Practical Research Paper Assignment | Custom Assignment Help

For a case study, you may choose a company (a Chinese firm) to analysis. This company has faced a commercial legal problem, and it has implemented a strategy. This strategy may have been successful, or it may have failed. Please analyse the strategy, and make a very brief recommendation about whether this strategy could be used again. You may choose to analyse multiple strategies relating to the same legal issue.
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CLAW6030
China’s Legal Environment for Business
Analysing Existing Problems in Logistics Chains that Affect
Qualities of Delivered Goods
1. Abstract1
This paper will be written in the style of an industry case study and the targeted readers are
individuals who are interested in the field of logistics relates to online shopping. Even if
readers have little knowledge of logistics, they can still understand this paper and get the
core ideas.
China has the most developed online shopping platforms in the world, it also has several
famous and dominant logistic companies. Thanks to the unique culture like the Single’s Day
in China, logistics in e‐commerce has become a significant link in the whole process of online
purchasing, because this part can influence the quality of delivered products directly, which
consequently affects customers’ experience of online shopping and the later‐on
development of e‐commerce (Gould 2001).
This paper familiars readers with the basic and significant concepts of logistics in online
shopping. It introduces current various categories of logistics firms, different cooperation
patterns between logistics and platforms in e‐commerce. And later on it specifically
addresses issues relates to goods’ qualities in cold chain logistics models and traditional
courier services, as many damaged‐quality cases in online shopping are related to these two
areas.
By exploring various logistics chains used in different e‐commerce platforms and discussing
distinct delivering conditions required by diversified products, this paper offers readers with
a comprehensive picture of current logistics systems, enabling them to develop a
substantive understanding of existing and possible problems in logistics, and have some
inspirations of potential solutions to address issues relates to sustaining products’ quality
during delivery.
The area of laws and regulations that are used in this paper include Postal Law of the
People’s Republic of China, Courier Services to National Standards, Measures for the
Administration of Express Market, E‐commerce Law (draft) and Contract Law.
1 Please note that what I am writing is different from my proposal.
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Table of Contents
CLAW6030 ………………………………………………………………………………………………………………………….. 1
Analysing Existing Problems in Logistics Chains that Affect Qualities of Delivered Goods ……. 1
1. Abstract ……………………………………………………………………………………………………………………. 1
2. Introduction ……………………………………………………………………………………………………………… 3
Basic Information of Logistic Firms ………………………………………………………………………… 3
Different Logistics Patterns Used by Online Shops …………………………………………………. 4
Current Cold Chain Logistics Models ………………………………………………………………………. 4
3. Key legislation …………………………………………………………………………………………………………… 5
Postal Law of the People’s Republic of China 1986 ………………………………………………… 5
Measures for the Administration of Express Market 2013 ……………………………………… 5
Courier Services to National Standards 2012 …………………………………………………………. 6
E‐commerce Law (Draft) 2016 ……………………………………………………………………………….. 6
4. Key regulators …………………………………………………………………………………………………………… 6
MOT – Ministry of Transport …………………………………………………………………………………. 6
SPB ‐ State Post Bureau …………………………………………………………………………………………. 6
5. Current problems and issues …………………………………………………………………………………….. 6
“Discounted” freshness of food in Cold Chain Logistics ………………………………………….. 6
Occasional Damages of Goods in Courier Services …………………………………………………. 8
6. Conclusion ………………………………………………………………………………………………………………… 9
7. Reference List …………………………………………………………………………………………………………. 10
8. Legislation List ………………………………………………………………………………………………………… 12
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2. Introduction
Logistics has become an unavoidable and vital issue in the development of e‐commerce.
There are many factors contributing to its significant position, for instance, logistics decides
not only how long customers will receive the goods after online payments, but also qualities
of goods because any accident or misbehaviour in storage or delivering will affect products’
qualities directly. Though in recent years more and more logistics firms have emerged and
kept trying to perfect themselves to keep up with the increasing demands from customers,
there are still some problems existing in logistics systems.
Basic Information of Logistic Firms
Due to the convenience and relatively cheaper prices, online shopping has become a
popular and indispensable method, especially for young generations, to purchase almost
any item. Consequently, despite a slowdown in the economy in recent years, online
shopping in China still remains optimistic prospect with transactions jumping 33.3% year‐onyear
to 3.88 trillion RMB in 2015 (BBC Monitoring Asia Pacific 2016).
