China Business: Approach Alibaba with caution...

The Alibaba deal will open the floodgates for New Zealand brands to market their wares to the company’s 400 million active users, but there are fishhooks. Photo / Mark Mitchell

The Chinese juggernaut is gathering speed but beware of the speed bumps and read the warning signs, say John Hackett and Anton Blijlevens.

China tops a lot of global lists these days. It's the world's most populous country, the world's largest economy, and the world's biggest goods trader. But two recent international reports remind us that China also tops the world in areas that aren't so complimentary.

Released a week ago, the Obama Administration's 2016 "Special 301" report on the global state of intellectual property protection and enforcement lists China, along with Russia and India, as having the worst record for preventing the theft of intellectual property.

In particular, the report singles China out for unchecked trade secret theft, obstacles to market access for ICT products raised in the name of security, extensive use of unlicensed software, and widespread piracy and counterfeiting.

According to an OECD report on trade in counterfeit and pirated goods, China is responsible for producing 63 per cent of the world's fake goods, estimated to have a value of over US$460 billion a year.

Of course IP theft and infringement in China is not a new story. Plenty of foreign brand owners, including quite a few of our own, have fallen foul of China's less than stellar reputation for respecting IP rights.

Just last week, American sportswear brand Under Armour fell victim to a brazen rip-off of its logo and identity when new Chinese brand "Uncle Martian" came to town.

Meantime, online e-commerce sites in China are continuing to fuel an insatiable demand for consumer products.

Unfortunately, these sites are also hotbeds for counterfeit or bad quality products, with some estimates suggesting that 40 per cent of goods sold online in China aren't genuine or of good quality. As one Forbes report put it, 'the scale of fakery is enormous'.

Alibaba, the world's largest online and mobile marketplace, recently signed a memorandum of understanding (MOU) with New Zealand Trade and Enterprise to promote trade and commerce with China.

This will effectively open the floodgates for New Zealand brands and product owners to market their wares to the company's 400 million active users.

As attractive as this may sound, the importance of IP protection and enforcement should remain a red hot priority for any New Zealand business wishing to take advantage of this opportunity - or indeed, any other in China.

Simple, and relatively inexpensive steps can be taken to help mitigate the risk of losing your brand or know-how in China.

• Understand the value of your IP and seek to secure appropriate rights to protect it before you enter China.

• As soon as the germ of an idea of exporting product to China enters your mind, apply to register your trade mark there. You need to register your English mark, a Chinese transliteration of your English trade mark, as well as your trade mark in Chinese characters.

• Get expert advice on any contracts you enter into with Chinese manufacturers, suppliers, distributors, or joint venture partners and do your due diligence on the contracting party.

• If you are entering into a joint venture arrangement, make sure you understand how ownership of your IP will be handled, and where overall control of the venture rests.

• Avoid trade secret theft by not sharing all of your know-how with any one party.

• Be vigilant about how your brand and IP are being used in China, and vigorously enforce your rights. For a relatively low monthly cost, there are reputable companies that can carry out regular market surveillance, both on and offline.

The juggernaut that is China represents an enormous opportunity for New Zealand exporters, but it needs to be approached with considerable caution and preparation.

Too many Kiwi companies have learned the hard way that going into China without adequate planning around the protection of their IP can have dire and costly consequences. Don't let that be the case for your business. Get good advice, and act now.

John Hackett and Anton Blijlevens are partners of AJ Park