Protect your good name, or risk becoming the next ‘Wumart’

Is your client losing business in China? Ask anyone who has shopped at Wumart, or grabbed a bite at… Obama Fried Chicken?

Risk Management News

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Is your client losing business in China? Ask anyone who has shopped at Wumart, or grabbed a bite at… Obama Fried Chicken?

According to a recent UN report, almost 70 per cent of all counterfeits seized globally come from China – with that number even higher for North America, resulting in companies looking to insurers to protect their corporate brand.

The report from the UN Office on Drugs and Crime entitled Transnational Organized Crime in East Asia and the Pacific, shows that from 2008 to 2010 almost 70 per cent of all counterfeits seized globally come from China.

According to John Spagnuolo, spokesperson for the Insurance Information Institute, says that intellectual property insurance – and liability involving allegations of copyright or trademark infringement and protection of branding – is crucial for companies operating in a global economy.

“The dynamics of risk management have changed with technology,” adds Spagnuolo.

Insurance Business has compiled a list of brands that China has, well, appropriated, some of which landed the companies involved in hot water: (continued.)

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Wumart – The spokesperson for Wumart says they “dream of being the Walmart of China.”
Gaopeng, or Groupon.cn – China’s version of the popular Groupon.
Harry Potter and Lord of The Rings series have been combined into “Harry Potter and the Leopard Walk-Up-To Dragon”.
Rolls Royce – The Geely GE. The Geely GE looks a lot like the Rolls Royce Phantom.
Kentucky Fried Chicken, or KFC – In China, it is OFC; perhaps Obama Fried Chicken in Beijing?
Starbucks in China is Bucksstar Coffee, and Pizza Hut is called Pizza Huh.

There are other ripoffs, but we can’t repeat in print the one-letter alteration of “Starbucks” without offending readers.

The list goes on and on - and Apple isn't immune either:

In China you can buy a HiPhone, or the equivalent to the iPad, known as the Apad  (which ironically has a USB port that the iPad doesn’t).

And When Google threatened to pull out of China, Goojje popped up on the world wide (Chinese) web. (continued.)

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The number of counterfeit products coming from China are even higher compared to the global average when only the North American market is taken into consideration.

Matt Earle, president of reputation.ca, knows the importance of maintaining brand integrity for companies, especially in a growing global economy.

“Even if a brand isn’t operating in that market (China), that reputation can be damaged if someone does a Google search and comes across a knockoff, like a ‘Wumart’,” Earle told InsuranceBusiness.ca. “That is why a lot of companies trademark their brand, and why they don’t want other companies diluting their product with clones that offer poor quality.”

U.S. Customs say that in the same period, 87 per cent of the value of counterfeits seized originated in China. Since the World Trade Organization estimates that 2 per cent of all world trade is in counterfeit goods, the value of counterfeit goods imported into the U.S. and EU from East Asia (the bulk of which come from China) is thought to be on the order of $25 billion annually.

The same ecosystem also supports counterfeiters, whether directly (leakage of product out of a legitimate supply chain), or indirectly (drawing on local manufacturing expertise and suppliers to set up illegitimate manufacturing sites).  The reality is that by outsourcing to China many companies lose control of their own supply chains.

Earle says that in Canada, AIG does offer protection for companies looking to protect their good name. (continued.)

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“That is why AIG offers ReputationGuard,” he says. “For example, when GM hired a public relations firm during the financial crisis, the coverage provided the budget to hire that firm. It can be a significant part of the business. You work hard to build up that brand – you don’t want that destroyed.”

According to AIG, ReputationGuard is “an insurance solution that provides innovative coverage to help policyholders cope with reputation threats.”

The coverage delivers the “vital benefit of world-class experts and broad coverage for costs associated with avoiding or mitigating the impact of negative publicity.”

Although it is a problem, China is taking steps to correct it.

Chinese authorities periodically stage raids, seizures, and shut down illicit factories.  In 2011 the Chinese government conducted a year-long enforcement drive, arresting thousands of suspected counterfeiters and closing numerous factories. This was followed by a similar effort in 2012.

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