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The luxury goods market in China is a must-enter space for global companies in this industry. Research indicates that multinational corporations (MNCs) need to assess their current strategies and take advantage of challenging, yet rewarding opportunities in emerging markets1. By 2015, China will represent 20% ($27B) of the market in luxury goods, and MNCs like Marc Jacobs cannot afford to hesitate in penetrating this emerging market2. The Chinese view these high-end products as “trophies of success” and are worn as such3. Labels and visible brand symbols are critically important for show in public, but rarely of value in the home. While this new market opportunity presents promising avenues, the Chinese market is known for its battles with infringement through counterfeiting, parallel importing, or unauthorized selling of goods. Companies like Marc Jacobs are forced to address this issue head on and seek ways within their global strategy to develop solutions.
Counterfeiting, parallel importing, or unauthorized selling of goods comprise a multi-pronged problem in China. As an example, a factory can produce more units than it reports and then sell them on the black or “grey” market. A material supplier can produce a larger volume than reported and sell to unauthorized manufacturers. Those manufacturers then produce goods out of the same materials and can sell them for very high prices; this happens frequently with Louis Vuitton, since the company uses a standard material quality across many of its products. Additionally, a supplier can sell proprietary information on the market; this is prominent among athletic footwear companies where a vendor will produce a tool for a factory, then leak the tools to competitive brands. Manufacturers can produce copied items with slight tweaks, such as using “Goach” on the logo instead of “Coach” – almost unnoticeable by the consumer. Manufacturers can produce copied items knowing that it is impossible for brands to trademark every style and every detail. As trade marking is restrictive and costly, a brand will often times only protect a few key shapes per year. Finally, parallel importers can buy goods in the US, most often in states where there is no sales tax (such as Oregon), then ship overseas and markup the price. As consumers internationally are used to paying a markup to the US, it is easy to turn a profit on these goods. In markets such as Japan, the markup to the US is often times 30-35%.
The more popular a brand becomes, the more abundant fakes and parallel importers become. Some countries’ governments will help crack down and some will not. In China, Taobao.com sells more counterfeits and parallel imports than any other website. The government is aware of the site yet does nothing to shut it down. Because these goods are sold online, tax revenue is generated which benefits the country. While China claims it wants to cut down on piracy, the effort is minimal.
Marc Jacobs and other global brands realize the need to develop a defensive strategy to combat these unauthorized mechanisms of product theft. Unfortunately, it is difficult, timely, and costly for brands to go after violators. If they can identify the source – perhaps a specific factory – it can be fairly straightforward; otherwise, it is next to impossible to stop all counterfeiting. Services such as Mark Monitor do exist, which for a fee will patrol the internet to identify places their brand’s products or brand name are sold – authorized and unauthorized – and can help shut violators down. Again, this is costly, as it is a manual process. Some brands have taken steps to provide a “certificate of authentication”, which is a more cost effective method of detecting whether a customer who bought a fake is trying to return that item to the authentic store or have it repaired. It is also supposed to encourage customers to only buy the “real deal”.
Research on global strategy published by the Harvard Business Review discussed that MNCs with similar strategic goals can benefit from partnering in order to mutually gain in the market4. Along these lines, several companies are banding together to fight against counterfeiting in China. Luxury brands, such as LVMH and Estee Lauder, are collaborating with each other to develop best practices for measuring and implementing IP enforcement in China as well as other Asian countries. These practices include designing and managing IP investigation budgets, which are put toward filing complaints within the 76 different patent courts in China.
Though many of the brands collaborating on IP issues are competitors at the business level, they share common IP enforcement objectives; i.e., “the partners’ strategic goals converge while their competitive goals diverge”4. Luxury brands have found it financially and operationally beneficial to team up to combat counterfeiters. LVMH and Apple teamed up and shared enforcement costs once it was discovered that counterfeit iPhone and iPad covers with LV logos were being produced – mutually gaining from their partnership.
