Sunday, October 23, 2016

Copycat Follies - Part Two

Yesterday in part one, we began reviewing an article featuring a fellow complaining of copycats.  I promised to follow up on this part and the rest:
In some cases, factories will make products that physically resemble ones made by prominent brands. Quality may vary... ...Other times, a Chinese partner factory will produce extra units of a product they agreed to make for another company, and sell the surplus items themselves online or to other vendors.
Jack Ma, founder of Alibaba, drew criticism when he told investors in June (paywall) that fake goods “are of better quality and of better price than the real names” and come from “exactly the same factories” as authentic goods. But there’s some truth to his comments.
Yes, true, but no, not a problem.

Scenario one: products that physically resemble the original of varying quality.  When was the last time you went shopping for something that "physically resembles what you want, but is of varying quality?"  Not recently?  Can't recall.  Now there is the problem.  People who want the real thing will buy it.  People who do not care, or cannot afford the real thing, will not.  Those who trade in product that physically resembles the original but of varying quality, do not sell to the customers of the original.  They sell to those no one else wants, product no one else offers.

Keep in mind factories must design, finance, produce, market and deliver the goods.  It is not as though they do no work for their money.  They just go after market no one else wants.  Why waste any time stopping that which has nothing to do with you?

Scenario Two: A factory produces more of the real thing than ordered by you, the idea-maker.  You mean to tell me you have created a product, for which there is a market, and you cannot figure out how to meet the entire market?  Obviously if the factory does an overrun to meet a demand, a demand of which you are unaware, then you are losing out for your lack of perspicacity.

You really ought to learn from your supplier how he finds markets you cannot, which you could not perceive.  And then work with them.  There are agreements that effectively encourage our suppliers to make enough to cover the entire world demand, plus pay you, but once you are infected with the disease of rent-seeking as manifested in Intellectual Property Rights conceit, then you cannot move on to the better way.  A way I was taught by those thriving in international trade way back when, and I teach in my seminars.

What the Chinese do is right an just, natural, fee market activity.  Capitalists immediately draw on racism when they are confronted with people behaving well.
Many analysts and historians have attributed Chinese counterfeiting to perceived aspects of Chinese culture like its emphasis on memorization in education, or an authoritarian government that stifles innovation.
You see, according to the rent-seekers, there is something wrong with Chinese people. They are counterfeiters. Never mind that they are not, no one has established that they are, by any definition of the word.  Let's just proceed from the basis that we get everything, no one else gets anything.

Let's not. Instead, pause for a second, take a deep breath, and proceed as if there is nothing inherently wrong with being Chinese.
(Shenzhen's) rise throughout the ’90s and early ’00s coincided with a boom in outsourcing among global multinational corporations. Instead of overseeing all the manufacturing of all the parts inside a product, large global hardware companies signed contracts with local manufacturers in Shenzhen to make and design products piecemeal. These contractors would then turn to smaller sub-contractors to help fill orders.
Here inadvertently, we come back to a fundamental point in international trade.  What we exploit when we import is cheap management.  Not cheap labor.  All that work that is management-intensive, we off-shore to people who do it better, we exploit.  We exploit cheap management in international trade, not cheap labor.  Trade patterns confirm this.

But to the text: Subcontractors is nothing new, anywhere.  When you want a house remodelled, there is the general contractor, and subcontractors.  Of course.
Many of the factories involved in these fragmented supply chains were small, family-owned entities operating without government approval. As they worked together, they realized they could do more than just supply parts that ended up in name-brand hardware. They could create rival products on their own, and reach customers who were too poor to buy a Nokia phone or Apple iPod, said Lindtner.
Here we go again.  There is something wrong with Chinese people.  They work without government approval.  Better to have 90 million boys in USA living in their mom's basements awaiting government approval than anyone actually take any initiative.  Not only that, Chinese people cooperate and create synergies. And with this new found skills, they can create rival products.

