South-East Asia is the fastest growing world market for applications for intellectual property protection. During the first three quarters of 2015, China alone saw a 22% year on year increase in patent applications, despite already being the world leader. Countries throughout the region such as Vietnam, Malaysia and India have also seen consistent and rapid increases over the past five years.
Though it may be clear to many businesses where China fits into their intellectual property strategy, the role of less familiar countries, in a business sense, such as Indonesia, Vietnam, or Malaysia is often less well known. In this piece we explore some of the positions these nations are taking in companies’ cutting-edge IP strategies, and some of the factors that can make the process easier in the region than it appears.
Potential future mass market opportunity
Though the large populations of China and India are well known, other countries in the region are extremely populous. Indonesia is home to 255 million people, Bangladesh to 155 million, the Philippines to 102 million, and Vietnam to 91 million, making all of them more populous than Germany, France or the United Kingdom. Though historically countries with low consumer and business spending, and therefore comparatively low priority markets for western companies, rapid growth is changing this situation. Indonesia now has the 16th largest GDP in the world, while Thailand is comparable to Austria in national economy, and Malaysia is comparable to Denmark.
Most importantly, in comparison to established markets, Asia-Pacific economies beyond China and India are growing at a large rate, with ever increasing consumer and business spending. In 2014, a year of worldwide poor economic conditions, Cambodia, Laos, Myanmar, and Sri Lanka all saw more than 7% real annual GDP growth. Large markets like the Philippines and Malaysia saw 6% growth, while Indonesia – already a G20 nation, grew by 5.2%, with a tripling in recent years of higher income households. According to McKinsey, more than 67 million households in the region are already part of the “consuming class”.
Though the viability of a number of these countries as consumer and B2B markets has been held back by a lack of infrastructure, the situation in this regard is improving across the region. In the key jurisdiction of Indonesia for example, a 2015 PwC report has estimated that the government’s very ambitious targets for infrastructure investment over the next 10 years are likely to be 80% achieved, with investment rising to $90bn in 2019 and $139bn in 2025.
These countries, with more than a billion potential consumers, already represent an important opportunity for many types of consumer-facing businesses, while increasing investment over the coming decade is an important opportunity for many more in construction, transport, technology and consultancy.
To take full advantage of the opportunities in these countries, innovative companies will need to protect their brands with trade marks, and their proprietary technologies, products and methods with patents, to protect their commercial operations.
Low cost manufacturing & patent avoidance
Rising wages and living costs in traditional low cost manufacturing centres such as China are increasingly motivating global businesses to move their centres of manufacturing to other South East Asian countries. Samsung’s manufacturing operations in Vietnam for example have become so large as to require their own terminal at Hanoi airport. Companies such as Adidas, Gap and H&M have moved manufacturing operations from China to Cambodia, while General Electric, LG, and Toyota have all expressed interest in manufacturing in Indonesia. Though progress in many of these countries has been slower than hoped, and political reverses have complicated matters, the direction of travel is clear.
As these countries grow in importance as manufacturing centres it will be increasingly critical to ensure that any new products and manufacturing technologies that your business relies on are protected in those countries. Not only due to the fact that your business may want to manufacture within these emerging low cost centres, but as a result of the threat of patent avoidance in these countries.
As patent protection rights exist only in the countries where a patent is filed and granted, competitors are free to imitate the product or technology, manufacturing or selling in any country where a patent is not held. As some South-East Asian countries grow in importance as consumer markets, and others as low cost manufacturing centres, the risk of competitors imitating your most important innovations and exploiting them in these centres increases. This is a particular risk in the case of markets where smaller but innovative companies compete with larger multi-nationals with more extensive resources.
One extension of this fact is that monitoring published intellectual property filings in these territories can provide a good source of competitor intelligence. New or unexpected patent and/or trade mark activity by one of your competitors in a country can be an early indicator of their intention to trade or manufacture within its borders.
Hedging against future local infringers
As noted above, countries in these regions are increasing their economic development at a comparatively rapid pace. Equally, many overseas companies are locating manufacturing operations and other business units in these countries, which is beginning to disseminate knowledge and skills among local business leaders, including in higher technology manufacturing. Thailand for example is already one of the world’s largest manufacturers of hard drives, while countries like Sri Lanka (whose government recently received the results of an ILO report they commissioned into the country’s industrial skills gaps) are taking active steps to cultivate these skill bases among their people.
For companies in developed countries whose products or manufacturing processes rely on low or medium technology innovations, there will be an increasing risk over time of imitation from skilled local manufacturing businesses in economically developing countries. This is of course an established problem in China, with for example so-called ‘Shanzai’ mobile telephones selling in their tens of millions. Trade agreements between ASEAN countries will also ensure that these products – manufactured legally in countries where the product is not patented - can be cost effectively exported throughout the region to other countries where the product is also unpatented, creating a very large market for these imitation goods.
Though in China patent and trade mark protection has until now not always been sufficient to protect against such imitation, recent years has seen a great deal more successful enforcement, and governments across the region have stated that they appreciate the importance of IP protection in attracting foreign investment. Even the home page, for example, of the IP Office in Laos features the statement: “The Government of the Lao People’s Democratic Republic, recognises the significant role of Intellectual Property, and its protection, in the development of the country…the protection of Intellectual Property is now being given great attention as an incentive and encouragement to investment promotion and the socio-economic development of the nation.”
Patent and trade mark protection in these countries offers at least the real possibility of future enforcement. A patent or trade mark in these countries establishes your company’s brand protection or legal ownership of an invention, and provides a solid foundation on which to negotiate with infringing parties, or seek official redress. Without this protection there is no possibility of stopping infringement or seeking compensation.
Simpler than it appears
Though at first the varying intellectual property regimes in the different countries of South-East Asia, as well as language and cultural challenges can appear to make the process difficult, a number of surprising regional factors ease the process.
The English Language: In an unexpectedly large proportion of countries in the region, prosecution and litigation relating to intellectual property takes place in English. This is the case in Bangladesh, Brunei, India, Malaysia, Pakistan, Papua New Guinea, the Philippines, Singapore, and Sri Lanka, as well of course as Australia & New Zealand.
ASEAN Patent Examination Co-operation: Since 2009, 9 countries in the ASEAN region have participated in a shared patent examination co-operation program known as ASPEC. The program shares results from search and examination between patent offices in the 9 countries to allow applicants for patents in multiple jurisdictions to obtain grant of their corresponding patents more quickly. Once again the ASPEC system operates in English, and the participating countries are Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
Trade agreements: A number of trade agreements exist between the countries of the region which facilitate access to the overall multi-billion dollar consumer market from any one or more jurisdictions within it. Ten member states have joined the ASEAN Free Trade Area (AFTA), which stipulates that they apply tariffs of 5% or less to goods imported to any of the other member countries (providing those goods meet certain origin rules). ASEAN is also planning increasing moves toward a single common market, which would reduce these barriers even further. AFTA includes Brunei, Burma, Cambodia, Laos, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. A further treaty, the Asia-Pacific Trade Agreement (APTA), has agreed to repeated rounds of tariff reductions between its member states; Bangladesh, China, India, South Korea, Laos, Sri Lanka and Mongolia.