Because of the huge demand in China’s market, various logistics firms have emerged and
developed as the times require, and some are closely related to or depending on ecommerce,
including traditional express firms, e‐commerce logistics and logistics online
platforms.
There are mainly four categories of traditional express firms. The first category is foreign
express delivery enterprises, including FedEx Corp and United Parcel Service (UPS). These
companies are highly experienced in marketing with considerable capitals and developed
international network (Shi 2014). The second kind is national logistics firms like EMS and
CAE who occupy the leading positions because of their tight connections with the state and
completed domestic networks. The third ones are large private enterprises, such as Shun
Feng and Shen Tong. These firms usually start from regional basis and then gradually expand
to the national wide. Lastly is some small private logistics companies who usually are flexible
but with neither effective managements nor mature developing strategies, and mainly
focusing on deliveries of specific areas (Prose Press 2017).
Apart from traditional ones, both e‐commerce logistics and logistics online platforms have
been developing as well. The first type refers to self‐operating logistics created by online
shopping platforms like Jing Dong Mall (JD) and Dang Dang, who build up their own systems
to deliver goods to customers, which lowers cost of logistics and ensures the speed and
quality of delivering. And the other type includes Yun Manman who has its own website that
provides information of available vehicles so that users with products can contact
appropriate drivers to negotiate about delivering. Or drivers can look for information of
goods requiring transportation and build up cooperation. Logistics online platforms transfer
offline activities to online, making it easier and faster for users and logistics firms to
communicate (Sohu 2016).
Since this paper aims to analyse goods’ quality problems occurred in online‐shoppingrelated
logistics chains, logistics online platforms above will not be further discussed.
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Different Logistics Patterns Used by Online Shops
Online shops mainly have two choices regarding to online platforms and respective logistics
patterns. They can either independently enter into an online platform to directly sell
products to consumers, then cooperate with a traditional logistics firm. Or they can contract
with self‐operating logistics platforms where shops do not need to worry about goods
delivery.
The best example to illustrate the first pattern is Taobao. It is a consumer‐to‐consumer
retailing platform where individuals can set up their own online stores (Chang 2015).
Depending on personal choices, a shop owner usually has a long term partnership with a
specific traditional courier firm. After communicating and taking orders from customers, the
owner will pack goods attached with detailed information of receivers and addresses, and
wait for couriers to get all packages. Unless the products are problematic from the
beginning at the owner’s store, couriers and logistics companies will be responsible for any
quality problems happened during delivery later on, according to art.39 in E‐commerce Law
(draft).
On the other hand, a self‐operating logistics platform is quite different because they usually
have their own warehouses and logistics systems. Taking JD, a typical business‐to‐consumer
platform, as an example. After suppliers getting the entrance permissions from JD, there are
three cooperation methods available. Most commonly JD would purchase certain quantities
of products and store them in its own separate warehouses. Whenever the goods are
ordered, based on the location of purchasers, they can be accessed and transported directly
from the nearest warehouse and sold under the name of JD. The second method used by a
small number of suppliers is that they have their own shops in JD Mall, doing sales and
deliveries by themselves, and JD gets certain percentages of their selling profits as platform
fees. The last method is a combination of above two where suppliers take orders on their
own but store their products in JD’s warehouses and use JD’s delivery system (Chang 2015).
Current Cold Chain Logistics Models
Since it is quite convenient to purchase fresh food online nowadays, cold chain logistics
emerge as increasing needs from market. To ensure food’s freshness, logistics is required to
have high standards of distributing timing, methods and conditions (Zou, Xie and Lin 2013).
Currently there are four models of cold chain logistics (Yang 2016).
The first mode is called self‐operating logistics which funds to build its own logistics system
and manage the whole delivering system, just like JD. This mode adopts integrative services
which means that there is no third party participating from customers’ online orders till the
final receiving of goods. It usually uses the combination of warehouses and distribution
stations: setting up warehouses and distribution stations in areas where online shopping is
intensive, connecting each distributing station to the Internet, monitoring the whole
delivering process and using the nearest warehouses to minimize delivery time and cost.
Second one is called the third party logistics. It refers to a model where a third party logistics
firm takes the responsibility of delivering for other companies. Due to the development of
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information technology and the trend of globalization, more and more goods are
distributed, produced, circulated and consumed in worldwide ranges. Consequently the first
and second parties’ management of logistics cannot fulfill the huge demands from market.