Is this strategy of competitive collaboration one that is valid long-term, or will it lead to too much information sharing that will weaken the strength of certain luxury brands in China? Hamel et al stress the importance of “building a solid defense” when engaging in competitive collaboration: “Companies must carefully select what skills and technologies they pass to their partners. They must develop safeguards against unintended, informal transfers of information.”4 Vaid, an IP enforcement director at LVMH, stated that “working together is always a challenge but it is also an opportunity. Until a certain point in time, the payoffs for all the cooperating brands are similar, but after a certain point the payoffs change.”5
While partnering with others in the industry can increase economies of scale and strengthen a company’s “defense”, MNCs must also consider investing in new technologies and/or products in order to ward off the competition – and in this case, counterfeiters. To remain one step ahead of competitors and “copycat” manufacturers, brands like Marc Jacobs are constantly reinventing themselves through new product categories, materials, and general aesthetics. Unfortunately, it does seem like these counterfeit agents are keeping the pace as well. Perhaps continued collaboration with rivals will help combat these threats from counterfeiters, but it seems that MNCs may need to start looking for new and creative ways to protect their brands.
The Chinese government is beginning to respond to consumer and business demands to rid the market of fakes. In 2010, it started a crackdown on intellectual property rights, which has realized some success. For example, in the same year, the government seized more than 2,000 fake Columbia™ Sportswear products with a street value of over $2.7M USD6. This is nowhere near enough – some estimates suggest counterfeits make up 20% of consumer luxury goods purchased in China – but it is a step in the right direction.
Counterfeiting remains a real problem in China, but signs point to Chinese consumers rejecting fake luxury goods in favor of the “real thing”. Why the sudden shift? Because increasingly more Chinese consumers can afford luxury products; thus, more consumers are willing to fork over full retail price for a product they can still find reliably on the street. As the Wall Street Journal reported on 14 Feb 2012:
“A survey conducted last year by China Market Research found that 95% of women aged 28 to 35 would be embarrassed to carry counterfeit handbags.”6
Because of this shift in demand, multinational retailers are beginning to invest in the interior and secondary cities in the Chinese market. So far, Marc Jacobs has only chosen to locate its brands in top tier cities; however, as parent Louis Vuitton (LVMH) and competitors like Valentino, Gucci and Ferragamo have planned to enter into secondary cities, it would seem natural for Marc Jacobs to follow suit. Western firms, for now at least, are benefitting from a reputation and brand perception of quality products. As local product quality improves, brands will see more challengers in domestic competitors.
The Chinese are very proud of their long history and culture and want to see this incorporated into luxury brands. Potential “emerging giants”, such as menswear maker China Garments Co. and the revamped 114 year-old cosmetic company Shanghai VIVE, are working hard to make a name for themselves in China’s luxury industry. Some European luxury brands are also moving towards a more localized approach to appeal to the growing high-end consumer market in China. “Shang Xia, which is owned by Hermes International SCA, aims to appeal to customers domestically and abroad and promote Chinese heritage, handicraft and philosophy,” Chief Executive Officer Jiang Qiong said in an interview7.
As it takes several years to develop a brand, an emerging China-made luxury fashion giant is still several years away. But Chinese competitors have made inroads in white goods, electronics, and food processing – competing effectively against global players like Nestle, Procter & Gamble, and Unilever for market share. If a Chinese luxury brand does take off, this could be a positive step toward offsetting the counterfeit industry as the Chinese will want to protect a homegrown champion.
Leaders within the luxury goods industry face a serious challenge with counterfeiting in the increasingly important Chinese market. Engaging in competitive collaboration has allowed companies such as LVMC to strengthen their defense and develop cost-effective methods for battling IP violators. These MNCs are also benefiting from the fact that Chinese consumers have begun to reject fake luxury goods and instead willingly invest in the “real deal”. Despite recent successes with competitive collaboration, companies like Marc Jacobs and Louis Vuitton should be cautious of opening up their doors too far to rivals in the effort to combat counterfeiters. Furthermore, companies should be prepared to face “emerging giants” in China who are well-positioned to develop luxury goods that appeal not only to locals but also to consumers abroad. It is clear that leaders in the luxury goods market cannot afford to ignore the ever-expanding Chinese market; the question is, are their strategies strong enough to face these challenges head-on and compete against the “emerging giants”?