You mean like the Japanese who created better cameras than the Germans, and better cars than the Americans, and better fabrics than the British?  Yes, the Chinese will get there too, but we will never see it coming if we presume there is something inherently wrong with people who are Chinese.

If people are too poor to buy Apple or Nokia, then they were never Nokia or Apple customers.  Just what problem is this article addressing?  Hard to say, except another iteration of the scientistic racism and rent-seeking that is essential to capitalism and its devotees.
They banded together, at times sharing the recipes for specific electronic devices on online message boards. Thus began the shanzhai phenomenon, a word that literally means “mountain fortress,” but came to stand for products that skirt existing intellectual property laws. Phones and consumer electronics with names like “aPod” and “Nokla” flooded the market in the late ’00s.
Banded together = Bandits! Yes, every time you turned around, you saw someone on an aPod or Nokla, which flooded the world markets  In fact you probably have a half dozen of each in a drawer somewhere.  Not.
The shanzhai era in consumer electronics gradually faded as incomes rose and brand-name smartphones became more affordable. But it enforced a culture of knowledge-sharing among manufacturers, wherein no single product design is sacred. Lindtner compares the culture of Shenzhen’s manufacturing ecosystem to the open-source movement among software developers. Much like how programmers will freely share code for others to improve upon, Shenzhen manufacturers now see hardware and product design as something that can be borrowed freely and altered. Success in business comes down to speed and execution, not necessarily originality.
No!  You mean free markets actually work, when allowed to?  You mean products start out expensive and over time the prices drop to the point virtually everyone can have access to that goods and services with their own money?  Imagine that.  People worked so hard they put themselves out of business, and are now working on higher-order goods?
“It’s understood that re-iterating or copying is part of the culture, and whoever is better and faster is going to make the deal,” said Lindtner.
You mean good management is important?  That is scary, given USA managements has atrophied to the abysmal.
Nowadays, China’s copycat phenomenon extends well beyond multinational corporations like Gucci or Nokia—startups are affected too. Thanks to the internet, factories and designers looking for the next hit product can easily turn to Kickstarter, Amazon, or Taobao to see what gadgets are hot.
Kickstarter cannot tell you what is hot.  Kickstarter can tell you how much money an idea hs attracted, but there is zero correlation, to date, between funding and success.   The only thing Kickstarter can guarantee is one heck of tax bill on "income" in the for of funds raised on Kickstarter, that few if any "kickstarter success stories" see coming.

As to Amazon and Taobao, it shows you what might be hot and then you can try to sell for less, by means of the profoundly expensive method of online advertising.

Why is it none of the scientistic racists who denigrate free markets ever notice factories must design, finance, produce, market and deliver the goods.  It is not as though they do no work for their money.  They just go after market no one else wants.
They message each other instantly using WeChat, China’s dominant chat app, or Alibaba’s chat software, which makes sourcing and assembly line planning even easier than in the pre-smartphone days.
Well, two things here.  If the Chinese ever get around to cooperating to this degree, then the rest of the world is sunk.  The fact is the reality on the ground is dog eat dog and largely counterproductive efforts. itn is amazing that so much good comes out of Shenzhen in spite of the reality on the ground.  Next, computerization may have simplified some processes, but it has done nothing to make what comes off the lines any better.  Best design still wins.
“Back in the ’80s people were talking about ‘just-in time’ manufacturing” as something to aspire to, he said. “But now, the Chinese don’t even know any other way.”
Well, back in the 70s, and 60s, and 50s...  in fact going back to the Garden of Eden.  Small business has always operated on this basis.  Nothing new or different in Shenzhen.