At the same time, to survive in a competitive market, enterprises have to build up their core
competence, enhance their management of supply chains, and lower the cost of logistics by
outsourcing logistic activities that does not belong to their core business.
The third one is the community distribution model which is relatively new and often be
applied in intensive online shopping areas. After consumers making online orders, the
logistics firm would treat a community as a unit to organize distribution. This method
centralizes the separated logistics networks, which aims to save labour and time.
The last one is convenience stores plus online‐to‐offline. It refers to the cooperation
between online shops and convenience stores. Online shops provide purchasing information
while the offline convenience stores serve as self‐pick‐up stations. By reserving ordered
products in refrigerators in convenience stores, consumers can pick up goods by themselves
when they have time. This model takes advantage of refrigerators and convenience stores’
locations, making them become warehouses and distributing stations of online shops.
3. Key legislation
Postal Law of the People’s Republic of China 1986
This law establishes the standards of entering delivery market, and comprehensively
regulates responsibility of postal management department. The revised version better
specifies the business extent of postal services along with regulations of respective services
fees. In Chapter Five, from article 46 to 48 it states relevant compensation amounts based
on different degree of damages and loss of goods. And Chapter Six regulates the business
extent of logistics firms, preventing them from conducting out‐of‐line behaviour.
Measures for the Administration of Express Market 2013
The first version of this act has been abolished in 2013, followed by the immediate
effectiveness of the second version. This act, based on Postal Law and other relevant
regulations, aims to protect users’ legal rights and facilitate the development of express
market. As a major element of logistics in e‐commerce, most courier delivery issues have
been covered and regulated in this act. It specifically states that couriers should encourage
customers to insure expensive or significant goods before delivering (art. 16.1); employees
should classify goods professionally and update information on the internet in time, and
must not throw or stamp packages (art.16.2). Also a written contract is necessary to
establish rights and duties of both express firms and customers, and any items relating to
compensation should be outlined observably in express receipts with specific explanations
(art. 19).
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Courier Services to National Standards 2012
This regulation consists of three parts. The first part outlines the basic concepts and terms in
courier services, the second part concerns the organizational requirements for express
firms, while the last part establishes standards for delivering services. It states that if the
delivery is delayed, no service fees should be charged (A.3.2); and if the package is lost,
service fees will be returned, with compensation based either on insured price, or related
laws and regulations (A.3.3). Also if inside goods are damaged, compensation will depend on
goods’ damaging degree (A.3.4).
E‐commerce Law (Draft) 2016
This draft law is the first law relates to e‐commerce in China, aiming to promote sustainable
development of e‐commerce and to protect stakeholders’ benefits. Article 38‐44 regulate
courier‐service‐related issues, including couriers should make reasonable compensation
when damages occurred during delivering.
4. Key regulators
MOT – Ministry of Transport
This department is responsible for drawing up plans for organizing and implementing
policies as well as standards for highway, waterage and airline transportation. It coordinates
transport systems comprehensively, promoting the jointly link between several transport
methods, and aims to achieve a fast, unhindered, effective and safe transport system.
SPB ‐ State Post Bureau
SPB was set up in 2008 and is under direct administration of MOT. It is mainly responsible
for postal development, including monitoring express delivery market. Most cities have their
own city post bureaus that follow core ideas of SPB regulations and under SPB’s vertical
management, and they use different methods to solve related issues based on local
situations.
5. Current problems and issues
Common problems regarding to goods’ qualities usually occur in following two areas of
logistics in e‐commerce.
“Discounted” freshness of food in Cold Chain Logistics
Before the emergence of e‐commerce, public common conception of food availability was
usually based on regions and seasons. However, nowadays customers only need to visit
some online shops, they can then get access to various food, including food from foreign
countries, without considering seasons or regions.
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Generally fresh food includes fruits, vegetables, meet, seafood, cooked food and pastries
(Doc In 2002). The reason why it is so hard to manage fresh food is all about “freshness” ‐
these food has very short period of quality guarantee and can be easily damaged during
delivery. Consequently suppliers and distributors need to figure out how to reserve food’s
freshness in storage and delivery.
As mentioned above in introduction, currently there are four models being used in cold
chain logistics which are specifically developed for food delivery. Since the current largest
group of customers of online food purchasing are office employees who are extremely busy
in the daytime and do not have time for offline shopping, and they usually have nine‐to‐five
jobs which stagger the regular delivering time, logistics firms often choose different models
of cold chain logistics to better serve those customers. But there are still some problems in
cold chain logistics development.
