Question

Based on “Starbucks Wins Key Trademark Case in China” case study Case Summary This feature focuses on intellectual property laws in China. When Starbucks entered China in 1999, the company was quickly challenged by a look-alike competitor, Shanghai Xing Ba Ke Coffee Shop. Not only did the name Xing Ba Ke mimic the Starbucks name, but Xing Ba Ke’s stores were virtual replicas of those operated by Starbucks. In 2003, Starbucks sued Xing Ba Ke for trademark violations. In 2006, Starbucks won its case, and Xing Ba Ke was fined $62,000 and ordered to stop using its name. The case was seen as a break through of sorts, a signal that China was finally caving to pressure from other nations and the World Trade Organization to respect intellectual property rights. Today, Starbucks operates over 400 stores in China and expects the market to become second only to the U.S.

a) Discuss the concept of property rights protection and why it is so important to companies. What does the court ruling against Xing Ba Ke mean for other companies that are already doing business in China, or are considering entering the market?

b).How important is the Chinese market to Starbucks? Does the presence of look-alike companies like Xing Ba Ke deter firms from entering the market?

Answer 1

a) It shall be noted that property rights protection is legally enforceable rights to use one's own private property such as right to self-designed and self-created ways & means of allocating resources, right to using an owned resource, right to creating a brand image and brand value, right to proceeds generated by property, right to project business outlook and right against infringement of trademarks.

It is important to companies because it helps secure a fair playing ground for all business to make a move towards its success. It helps business to make investments , introduce new technological advancements and motivates them to be creative at doing things and hence, creating values. Over time, it help them to build a brand value and market presence and helps them win the confidence of the customers in the product & its quality and various other forms of customer service.

The court ruling against Xing Ba Ke means a lot to companies already doing business in China on one hand, and on the other hand, to the companies that are considering entering the market.

For the companies already doing the business in China, the court ruling against Xing Ba Ke is a deterrent that such companies should build on their capabilities and should not copy or hi-jack the creative ideas & presence that related companies have built over time.  The law protecting property rights is legally enforceable in China and this law is universally applied to all the companies. Such court ruling also signals that companies should be ready to pay hefty penalties if found guilty. There is also high level of reputation risk associated with such illegal practices that Xing Ba Ke company was practicing.

b) The Chinese market is very important to Starbucks. Given that Chine has the second highest number of Starbucks outlets with 400 stores, next only to US, it indicates that market presence in Chinese market is a significant source of revenue & profit for Starbucks. Starbucks has successfully established in Chinese market as a brand and won the confidence of its people and has developed a stream of loyal customers for all future time to come. Starbucks sees Chinese market as constant source of income for themselves and establishment of trusted business base.

Yes, the presence of look-alike companies like Xing Ba Ke deter firms from entering the market. For entering market, huge investment is required both on professional & human resource front. Firms tend to lose customer base if they find that there are look-alike companies who are not providing high quality of product & service as promised by original brand. With adequate legal enforcement of property rights - private including intellectual property rights, look-alike companies can be stopped from operating functionally and creating issues for original brands.