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Cablegate: Local Focus On Brand Promotion Leads to Stronger Ipr

VZCZCXRO0315
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0529/01 2410658
ZNR UUUUU ZZH
R 280658Z AUG 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7548
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHIN/AIT TAIPEI 9509
RUEAUSA/DEPT OF HHS WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJL/DEPTJUSTICE WASHDC
RHMCSUU/FBI WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 03 GUANGZHOU 000529

SENSITIVE
SIPDIS

State for EAP/CM - PSecor; EEB - AColeman, JBoger
State for INL - JVigil
USTR for China Office - AWinter; IPR Office - RBae; and OCG -
SMcCoy
Commerce for National Coordinator for IPR Enforcement
Commerce for CIsrael
Commerce for MAC 3204/ESzymanski
Commerce for MAC 3043/McQueen
Commerce for MAC 3042/SWilson, JYoung
Commerce for NWinetke
LOC/Copyright Office - MPoor
USPTO for Int'l Affairs - LBoland, EWu
DOJ for CCIPS - MDuBose
DOJ for SChembtob
FTC for Blumenthal
FBI for LBryant
DHS/ICE for IPR Center - DFaulconer, TRandazzo
DHS/CBP for IPR Rights Branch - GMcCray, PPizzeck
ITC for LLevine, LSchlitt


E.O. 12958: N/A
TAGS: ETRD KIPR ECON PGOV CH
SUBJECT: Local Focus on Brand Promotion Leads to Stronger IPR
Enforcement and Economic Growth

REF: A) GUANGZHOU 438, B) GUANGZHOU 267

(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.

1. (SBU) Summary: Next to industrial powerhouses like Shenzhen and
Dongguan, Shunde is small potatoes among Pearl River Delta cities.
But its brand promotion efforts have yielded impressive results.
The town boasts market leaders in the household appliance industry
that rank among China's top 50 enterprises, and local firms own some
of China's best-known domestic trademarks. City officials took an
active approach in encouraging the development of local intellectual
property (IP) with awareness programs and subsidies. The
enforcement of intellectual property rights (IPR) has strengthened
as industry and government have come to more fully appreciate the
economic value of IP, which has been central to the success of Midea
and Galanz, Shunde's two appliance manufacturing giants. Shunde
officials believe that their IP promotion practices can be a model
for other jurisdictions in south China. End summary.

A Fresh Economic Start for Shunde
---------------------------------

2. (SBU) The city of Shunde is one of south China's great success
stories when it comes to establishing local brand names. According
to Administration for Industry and Commerce (AIC) Deputy Section
Chief Li Yingfeng, the city's economic transformation began in 1992.
It was then that the Shunde Communist Party Committee and
government - perhaps under the impact of Deng Xiaoping's southern
tour - decided to "start business for the second time." The city's
growth was already heavily reliant on local companies rather than
foreign direct investment, so the government's new local brand
promotion strategy seemed to be a natural extension of the area's
comparative advantages. With a population of approximately 1.8
million people, the city lacks the size and resources of many
neighboring communities, but is well-known as a center of certain
kinds of industries, especially household-appliance manufacturing.


3. (U) Sixteen years after the government's fresh start, the city's
economic rebirth looks like an unqualified success. Midea and
Galanz, two appliance makers headquartered in Shunde, were ranked
7th and 39th on Forbes 2008 list of top Chinese enterprises.
Overall, Shunde firms have registered more than 30,000 Chinese
trademarks. Many have been formally designated "famous trademarks"
at the national and provincial level. The city is also a leader in
promoting new trademarks based on geographic indicators.

Focus on Intellectual Property Development
------------------------------------------

3. (SBU) City officials attribute the success to a belief in the
economic value of intellectual property. An interagency group of
officials who met with econoff emphasized that this led to concrete
strategies to support development of local brands. For example,
Shunde's government has initiated numerous awareness programs that
include hosting training seminars, promoting local trade fairs and
leading delegations to international trade fairs. The city also
sponsors an annual International Patent and Brand Expo. Post's IPR

GUANGZHOU 00000529 002 OF 003


Officer and staff from the Guangzhou branch of the U.S. Patent and
Trademark Office plan to attend the this year's expo September
19-21.