Authors: David Curtis, Merissa Gordon, Kori Joneson, Emily Mahoney, Rob Thompson
References
1 Khanna, Tarun and Palepu, Krishna. “Emerging Giants: Building World-Class Companies in Developing Countries.” Harvard Business Review. Oct 2006.
2 Atsmon et al. “Tapping China’s luxury-goods market.” McKinsey Quarterly. Apr 2011. Web. 13 Apr 2012.
3 “The mystery of the Chinese consumer.” The Economist. 7 Jul 2011. Web. 4 Apr 2012.
4 Hamel et al. “Collaborate with your Competitors – and Win.” Harvard Business Review. Jan-Feb 1989.
5 “How brand owners run Asian criminal procedures”. Managing Intellectual Property (Nov 2011): n/a.
6 Burkitt, Laurie. “Retailers Rush in as Chinese Lose their Taste for Fakes.” Wall Street Journal: B.1. ABI/INFORM Global. Feb 14 2012. Web. 4 Apr. 2012.
7 Bloomberg News. “China luxury pits L’Oreal against Chiang Kai-Shek Kin: Retail”. Bloomberg BusinessWeek. 27 Feb 2012. Web. 4 Apr 2012.
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March 19th, 2013 at 6:49 am
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March 19th, 2013 at 7:36 am
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March 19th, 2013 at 7:58 am
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March 19th, 2013 at 8:48 am
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March 19th, 2013 at 1:21 pm
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March 19th, 2013 at 11:12 pm
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March 20th, 2013 at 12:49 am
Hmm is anyone else experiencing problems with the pictures on this blog loading? I’m trying to find out if its a problem on my end or if it’s the blog. Any responses would be greatly appreciated.
March 20th, 2013 at 1:32 am
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March 20th, 2013 at 2:58 am
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March 20th, 2013 at 5:35 am
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March 20th, 2013 at 1:33 pm
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March 20th, 2013 at 2:00 pm
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March 20th, 2013 at 2:53 pm
When I initially commented I clicked the “Notify me when new comments are added” checkbox and now each time a comment is added I get three emails with the same comment. Is there any way you can remove people from that service? Appreciate it!
March 20th, 2013 at 3:14 pm
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March 21st, 2013 at 12:56 am
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March 21st, 2013 at 3:45 am
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March 21st, 2013 at 4:32 am
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March 21st, 2013 at 5:07 am
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March 21st, 2013 at 5:14 am
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March 21st, 2013 at 7:34 am
At this time it appears like Wordpress is the best blogging platform available right now. (from what I’ve read) Is that what you’re using on your blog?
March 21st, 2013 at 9:23 am
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March 21st, 2013 at 11:08 pm
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March 22nd, 2013 at 1:42 am
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March 22nd, 2013 at 2:20 am
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March 22nd, 2013 at 5:13 am
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March 22nd, 2013 at 5:40 am
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March 22nd, 2013 at 6:23 am
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March 22nd, 2013 at 6:57 am
Hi are using Wordpress for your site platform? I’m new to the blog world but I’m trying to get started and set up my own. Do you require any html coding knowledge to make your own blog? Any help would be really appreciated!
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March 22nd, 2013 at 8:24 am
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March 22nd, 2013 at 9:18 am
Hey there just wanted to give you a quick heads up and let you know a few of the pictures aren’t loading properly. I’m not sure why but I think its a linking issue. I’ve tried it in two different internet browsers and both show the same results.
March 22nd, 2013 at 10:23 am
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March 22nd, 2013 at 11:06 pm
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March 23rd, 2013 at 12:46 am
Hi there are using Wordpress for your blog platform? I’m new to the blog world but I’m trying to get started and create my own. Do you need any html coding knowledge to make your own blog? Any help would be greatly appreciated!
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March 23rd, 2013 at 5:08 am
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March 23rd, 2013 at 8:25 am
Hey this is kind of of off topic but I was wondering if blogs use WYSIWYG editors or if you have to manually code with HTML. I’m starting a blog soon but have no coding expertise so I wanted to get guidance from someone with experience. Any help would be enormously appreciated!
