There are a number of reasons why a company feels hesitant to dive into a marketplace as big as China’s. We hear many valid points, however, some of the more pervasive arguments are little more than myth. Here are two of the major concerns small businesses have with importing to China, and why they are fallacies.
Imitations, Counterfeits and ‘Knockoffs’
Imitations are rife within China and to suggest that any singular product or industry is free from its effects would be ridiculous. For any marketable product available there is a cheaper, often inferior, alternative.
However, the negative consequences of imitations on imported goods are vastly overstated.
Fundamentally, Australian merchandise is sold in China based on its premium brand association and its quality. It is not sold on cheaper price. While the China-Australia free trade agreement has been a boon for Australian exporters in lowering their price points, it is the assurances that Australian companies can provide that attracted customers in the first place.
To put simply, a consumer that is looking for a dramatically reduced product was not likely to purchase the genuine merchandise at its price point. As we will explain later, this does not mean they do not intend to.
As such, the idea that counterfeit items detract from authentic sales is a myth.
What most concerns Australian businesses when first stepping into the Chinese market is the potential damage that knock-off products may have on brand integrity. With imitations on the market, how can a customer trust the product they purchased is genuine?
Matthew Mckenzie, the marketing consultant behind China’s Weet-bix craze has suggested a simple solution. “For brands we are looking at protecting, we suggest a unique QR code is put on the product before it comes to China.”
E-commerce and internet literacy are incredibly strong in China and this little change could afford much needed piece of mind for both companies and individual consumers.
What is rarely mentioned in the media is the potential positive implications of counterfeits on the importing business. Instead of stealing sales of damaging reputations, the exposure created by a flood of imitations actually promotes sales.
Research Professor at Northwestern University’s School of Management, Yi Qian and MIT sociologist Renee Gosline suggest there is a heterogeneous, almost symbiotic relationship between authentic products and their Chinese impersonations. An influx of poor quality alternatives gives extra credence to the original, increasing its perceived societal value. In plain English, having imitations of your product is proof that you’ve made it.
We have already acknowledged that most clients of imitation items are those with few economic resources. I.E, consumers that could not afford the original in the first place.
Qian and Gosline found that once said people find greater economic security, they became far more likely to purchase the genuine article than those that never bought a fake. These people wanted the prestige that came with a high-quality purchase, and only chose the fake out of monetary necessity.
This is a critical point as China’s middle-class has been rising over recent years, as discussed here and the potential purchasing power of previous counterfeit patrons has never been greater.
It is important to note that this only relates to high-quality products and that the benefits of imitations do not apply to low-end products. Poor quality products which usually only sell on price point are negatively affected by fakes as they cannot compete with the cheaper alternative.
Thankfully, is the Chinese market, Australia is almost synonymous with excellence.
What this all means is that counterfeit purchases have a minimal effect on sales, rarely cause long-term damage to a brands image (and can be easily safeguarded by the original company), increase exposure and brand-awareness and provides a massive increase in potential clients once the original product becomes readily available.
A good example of this is Australian wine. As previous readers will note, Australia’s wine industry is making strides in the Chinese market currently. As such, imitations are bound to occur. A Shanghai man was arrested attempting to sell over 10 thousand bottles of fake Penfolds wine late last year. At less than a third of the original products price, one might be forgiven for assuming that this drastically hurt Penfolds sales.
In fact, Penfolds has seen a consistent increase in demand for their wine, proving that these fakes do not negatively affect overall sales.
Unpredictable economic climate
Most SME’s fear exporting to a foreign country. There is too much instability and unpredictability for most to handle. After all, small businesses can hardly afford to enter a market only to watch it fall apart and many choose to stick to what they know (domestic sales) rather than risk something new.
In this sense, a strong, stable economy with resilient trade links such as China would be a perfect candidate.
Unfortunately, this brings up questions and fears surrounding Donald Trump’s trade war.
Trump’s declaration to add $60 billion dollars to Chinese trade tariffs has caused a stir in the global community. Ausmate has no interest in judging the decision or taking a political stance on these matters, however, we are interested in how this will affect China’s perception as a ‘safe bet’ in the eyes of the international community.
There has been vitriolic debate over China’s protectionist policies and the arguments for and against the reduction of tariffs vary wildly from ‘inconsequential’ to utter ruination. While it remains to be seen how tit-for-tat trade retaliations will affect US-China trade relations, there is a wealth of evidence to show how effective reducing tariffs can be for trade, here in Australia.
Bilateral trade agreements between China and countries like Georgia and Chile have seen the two smaller countries profit greatly. Georgia increased its wine exports by nearly 45% over the last two years thanks almost entirely to the abolition of tariffs.
Likewise, Chile (one of the furthest countries from China geographically) has been able to use its free trade agreement to become China’s largest exporter of fruit. Agriculture and commodities such as Chile’s lithium reserves, have allowed the two nations to prosper.
This is of course, not even including Australia’s prosperity thanks to tariff reductions.
Instead of an economic concern, the threats of trade retaliations between the two superpowers has only increased Australia’s bargaining position, with a greater demand for Australian products surely coming in the near future.
By Lachlan Holt