4. (SBU) In addition, Guo Bujiang of the Shunde Intellectual
Property Office (IPO) explained that his office had created a
website that disseminates available patent information for use by
local innovators who might wish to develop new applications or build
on existing technologies. Guo argued that the website and other
government outreach programs have been instrumental in transforming
Shunde's household appliance industry into the world's leading
producer of microwave ovens; it has also been a top producer of
other categories, from air conditioners to small kitchen appliances,
in the last couple of years.

5. (SBU) Shunde's government helps subsidize local firms interested
in registering their trademarks overseas. AIC's Li told us that
although Shunde firms had registered numerous brands in China, local
exporters were known to face IPR problems in overseas markets after
failing to properly register their marks. He argued that high
registration costs overseas were part of the problem, noting that
fees in China - just RMB 2,000 (about USD 300) - were about
one-tenth the cost of registration fees in the United States.
(Comment: Various factors affect the cost of registering and
protecting a trademark in different jurisdictions. Li's description
is oversimplified and ignores these factors. End comment.)

6. (SBU) In addition, Yang Xixue of the Technical Supervision Bureau
(TSB) said his agency worked closely with manufacturers to improve
quality in support of brand development. He noted that TSB also
discouraged substandard firms from production that might damage the
reputation of other firms in the area.

And Rights Enforcement, Too
---------------------------

7. (SBU) Officials argued that increased attention to IPR protection
had also been a factor in the successful development of local
brands. They acknowledged having received serious complaints about
IPR enforcement in the mid-1990s shortly after launching the new
brand promotion strategy. However, they claimed that stronger
enforcement efforts had led to a decline and subsequent
stabilization in the level of complaints that has lasted for 10
years. The Shunde government also registered geographic trademarks
for each of Shunde's major districts, as well as a "Made in Shunde"
mark. They believe IPR enforcement improved as local officials
became more interested in protecting each new local mark.

Midea and Galanz - Contrasting Brand Strategies
--------------------------------------------- --

8. (SBU) Midea and Galanz are home appliance manufacturing giants
headquartered in Shunde, but they place different value on the
importance of developing their own brands. Han Qian, Overseas
Marketing Manager for Midea, told us his company has steadily built
its brand and increased market share with several major appliance
product lines. Midea, which currently employs more than 100,000
workers across China and in Vietnam, started making fans and air
conditioners in the 1980s and expanded more recently into kitchen
appliances. Despite the strength of its domestic brand sales, Han

GUANGZHOU 00000529 003 OF 003


said top-level executives continue to focus on original equipment
manufacturing (OEM) for foreign brand-name firms in overseas markets
rather than aggressive expansion of the Midea brand internationally.
They see the OEM business as less risky and more flexible than
building and managing independent sales, marketing and distribution
networks in other countries. OEM sales currently account for 90
percent of Midea's overseas sales. It plans to test Midea-brand
products only in its strongest markets, like Southeast Asia.

9. (SBU) For Galanz, however, developing its own IP is more central
to its strategy for international expansion. The company, which
employs 40,000, is the world's largest producer of microwave ovens
(despite a relatively recent transition from apparel manufacturing
to appliances in 1993). Vice Director for Foreign Trade Jack Lau
told us the company's brand was "almost more important than its
products." Galanz has registered its trademark in over 100
countries and jurisdictions around the world. According to Lau,
innovation is key to the company's success. Although it had
initially obtained licenses from Toshiba technologies, Galanz now
develops and manufactures its own components without reliance on
licensed IP. A headquarters staff of ten works full-time on patent
protection and brand management, with most domestic Chinese IPR
disputes resolved by negotiated settlement. Galanz opened its first
U.S. office in Los Angeles in 1999, and many mid- and senior-level
managers have spent time working there and learning about the U.S.
market. Lau said that Galanz microwave ovens accounted for
approximately 40 per cent of the U.S. market. The company also has
offices in several other countries and Lau pointed out that
international IPR disputes are handled according to local law and
practice.

Comment - A Model for South China
---------------------------------

10. (SBU) Although city officials were reluctant to provide details
on IPR enforcement challenges, it is clear that an appreciation of
the economic value of protecting intellectual property rights has
taken root in this factory town. Officials are proud of their past
successes and expressed optimism that their strategies are not only
good for Shunde but should also be applied in other jurisdictions.
They believe this will happen as officials are rotated, and word of
IP-related best practices circulates to other parts of south China.
Shunde's interagency IP working group displayed a willingness to
engage in bilateral discussion that Post hopes might be a starting
point for future IPR cooperation. We plan to work with other
communities as part of our effort to have deeper provincial-wide
engagement on this subject.

GOLDBERG

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