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March 24th, 2013 at 12:48 am
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March 24th, 2013 at 3:54 am
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March 24th, 2013 at 10:01 am
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March 24th, 2013 at 12:24 pm
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March 24th, 2013 at 11:02 pm
The other day, while I was at work, my cousin stole my iPad and tested to see if it can survive a thirty foot drop, just so she can be a youtube sensation. My apple ipad is now destroyed and she has 83 views. I know this is entirely off topic but I had to share it with someone!
March 24th, 2013 at 11:34 pm
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March 25th, 2013 at 3:05 am
With havin so much content and articles do you ever run into any problems of plagorism or copyright violation? My website has a lot of unique content I’ve either written myself or outsourced but it appears a lot of it is popping it up all over the internet without my authorization. Do you know any methods to help protect against content from being ripped off? I’d truly appreciate it.
March 25th, 2013 at 12:35 pm
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March 25th, 2013 at 1:04 pm
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March 25th, 2013 at 1:34 pm
Today, I went to the beachfront with my kids. I found a sea shell and gave it to my 4 year old daughter and said “You can hear the ocean if you put this to your ear.” She placed the shell to her ear and screamed. There was a hermit crab inside and it pinched her ear. She never wants to go back! LoL I know this is totally off topic but I had to tell someone!
March 25th, 2013 at 2:07 pm
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March 25th, 2013 at 2:36 pm
Whats up this is somewhat of off topic but I was wondering if blogs use WYSIWYG editors or if you have to manually code with HTML. I’m starting a blog soon but have no coding knowledge so I wanted to get guidance from someone with experience. Any help would be greatly appreciated!
March 26th, 2013 at 3:57 am
I know this if off topic but I’m looking into starting my own weblog and was curious what all is needed to get set up? I’m assuming having a blog like yours would cost a pretty penny? I’m not very web savvy so I’m not 100% positive. Any tips or advice would be greatly appreciated. Many thanks
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March 27th, 2013 at 12:30 am
Whats up are using Wordpress for your blog platform? I’m new to the blog world but I’m trying to get started and create my own. Do you need any coding expertise to make your own blog? Any help would be really appreciated!
March 27th, 2013 at 1:21 am
Hmm is anyone else having problems with the images on this blog loading? I’m trying to figure out if its a problem on my end or if it’s the blog. Any responses would be greatly appreciated.
March 27th, 2013 at 3:09 am
Hello there! Do you know if they make any plugins to safeguard against hackers? I’m kinda paranoid about losing everything I’ve worked hard on. Any tips?
March 27th, 2013 at 3:50 am
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March 27th, 2013 at 4:28 am
Heya this is kind of of off topic but I was wondering if blogs use WYSIWYG editors or if you have to manually code with HTML. I’m starting a blog soon but have no coding expertise so I wanted to get advice from someone with experience. Any help would be enormously appreciated!
March 27th, 2013 at 6:19 am
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March 27th, 2013 at 6:50 am
Hey! I just wanted to ask if you ever have any problems with hackers? My last blog (wordpress) was hacked and I ended up losing several weeks of hard work due to no backup. Do you have any solutions to protect against hackers?
March 27th, 2013 at 7:24 am
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March 27th, 2013 at 8:52 am
I was wondering if you ever thought of changing the structure of your website? Its very well written; I love what youve got to say. But maybe you could a little more in the way of content so people could connect with it better. Youve got an awful lot of text for only having 1 or two pictures. Maybe you could space it out better?
March 27th, 2013 at 9:33 am
Hi this is somewhat of off topic but I was wondering if blogs use WYSIWYG editors or if you have to manually code with HTML. I’m starting a blog soon but have no coding skills so I wanted to get advice from someone with experience. Any help would be enormously appreciated!
March 27th, 2013 at 12:19 pm
Whoa! This blog looks exactly like my old one! It’s on a entirely different topic but it has pretty much the same layout and design. Excellent choice of colors!
March 27th, 2013 at 1:08 pm
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March 27th, 2013 at 1:39 pm
I’m really loving the theme/design of your web site. Do you ever run into any browser compatibility problems? A small number of my blog visitors have complained about my website not operating correctly in Explorer but looks great in Chrome. Do you have any recommendations to help fix this issue?
