Retail titans Apple, Nike and Ikea have to com­pete with impostor replicas of their retail stores that have popped up in the southern dis­trict of Kun­ming city in south­west China and other parts of the world. These stores hawk knockoff prod­ucts to some­times unknowing cus­tomers. Tony Gao, an assis­tant pro­fessor of mar­keting in Northeastern’s Col­lege of Busi­ness Admin­is­tra­tion, inter­prets the broader impli­ca­tions to con­sumer wel­fare, intel­lec­tual prop­erty rights pro­tec­tion, com­pet­i­tive behav­iors and the chal­lenges they create for inter­na­tional marketing.

Why is China — a country that is aggres­sively trying to out­per­form others — resorting to copying the prod­ucts, names or feel of existing retail com­pa­nies? Doesn’t that show a lack of innovation?

This busi­ness prac­tice resem­bles imi­ta­tion much more than inno­va­tion. From a prac­tical point of view, inno­va­tion should only be used as a means to an end, rather than an end itself — that is, inno­va­tion should be pur­sued as a busi­ness strategy only if it could viably and fea­sibly enhance the cus­tomer value of a company’s product and boost the company’s market com­pet­i­tive­ness. Firms (espe­cially those trying to catch up with market leaders) may find imi­ta­tion to be a better way of com­pe­ti­tion. There­fore, it is not uncommon to see local firms emu­late leading multi­na­tional com­pa­nies in a devel­oping market.

All imi­ta­tion efforts by all firms must follow the laws of the gov­ern­ment, be eth­ical and socially respon­sible and serve to enhance, rather than under­mine, con­sumer wel­fare.  From the appear­ance, the copycat Apple stores in Kun­ming, China, may have vio­lated the law, come across as uneth­ical and dam­aged the wel­fare of its customers.

How do retail replicas com­pro­mise the brand integrity and rev­enue of com­pa­nies such as Apple?

This is rem­i­nis­cent of the pri­vate label (or store brands) phe­nom­enon widely used in the global retail industry. This refers to the prac­tice of retailers devel­oping, branding and/​or making their own prod­ucts to replace or com­pare with leading brands owned by widely known man­u­fac­turers. Large retail stores across the United States and Europe have hordes of copycat prod­ucts sold as retailers’ own brands to con­tend with the most rep­utable national brands. These store brands look almost iden­tical to the man­u­fac­turers’ brands, but they are sold at much cheaper prices. As of 2010, the market share of pri­vate labels has reached about 20 per­cent of the total rev­enue of the U.S. super­market industry, and even more so in Europe.

Imi­ta­tion behav­iors such as the Apple store in China and the pri­vate label prac­tice in broader retail under­mine the rev­enue and market posi­tion of the leading brands. Given the rising bar­gaining power of chain retailers, large man­u­fac­turers such as Proctor & Gamble and Whirlpool have learned to live with this fact and responded appro­pri­ately to the trend; for example, by offering their own economy brands or even pro­ducing pri­vate labels for large retailers on a name­less basis. Aca­d­emic lit­er­a­ture reports that the leading brands might enjoy broader market appeal because of the imi­ta­tion efforts by others. Quality issues with copycat prod­ucts may also help enhance the image of leading national brands.

When will the gov­ern­ment create tighter copy­right laws to pro­tect the retail industry?

The prac­tice of retail format imi­ta­tion is a firm behavior rather than a gov­ern­ment behavior. Many times, com­pa­nies and their leaders in China and else­where engage in con­duct that only ben­e­fits them­selves while putting aside the inter­ests of con­sumers, the nation and society at large. It is useful to rec­og­nize that as fast as China has been devel­oping in the last decade, despite the gov­ern­ments’ efforts at for­mu­lating and more com­pe­tently enforcing laws including IPR reg­u­la­tions, the Chi­nese gov­ern­ment has been, per­haps, losing rather than gaining con­trol in effec­tively reg­u­lating firm behaviors.

The Chi­nese gov­ern­ment, Apple and other multi­na­tional com­pa­nies could learn from this and find ways of better safe­guarding the rights of multi­na­tional com­pa­nies doing busi­ness in China. It will be inter­esting to watch how Apple will settle scores with the local stores bla­tantly copying its retail format, espe­cially as these stores are said to be selling authentic Apple prod­ucts. So far, news from the Apple side has been very limited.