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Japanese firms fight back against Chinese copies

Companies like Casio Computer tired of losing 20 billion yen a year to sophisticated counterfeiters

A Panasonic CD player, Sony headphones, Toshiba batteries. An extensive array of well-known, Japanese-made products is displayed at an office in Beijing, giving the impression that they are designed to promote imports.

The truth, however, is the opposite.

The 100 products on display, ranging from electronic appliances to auto parts and foods, is actually part of a campaign to restrict their trade, according to Kenji Hidaka, director of the Beijing office of the intellectual property rights division of the Japan External Trade Organization.

They are illegally copied products.

“These items are just the tip of the iceberg,” said Hidaka, who arranged the exhibit in April at JETRO’s Beijing office, initially with fake products he had gathered himself.

“There is every conceivable kind of counterfeit product in China,” he said, adding that the display is intended to visually demonstrate the damage to Japanese companies.

The exhibit is testament to China’s position as the world’s manufacturing base of illegally copied products that infringe on registered trademarks, designs and other intellectual property rights.

Alarmed at the increasing volume and improving quality of copies, Japanese manufacturers — one of Chinese counterfeiters’ favorite targets — are stepping up efforts to protect the market for genuine products and prevent illegal copies from hurting the goodwill that they have built up over many years.

Some Japanese firms even hire private investigators in China to collect evidence on copycat operations and appeal to local authorities.

“We are losing market share because of these products,” said Hideaki Togawa, senior manager of that intellectual property division at Toshiba Corp. “If we do not strengthen our actions, it might invite serious consequences.”

The Tokyo-based electronics manufacturer is concerned that the firm’s reputation and brand will eventually be harmed when consumers buy copycat products of inferior quality with the belief they are genuine, Togawa said.

For instance, counterfeit color TV sets are sold at between a third and half the price of genuine Toshiba Corp. products, but the images are low resolution and the sets are prone to breaking down, he said.

The amount of damage caused by counterfeits is hard to estimate, he said, but it must be “considerable.”

Over the past decade, China has emerged as the world’s top production center for illegally copied products, replacing Taiwan and South Korea, where awareness of intellectual property rights now prevails.

In a 2001 survey of Japanese companies by the Japan Patent Office, 33 percent of the respondents said imitations of their products are made in China, followed by Taiwan with 17.6 percent and South Korea with 18.1 percent. The data show China’s share of the market for fakes has leaped from 3.8 percent in 1989. In that year, Taiwan topped the list with 37.6 percent, while South Korea accounted for 14.6 percent.

Exports of copied products from China are increasingly found around the world, including other parts of Asia, the Middle East and Russia, according to a JPO official in charge of illegally copied products.

In addition, a rapid and steady improvement in the copycats’ technology is causing alarm among Japanese companies.

“Manufacturing technology (in imitations) in China is improving every year,” said Hitoshi Arakawa, head of the intellectual property & legal division at Casio Computer Co.

The Tokyo-based company estimates that it loses 20 billion yen a year through imitations of its electronic calculators and wrist watches.

A decade ago, illegally copied products made in China were just poor-quality goods with fake trademarks. Today, however, technology has improved to the point that the counterfeiters even design large-scale integration chips to go into calculators and liquid crystal displays, Arakawa said.

Yet the counterfeiters still lack the technological ability required to make LSI chips for wrist watches, said Tatsuyuki Seki, manager of Casio’s intellectual property center.

Arakawa admits that Chinese counterfeiters are likely to eventually catch up in technology for electronic calculators. “And there is no guarantee that technology (to make wrist watches) will not appear in the future,” he said.

Casio is accelerating its efforts to make calculators with more functions and of higher quality, Arakawa said.

The Japanese government and an increasing number of companies are strengthening their efforts to combat imitations by gathering information and calling on the Chinese government to tighten controls. Since China joined the World Trade Organization in December, Beijing is obliged to protect intellectual property rights.

In April, more than 150 Japanese companies and industrial groups set up a forum in cooperation with the Ministry of Economy, Trade and Industry to call on foreign governments to take stricter and more effective action to combat copycats.

Toshiba and Casio have hired local investigation companies to collect information on illegal copies of their products and identify distribution channels and manufacturing sites so that local authorities can take action.

Casio has also hired private investigators to monitor counterfeit products at major business and export promotion fairs and nip large-lot transactions in the bud, Seki said.

Yet these efforts will not solve the problem soon.

“It’s a rat race. But if we do not take action, illegal copies will simply keep growing,” said Togawa of Toshiba, adding that about 100 raids were conducted to seize illegal copies of the company’s products last year.

Meanwhile, counterfeiters continue to devise new ways of evading the officials’ efforts.

For instance, they spread their manufacturing facilities over several sites and produce fake goods outside business hours, Arakawa said.

Pundits say regional governments in China are not always eager to launch crackdowns, especially when former state-run companies, main players in regional economies, are involved.

“Regional governments want to nurture local companies and thus economies,” the JPO official said. In addition, the authorities tend to tolerate copying because imitating is the first step in the acquisition of manufacturing technology, the official said.

Tao Jingzhou, a Chinese lawyer and partner of Coudert Brothers LLP, an American law firm that often handles cases related to counterfeit products in China, agrees that local governments are reluctant to intervene. The main reason is a shortage of manpower, Tao said.

Local authorities usually only act after appeals to do so from the private sector, he added.

Meanwhile, Honda Motor Co., whose motorbikes are often copied, is taking a completely different approach: It tries to beat the counterfeiters by making its own costs — and hence the cost of the product — as cheap as possible.

Last month, Honda introduced a low-cost motorbike to the Chinese market through its joint venture with Hainan Sundiro Motorcycle Co., the fourth-largest motorbike maker in China.

The new model costs 20 percent less than the existing model sold in China. The company is aiming to tap into the country’s rural regions, where low-cost motorbikes, including illegally copied products, are popular.

In rural regions, Honda has experienced difficulties increasing sales due to the high prices of its products, said Chiaki Kato, manager of Honda Motor’s China operations office.

Although Honda Motor used to target affluent customers in urban areas with its value-added and expensive motorcycles, tightened vehicle regulations in urban areas have effectively closed the market, he said.

Teaming up with a partner that has local business expertise enables Honda to procure low-cost and quality parts for motorcycles in a timely manner in China, he said.

“If products do not sell well because of copied products, it means that those who make copied products offer products that the customers want,” he said. “We act against illegal copies, but at the same time we must make products that customers want to buy.”

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