March 27th, 2013 at 2:11 pm
Have you ever considered writing an e-book or guest authoring on other websites? I have a blog centered on the same information you discuss and would love to have you share some stories/information. I know my subscribers would value your work. If you’re even remotely interested, feel free to send me an email.
March 27th, 2013 at 10:58 pm
Today, I went to the beach with my kids. I found a sea shell and gave it to my 4 year old daughter and said “You can hear the ocean if you put this to your ear.” She put the shell to her ear and screamed. There was a hermit crab inside and it pinched her ear. She never wants to go back! LoL I know this is totally off topic but I had to tell someone!
March 27th, 2013 at 11:30 pm
I was wondering if you ever considered changing the layout of your blog? Its very well written; I love what youve got to say. But maybe you could a little more in the way of content so people could connect with it better. Youve got an awful lot of text for only having 1 or 2 images. Maybe you could space it out better?
March 28th, 2013 at 12:13 am
Hi there, i read your blog occasionally and i own a similar one and i was just curious if you get a lot of spam responses? If so how do you reduce it, any plugin or anything you can recommend? I get so much lately it’s driving me insane so any assistance is very much appreciated.
March 28th, 2013 at 12:50 am
I know this if off topic but I’m looking into starting my own weblog and was curious what all is needed to get setup? I’m assuming having a blog like yours would cost a pretty penny? I’m not very internet smart so I’m not 100% sure. Any tips or advice would be greatly appreciated. Thanks
March 28th, 2013 at 1:34 am
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March 28th, 2013 at 4:42 am
Hi there, i read your blog from time to time and i own a similar one and i was just curious if you get a lot of spam comments? If so how do you reduce it, any plugin or anything you can recommend? I get so much lately it’s driving me insane so any assistance is very much appreciated.
March 28th, 2013 at 5:39 am
Do you mind if I quote a couple of your posts as long as I provide credit and sources back to your website? My blog is in the exact same area of interest as yours and my users would really benefit from some of the information you provide here. Please let me know if this okay with you. Thanks!
March 28th, 2013 at 6:48 am
I love your blog.. very nice colors & theme. Did you design this website yourself or did you hire someone to do it for you? Plz respond as I’m looking to create my own blog and would like to know where u got this from. thanks
March 28th, 2013 at 7:29 am
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March 28th, 2013 at 8:32 am
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March 28th, 2013 at 12:11 pm
Hi there would you mind stating which blog platform you’re working with? I’m planning to start my own blog in the near future but I’m having a tough time making a decision between BlogEngine/Wordpress/B2evolution and Drupal. The reason I ask is because your design seems different then most blogs and I’m looking for something completely unique. P.S Apologies for getting off-topic but I had to ask!
March 28th, 2013 at 1:03 pm
With havin so much content do you ever run into any issues of plagorism or copyright infringement? My website has a lot of exclusive content I’ve either written myself or outsourced but it looks like a lot of it is popping it up all over the web without my permission. Do you know any ways to help reduce content from being stolen? I’d definitely appreciate it.
March 28th, 2013 at 10:54 pm
Greetings from Colorado! I’m bored at work so I decided to check out your site on my iphone during lunch break. I love the info you present here and can’t wait to take a look when I get home. I’m surprised at how fast your blog loaded on my mobile .. I’m not even using WIFI, just 3G .. Anyways, very good blog!
March 29th, 2013 at 12:26 pm
I’ve enjoyed reading this blog very much. It’s good to see that you are all enjoying yourselves and making a real difference to peoples lives. Looking forward to further contributions, thanks again.
March 30th, 2013 at 2:52 am
Hi there! I just wanted to ask if you ever have any issues with hackers? My last blog (wordpress) was hacked and I ended up losing a few months of hard work due to no back up. Do you have any solutions to stop hackers?
March 30th, 2013 at 3:30 am
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March 30th, 2013 at 5:44 am
Hi! Do you know if they make any plugins to protect against hackers? I’m kinda paranoid about losing everything I’ve worked hard on. Any tips?
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