a strategy and implement it. The Chinese also appreciate negotiating partners who know how to defend their own interests. When the other party demands something, we have to be able to demand something in return. A partner loses the respect of Chinese people if he or she cannot negotiate, bargain and present demands. A sustainable business partnership cannot be built on such a basis.

The Kolster China Desk™ team has Chinese employees and we provide services in the Chinese language. Thanks to our many long-term Chinese partnerships, we have a huge amount of local and cultural knowledge, which we apply in various contexts on the Chinese market.

10. Chinese companies are rapidly westernising their practices in order to flourish on the European market. The practices of European companies are admired in China.

TRUE AND FALSE

European companies are popular and valued by Chinese workers, because their management culture takes account of workers. However, I think that it would be more accurate to say that Chinese companies are globalising rather than westernising. At some level, account must always be taken of globalisation when doing business abroad and with foreigners.

Products and services must be localised and products, their appearance and even their names can change, when Chinese companies are seeking to enter the European markets and vice versa. It is important to consider these changes in your IP strategy. Protection must be managed well to minimise the risk of hijacking. Kolster also offers the localisation of trademarks for a monthly fee. As part of this service, we will choose and register a trademark and domain name in the Chinese language, in order to reap the full benefit of the trademark on the Chinese market.

Contact us

Zhangping Wu
zhangping.wu@kolster.fi
+358 40 707 3877