Zhongguancun Final Project

Introduction

In China, selling fake or Copycat (模仿者的, mofangzhede) electronics is a legitimate industry.  While I originally thought Zhongguancun (中关村) would be full of small vendors and poor imitations, I soon learned that the employees in Zhongguancun are corporate employees, the stores are parts of networks, and the products, even though fake, are mass produced in factories.  The employees and the companies they represent make Copycat Electronics because it is a part of Chinese Culture to want them.  The desire for expensive Western products coupled with the inability of many people to afford them created the Copycat Market.  “From 2008 to 2010 almost 70% of all counterfeits seized globally came from China (Turnage).” While this refers to all Copycat goods, it is clear that it is not a few people with a factory making fake products but a country with hundreds of factories, thousands of markets, and over a billion people that want them.

Location

I researched at the "Dinghao Electronic Mansion."

I researched at the “Dinghao Electronic Mansion.”

Zhongguancun is located in the Northwest part of Beijing about two miles from Tsinghua University.  It is home to many businesses in China such as Lenovo, Google, and Microsoft. The area has five electronic markets, hotels, restaurants, and apartment buildings.   I researched at the Dinghao Market which has about ten bus lines to take shoppers to the front of the building along with a subway station in the basement.

The Dinghao Market (鼎好商城, Dinghao Shangcheng) has stores on seven floors, two of them being in the basement.  “The quality of goods and the professionalism of the stores tends to decreases from the top floor to the bottom with the biggest switch in quality happening between the basement and the first floor”(Journal Entry).  The top floor, the fifth floor, has legitimate stores with uniformed employees.  The basement floors have the most fake electronics as well as the most customers.  All of the stores claim to be legitimate distributors of their products even though it is common to see several stores that sell the same thing. For example, five stores in the basement that all claim to represent Apple.  I have included a video of the outside of the market at the bottom of this section.

The first floor of Zhongguancun.

The first floor of Zhongguancun.

Zhongguancun is a major shopping area for locals and foreigners in one of the nicest parts of the city.  The proximity of these markets to other legitimate businesses, hotels, and restaurants demonstrates that the city recognizes it as a legitimate shopping area. It is also clear, by the amount of people in the basement, that customers are mainly interested in Copycat Electronics. YouTube Preview Image

 

My Research Methods

On my first trip to Zhongguancun, I walked around the market to get a sense of where everything was. I slowly began to focus on the basement levels because there were more fake electronics and more people in them.  I also began to focus on one type of product: Beats headphones.  I chose them because many booths sold them, many foreigners as well as locals buy them, and there are many different types of fake Beats.  It made it easier to compare different booths by the types of headphones they sold and how they sold them.

The most difficult part of this project was getting honest answers from the people I interviewed.  It is their job to sell fake goods and either pass them off as real or to sell them for much more than they are actually worth.  Since I am clearly a foreigner, or waiguoren (外国人), they told me whatever they thought would help them sell their products.  While for the most part what I was told was the truth or at least part of it, it is important to keep that in mind when I talk about my interactions with employees.  No matter what I did, I was always a potential customer however, because I spoke Chinese and went there a lot, it appeared as if I knew what I was doing. Simply asking if something was Jiade (假的, fake) or zhende (真的, real) changed the conversation from their trying to tell you something was real to their convincing you how it was an excellent knockoff.

 

Cultural Description

            None of the employees I observed treated their jobs as a passion. The age of employees I saw ranged from 17 to about 35 and about 80% of them were male.  While some employees had uniforms, others simply wore comfortable clothing like jeans and sweatshirts.  It was common to see employees looking haggard or very tired.

Employees relaxing at their store.

Employees relaxing at their store.

I noticed early on that the employees were not motivated to work more than they had to.  “If they were not supposed to bring you to their booth, they would sit at their desks and play video games”(Journal Entry).  Some would not pay attention to you even if you were at their booth until you started asking about their products.  This kind of behavior is characteristic of people that are bored or who do not like their job rather than young entrepreneurs.

Another important aspect was that many employees had serial numbers that they would put up whenever they worked.  They also had business cards for companies like this one.  After realizing this, it became clear that they were not independent store owners or working for one boss but rather corporate employees who had to sign into their workstations.   When I asked one employee why she worked at Zhongguancun, she responded by saying, “I work here because it is work” (Journal Entry).   Every person I talked to told me they worked the entire day every day.  This either means that they need the money from working that often or that it would be easy for their employer to find someone willing to work that much making them work harder to keep their job.  After seeing their attitude towards work, it does not make sense that they work that much because they like it.   It was apparent that I was interviewing young people trying to make a living rather copyright thieves.  Their behavior and culture was similar to that of any market or mall.  Selling Copycat products does not change employee behavior or employ a specific type of person.  The employees treat their jobs and their products the same way employees selling legitimate products at a mall do.

 

Shopping

The basement of Zhongguancun.

The basement of Zhongguancun.