This whole next section is just weird.  It recognizes reality but refuses to accept it.
Businesses can take certain legal precautions to reduce the risk of getting copied. A first, crucial step, according to Song Zhu, who litigates IP disputes between US and Chinese firms at California-based law firm Ruyak Cherian LLP, is to apply for utility and design patents for a product that’s valid in the US, China, and anywhere else one hopes to sell.
Entrepreneurs should also sign “NNN agreements” with potential Chinese partners before revealing any intellectual property. This contract prevents partner factories from using the intellectual property themselves after first view (“non-use”), sharing it with others (“non-disclosure”), or inking a partnership and then selling extra units on their own (“non-circumvention”).
But even with these protections, there’s no guarantee that you can stop someone from copycatting your product. Zhu said that the problem lies not in China’s courts, but enforcing rulings. Winning a case against one factory is relatively easy. But suing every factory and winning is expensive and time consuming.
Like Islam, the Chinese have not forgotten the culturally superior regime of free markets.  So we start with the unremarkable advice from a lawyer: hire a lawyer.  Over 40 years in this business I have never consulted a lawyer on business, since lawyers know nothing about business.  They simply charge fees for maintaining some fantasy.  Also, why would any sane person, working for a living, want to keep secret an idea he is trying to sell?  Why wouldn't we want subcontractors involved (show it to others) if that is most efficient?  Why would we not want extra units made if a factory see more market than we do, since it is never a problem getting paid for that market too.  As government workers, lawyers assiduously solve problems that do not exist.  And charge for the service.  Not here they say all of the legal help is pointless in a free market, yet they recommend legal help.
“There are probably hundreds of small factories who might see a product on the internet and think ‘Hey I can do this,” said Zhu. “How are you going to shut down all of them? How can you even find out where they are? And the money you spend suing them is more than you can get out of the lawsuit.”
Why would anyone want to shut down any of them?  They are making things you do want to make,
selling them to people to whom you do not want to sell.  The factories must design, finance, produce, market and deliver the goods.  It is not as though they do no work for their money.  Why is the USA so destructive toward people who want to work, helping others?
This is now the position Sherman finds himself in with Stikbox. While he hasn’t pursued legal action yet, he said he spends 20% of his time tracking down copycat factories through China’s giant e-commerce sites. It sometimes takes him up to five days to figure out one factory’s location.
This is classic.  People who have zero reason for thinking an idea is theirs, knowing nothing can effectively be done to enforce their desire for a rent-seeking sinecure, nonetheless wasting time in pursuit of the sinceure.  In this way, one can waste time being a victim, and being a victim is HUGE in USA today.
The spread of copycat manufacturing isn’t just creating headaches for hardware companies and startups. It’s challenging traditional notions of intellectual property—specifically, what type of ideas are valuable, and what type of ideas are not.
Whoa.  Forty years in this business, never got a headache from the "copycats."  There is nothing "traditional" about Intellectual property, it is just a recent innovation in the annals in violent thuggery.  And there never has been , nor ever will be, a challenge to what kind of ideas are valuable, and what are not.  It is really quite simple:  what sells?  And guess what, we can also guage precisely how valuable it is...  by its sales, and profits!  Imagine that!  It is distressing no one associated with this article is aware of that.
Decades ago, a company or entrepreneur might come up with an idea and then spend years securing the patents, completing the design, devising a manufacturing plan, and bringing it to market. Enforceable contracts with partners helped ensure these ideas wouldn’t leak to competitors—but so did the high cost of starting a factory, sourcing components, and managing assembly lines.
Well, yes and no.  That goes on today.... not "only decades ago."  Plus, since 1789, there have been some 7 million patents issued in USA.  Any patent attorney can tell you this:  of those 7 million patents, almost nothing patented ever turns into a product.  Of the extremely rare instance where a patented item actually turns into a product, almost none are ever profitable.  Of the trace amounts of 'success" eery one of those would have been a success anyway, IPR or no.  Any patent attorney can tell you this, but do you think they will?
Moving the world’s manufacturing center to China makes the latter hurdles nearly disappear. Factories are set up in makeshift buildings. Cheap labor is abundant. Sourcing components is easy because of online marketplaces like Alibaba. As a result, smart ideas that are easy to turn into physical products become commoditized quickly.
Nonsense.  Finding reliable suppliers on alibaba is near impossible.  Alibaba is a firehose of wastewater when you want a sip of clear water.  Rarely do the best suppliers allow themselves to be listed on alibaba, world center for scams.  Finding the best supplier has not changed in 40 years, or 4000 years.  And product life cycle of winning products has not changed.    The internet has only created far more litter out there.
Businesses are now forced to come to terms with this new reality. It’s not enough to create a product with a groundbreaking design or features, like a smartphone case that turns into a selfie stick. Companies dealing in the creation of physical goods now must make products that are impossible to copy exactly from the get go, by focusing on a special feature they can protect, or creating a coveted brand name consumers will pay more for.
What nonsense!  There is no new reality to which anyone is forced to come to terms.  Delusional: a smartphone case that turns into a selfie-stick is groundbreaking.  From a delusional base, a solution to a problem that does not exist.  Instead of creating products for customers, the criteria becomes create products that are hard to copy:
“If you have a simple product that has some market demand, you will get copied,” said Benjamin Joffe, who works with hardware startups that are manufacturing in China at HAX, a venture capital fund. “The question is more, what do you actually have that’s defensible?”
No it's not.  The question is do you have customers, not "how can I get a rent-seeking sinecure?"
Companies can defend themselves from copying by investing in software that complements physical hardware, and then guarding it. Apple, for example, does this with the iPhone, which carries the proprietary iOS operating system that’s unavailable on other phones. Or they can invest in well-crafted branding and marketing. 
More nonsense.  Companies defend themselves by serving the customers they want, and not bothering with anyone serving customers they do not want.  For example...  Apple.
Hong Kong-based startup Native Union, for example, created an earpiece for smartphones that looks like an old-fashioned, crescent-shaped landline phone receiver.
I first saw that in the 1990s, and 100 times since.  (As you go through the images, notice these were done for flip phones, all the way back to old Motorola brick phones.) So the example this writers uses is one of a "start-up" with an ancient idea. (The writer could not take .043 seconds to google search this fact?) This is common, come up with a completely unoriginal idea, and then complain others stole it from you. Based on this, the advice is...
Founder Igor Duc later changed the company’s direction and began making a totally different product—smartphone cases made out of Italian marble that sell for $80 each. They’re more difficult to make than the average consumer electronic device, which prevents copycats from surfacing.
So design based on a problem that does not exist, not based on customer demand.  I wonder if he has asked anyone if they will pay $80 for a smartphone case that is very heavy, will crack easily, and will inhibit reception?  I would recommend he does just that, but according to the universe in which these and very many people live, the criteria for market success is difficulty to copy, not customer demand. 

