Making sure you have the right advice and planning thoroughly before any foray into the Chinese market will mean you will find dealing with the Dragon much less unpredictable.
There are two other keys to the success of exporting to China too – strong relationships and strong agreements.
Good, reliable people on the ground are essential. You need to get to know and understand the people you’re dealing with, particularly their motivations and allegiances, which might not be to you first. The Chinese are well-known to be tough business people and tenacious negotiators who spot opportunities and push everything as far as they can.
What we often see are businesses not getting their brands protected early, or adequately, enough. However, brand selection, clearance and timely protection are absolutely critical to the success of an export venture to China. The money spent on this up front is strategic and defensive, but saves in the long run because disputes are avoided.
In China, because it’s not the way we’re used to doing things and it’s a different scheme to what we’re used to, many Kiwi businesses misunderstand that it is still largely a free-for-all, and consequently pay the price for not getting on board with China’s first-to-file system.
Other misunderstandings can occur when dealing with examiners of your trade mark applications, as the language barrier is a distinct disadvantage. Often it leads to unnecessary and unexpected objections, and due to inconsistencies in local practice, it can lead to inconsistent results.
Then if you do have issues with registering the brands you want to export to China, the appeal process is bureaucratic, far from pro-applicant, costly, and fraught with uncertainty. Unfortunately we’re still finding that there are plenty of Kiwi companies having to deal with fundamental problems that end up costing them unnecessary time and money.
This makes forward and strategic planning right from the start even more important.
We see this fairly regularly in the natural products sector – an extremely popular market segment in Asia, and China in particular – especially with the recent “Cross-Border Bonded Warehouse” trading channels. Products that were difficult to get on the shelves in the past have found an easy way to consumers via e-commerce.
All good for “NZ Inc”, not so good for Kiwi brand owners who often end up in disputes regarding brand ownership and distribution rights, particularly where they have not taken the right steps at the right time to adequately protect their brand.
For many, not doing enough planning or getting the right advice continues to be a steep and costly learning curve. Doing business in Asia involves much more than just sending a product to market. Many Kiwi businesses still really don’t ‘get’ that and choose baptism by fire.
Don’t be put off though and miss out on some lucrative opportunities because doing business in Asia seems to fall into the ‘too hard basket’. Instead take a leaf out of the Boy Scouts’ book and simply ‘always be prepared’.
What could go wrong?
The following scenarios are typical of what happens when Kiwi companies haven’t put enough planning into an export opportunity, or received the right advice.
Just prior to Christmas a New Zealand company is delighted to receive out of the blue a large order for its product via an Asian agent, for China. The company has always been interested in China as a potential market, but not had the time to investigate this fully.
The order and offer of help from the agent seem to be an opportunity that’s too good to turn down. After all, what possibly could go wrong?
Even though it’s a busy time the order is packed and shipped.
Then, in the New Year another order is received from the same agent. This gets the company thinking that its time they seriously looked at China as a new market. They then discover that the agent has already applied to register their trade mark in China, and is trying to use this as leverage to get very favourable terms of trade out of the New Zealand company.
This kicks off a costly dispute with the agent – as the agent had taken full advantage of China’s first-to-file system. The New Zealanders ended up paying a sizeable sum to the agent to have him relinquish the trade mark.
The most common variation of this scenario concerns the disgruntled distributor. This can arise where the New Zealand brand owner has a falling out with their distributor, but is more common when dealing with potential distributors. In this case the brand owner is contacted out of the blue by someone who is keen-as to be their distributor in China. For whatever reason negotiations fail. When the brand owner comes to register their brand in China themselves, they learn that the distributor has already applied to register the brand in order to stop the owner from appointing another distributor.
We’ve seen situations where the New Zealand brand owner has spent a small fortune wrestling the trade mark off the distributor, but also where they’ve been forced to reluctantly appoint the disgruntled distributor in China – not the best way to start a relationship.
Finally, although Kiwi companies own their English trade marks in China, we are seeing more and more distributors devising their own Chinese versions of those English brands, and then applying to register the Chinese versions themselves.
Once the Chinese versions gain traction in the market, the distributors then turn around to use this as a bargaining chip for exclusivity/better deals on those products.
James & Wells partner Carrick Robinson heads the Auckland trade mark team. He specialises in trade mark law and practices, and has worked across the fashion, natural products, pharmaceutical, personal care, food, beverage and dairy industries.
This article first appeared in Exporter Magazine.