Made in China; words that adorn millions of products each year that are manufactured in China and exported around the globe. However, there is evidence that China’s position as the World’s leading manufacturer is set to change.
Numerous reports illustrate how China’s wages are increasing along with the average standard of living. Salaries vary across the country, so the rise is not uniform, but for the coastal regions, where the bulk of manufacturing takes place, the cost of that abundantly cheap labour has risen dramatically. For example, this year UK companies report that they have already been an increase in the average salary of over 10 percent. This is leading some manufacturers to think again about where they place their production facilities.
Many international businesses are now looking for new sources of cheap labour and reduced regulation. Countries including Myanmar, Indonesia and Vietnam are welcoming many of the world’s largest names to build manufacturing plants on their soil.
But is this anything to worry about? Looking purely at manufacturing costs the answer is of course no. If it’s possible to manufacture more cheaply in another country then that is surely good news for manufacturers and deciding on the location for manufacturing plants is simply one of lowest cost. But is there more to the decision than simply manufacturing costs? In today’s competitive global market, intellectual property rights (IPRs) play an ever increasingly important role in protecting innovation, technology and brands.
Historically, protecting IPRs in China was at best difficult and at worst impossible in some regional courts. However, as the country developed so too did the laws that protect technology, innovation and brands. In fact, China’s laws correspond substantially to those in Europe and whilst there is some deviation in terms of how the laws are implemented in the courts, fundamentally the laws and legal tests are very similar.
Looking at China as an example, IPRs fundamentally play two roles. First, they protect the market from competitors who might otherwise imitate your product or copy your technology. This secures the Chinese market for importers to China. Second, for manufacturers in China, it allows technology to be shared with Chinese companies safe in the knowledge that IPRs will prevent unauthorised manufacture and export. This secures the global market from products manufactured in China. IPRs in China are therefore a valuable commercial tool, protecting the market and preventing export.
However, what does the trend to move manufacturing away from China mean in terms of protecting your brand or technology? The protection conferred by IPRs in these new manufacturing nations is not at present as sophisticated as it is elsewhere and the legal framework is far behind that of western countries, and indeed of China. It can therefore be more difficult to protect technology introduced into the country from your competitors. In developing countries, the local market is unlikely to be significant in terms of product sales and so the value of IPRs only really resides in their ability to prevent the export of products. If obtaining and enforcing IPRs in these new countries is difficult, and if your company wants to enjoy the cheap manufacturing these countries offer, how should you adapt your IP strategy?
Another issue is the phenomenon of ‘pop-up’ manufacturers. These are business that set-up manufacturing plants with the sole purpose of making counterfeit products and typically luxury branded goods. They can be formed and dissolved very quickly using modern manufacturing technology which makes them very difficult to track and to deal with using IPRs. By the time an injunction is in place, the factory has disappeared.
A possible answer to these issues is to look at a subtle shift in focus of IP strategy. Many companies adopt the conventional approach of first seeking protection in their marketplace and then in the country where they competitors are based. But if you can’t get adequate protection where your competitors are operating what can you do?
One approach to reinforce your position is to look at how you products get to the market i.e. the supply chain. For example, products leaving Asia for European markets typically travel through a container port such as Dubai or Singapore before arriving at one of Europe’s principal import hubs.
The issue of whether IPRs are infringed in a country whilst in transit is a matter of national law. Goods may not formally enter public circulation whilst they are in transit. However, countries such as the United Arab Emirates are also a large consumer of goods, particularly luxury goods. In these transport hubs, IPRs can be used to seal off the local market, even if it is not always possible to enforce rights against goods in transit.
Companies manufacturing in developing nations should analyse their competitors’ supply chain as part of the overall IP strategy. By closing down routes to local markets, as well as the markets themselves, it becomes difficult for the goods to reach and damage their markets.