Joffe, the venture capital investor, argues that some companies might even benefit from copycatting, as it can bring more awareness to the product itself. “If you have more customers buying the fake product then it creates more awareness for the real product, and it becomes an aspirational thing. At some point they might be able to afford the real thing.”
Yes, Karl Lagerfeld calls knock-offs of his Chanel designs free advertising. This too is nothing new.  It's just people who got JDs or MBAs have never learned anything about business.  But eventually they too learn how it is done, how it has always been done.
“There are other selfie stick cases but we are the only ones that have been copied. So it shows that our product is worth being copied,” he said. “The quote that comes to mind is, ‘Imitation is the sincerest form of flattery.’”
Again, as if this is his idea to begin with, as if even if it was, any of his ideas have a place in the real world, as if his selfie stick is the only one copied (how the hell would he know?), and as if copying proves market.  This article is exemplary as to what we've lost with the introduction of ex nihilo credit, two generations who have no idea how to do business.
Yet Sherman estimates that he has lost “hundreds of thousands” of dollars in potential revenue due to copycats. Imitation isn’t just a sincere form of flattery, it’s an expensive one as well.
You can't lose what you never had.  But he should lose, along with those associated with this article, the delusional world they have constructed, in which they are tormented by problems that do not exist.

Feel free to forward this by email to three of your friends.


Whizz Systems said...

Of the extremely rare instance where a patented item actually turns into a product, almost none are ever profitable.

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