Every time I went to Zhongguancun, I shopped for the same product: Beats headphones. I went to six different stores and was able to see how they tried to sell me different things.    I knew immediately they judged me based on how knowledgeable I appeared to be about shopping there.  One of my most informative interviews occurred on my last day at Zhongguancun.  By this point, another store employee taught me how to tell the difference between fake and real Beats.  On the last day, a store teller pulled out three headphones that all appeared to be real.  They had small differences such as the size of the letters on the headphones but none of them looked fake.  Even after using all three, I still had trouble discerning which was real and which was fake.  Eventually the lady I was talking to told me: “These real ones are 1500 Kuai, these good fake ones are 500 Kuai, and these other fake ones are 400 Kuai” (Journal Entry).  After hearing this, I asked her where her store got these headphones from and she said “Some factory that makes them like anything else” (Journal Entry).  When I asked her why they had so many different types of fakes she responded by saying: “Because Chinese people want to appear as though they can afford them” (Journal Entry).  The casual way she answered my questions made it appear as though the answers should be obvious.  I would have gotten the same answers from someone at a clothing store or at a legitimate Apple Store. The two important things she highlighted were that like any other kind of item, fake electronics are made to work with different price ranges and the reason they are made at all is because there is a demand for affordable Western goods. I also discovered that they they even tailor how good of a fake they are to meet different price ranges.  The change in price ranges shows much more planning and organization than I thought there would be in the Copycat Electronics Industry.

 

The Beats bought were made in China...

The Beats I bought were made in China…

Cultural Factors

            The two reasons for producing Copycat Products are the pursuit of profit and the general business culture that developed in China since it reopened to international markets in 1979.  Copying and selling goods is not only profitable, but not prosecuted aggressively if at all.  China alone exports “25 billion dollars in counterfeit goods (Turnage)” and only a fraction of that is ever caught.  With such high profits, it is not only worth it for companies to buy, sell and make fake electronics but they do not have to worry about being caught for them.  That much money boosts the Chinese economy as well as providing jobs for thousands if not millions of people.   Along with helping the economy, the government and its officials can make profits from these markets and businesses: “A conservative estimate placed the average annual payout to the district government at 7.2 million Yuan (Mertha, p.g 305).”  This refers to the money the government makes from a small electronics market in Kunming, a much smaller city than Beijing.  In all of the markets, the companies that operate in them must pay  taxes.  The taxes, and rent, from five larger markets in a major city will generate a substantial amount of money for the government as well as as the thousands of people who work in the markets and businesses such as restaurants that serve the markets’ customers.  With the Copycat Industry being profitable and the chances of being caught very small, it makes sense that this way of selling goods would survive and that the government would want it to.

Chinese people and businesses copy other products because that is how the culture developed. After 1979, when China opened up once again to foreign investors in businesses, they were emerging from a different system.  “China had no special ethics for private enterprises because mainstream political thinking treated private enterprises as evil (Lu, p. 457).”  They did not know what business ethics were so those who decided to copy KFC when it first came to China and other major businesses thought it was a good idea, not that they were stealing anything.  No one decided that copying goods and ideas was wrong. There was also, like today, a high demand for Western products and services because not many people could afford the real thing.

This business culture continues because it is both profitable and, at this point, standard.  I first believed people that sold fake products lived on the fringes of society and thrived off of stealing ideas.  What I know now is fake electronics and goods are very lucrative for everyone from the Chinese government to the people who sell them.  The industry is a big boost to the Chinese economy so it is only logical that they would try to sell them.  The other factor is that this is how markets have been run since their switch to a form of capitalism. The employees who I have encountered are not necessarily bad people, or thieves, but rather participating in a system that has been around since before they were born. These factors led to a space in the market that many different companies tried to fill.  This gap was even more appealing because the resources they used would not be expensive.  A market with low costs, high demand, and no regulation is a great opportunity.   In a country where it is possible to get lunch for about $0.50, it is ridiculous to think that someone would pay $300 for a pair of headphones.

Conclusion

Selling Copycat Goods is a legitimate, lucrative market in China.  The people who work within this market simply try to make a living in what is a billion dollar industry.  While I first thought the copycat industry was run by secret businesses and people on the fringe of society, I learned that it is a normal part of Chinese Culture, and a helpful one to everyone involved.  They are making fake products for people who can not afford to buy the real thing.   Until Chinese people are proud to show off Chinese products or until legitimate products are cheaper, the Copycat Business will continue to thrive.

 

 

Bibliography

1.  Lu, Xiaohe. “A Chinese Perspective: Business Ethics in China Now and in the Future.”  Journal of Business Ethics, Vol. 86, No. 4 (Jun., 2009), pp. 451-461. JSTOR. Web. 29 July 2013.

2.  Mertha, Andrew. “Policy Enforcement Markets: How Bureaucratic Redundancy Contributes to Effective Intellectual Property Implementation in China.”  Comparative Politics, Vol. 38, No. 3 (Apr., 2006), pp. 295-316. JSTOR. Web. 29 July 2013.

3.  Turnage, Mark. “Most Counterfeit Goods Are from China.” Business Insider. N.p. 25 June 2013. Web. 29 July 2013.