To begin with, most suppliers’ storage quality and the number of warehouses are not
satisfying. These food mainly have five temperature zones: normal temperature, constant
temperature, 8 degrees to 15 degrees, 0 degree to 8 degrees and minus 18 degrees below
zero. It leads to an extremely high cost for setting up temperature controls of warehouses,
not to mention building up more warehouses nationally (Joint Information 2016).
Moreover, apart from storage, the logistic chain is costly in many ways. Firstly, traditional
fresh food delivering method uses foam boxes with dry ice, which is expensive and hard to
recycle. Secondly, to arrive at receivers’ places, fresh food usually go through suppliers,
manufacturers, warehouses, distribution centres and channel traders. The more
middlemen, the lower efficiency of logistics chains, with more wastage and more
management cost. Things get even worse when fresh food are rejected and returned from
customers, the go‐and‐back process will double food wastage and even expire their quality
guarantee periods, leading to more cost. Thirdly, delivery is often faced with the problem of
end distribution. Office employees may not available and no recipient makes food much
easier to go bad, and multiple times of deliveries will add more cost (Joint Information
2016).
Last but not least, fresh food is extremely hard to be standardized. Due to their various
categories and complex classification, currently fresh food has no unified standard in
market, which makes it difficult to set uniform prices and to manage them at scale.
Accordingly the cost is still high and efficiency can hardly be improved. Also, because they
can be easily damages during delivery and they have short quality guarantee periods,
compared to standardized goods in e‐commerce, fresh food are more often involved in
issues like imperfection, causing more problems and loss for suppliers (Joint Information
2016).
While no perfect solution has been figured out, many e‐commerce platforms and logistics
firms are trying different methods to solve respective problems and to survive in the
competitive market.
For example, JD is a pioneer in this field and has been performing well, with relatively fewer
problems and better reputation (Fei Q 2017). To be more specifically, since the January of
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2016, JD has built up more than 10 warehouses with proper temperature controlling
systems and more than 3,300 distribution stations nationally, covering nearly 130 cities.
Most fresh food there has achieved the aim of zero inventory and can reach customers
within the day – if customers make online orders before 3 p.m., fresh food usually can be
delivered within 5 hours.
Considering delivery materials, JD’s self‐operating delivery usually uses recyclable heat
insulation boxes which are made of plastics and insulating foils, with interlayers to place ice
plates. This method can easily achieve the goal of reversed logistics and reducing cost.
Under emergent conditions or delivering to some remote areas, to lower costs
comparatively, JD would adopt traditional methods of using foam boxes with dry ice.
To reduce the number of middlemen, JD adopts the pattern of ‘cooperative warehouse of
source areas plus cold chain fast logistics’. This method reduces complex in‐and‐out‐store
procedures and unnecessary physical movements, increasing the speed of logistics and
decreasing wastage during middle processes.
To ensure food quality JD also builds up a professional sourcing team which researches and
collects food materials worldwide and build up cooperation with local governments or
superior suppliers, ensuring food quality from the beginning.
Occasional Damages of Goods in Courier Services
Huge needs of organized and fast courier services usually come around festival periods, like
Christmas and Valentine’s Day, or periods with sales promotions like The Single’s Day.
The Single’s Day is a unique culture in China that on 11th of November, most online shops
will have big sales activities, offering even 50%‐off prices to attract more customers. Since
most popular goods have limited selling numbers, at the midnight of 10th, billions of people
would hold breath in front of their computers, ready to click purchasing buttons as fast as
possible. The following days usually are the busiest period for courier companies, and more
problems occur than usual, especially damages of packages.
Though the logistics gradually has been more organized and reliable in these years, there
are still some issues concerning the damages of goods exist, especially in busy periods. In
November of 2016 there were 23,785 effective complaints regarding to courier services, and
1,996 of them were related to packages’ damage (Sohu Economics 2016). It is difficult for
customers to get compensations because customers did not know related compensation
articles and the reasons for broken are hard to tell, giving courier firms excuses to avoid
compensations.
There are many factors contributing to damages of packages. First of all is due to couriers’
unprofessional behaviour. During Single’s Day period many firms lack labours, and couriers
are under huge pressure to deliver goods as soon as possible. Some of them become
impatient or unorganized when faced with hundreds and thousands of packages. There are
some videos online showing that some delivery clerks are rude and violent when classifying
thousands of packages. They throw and kick those boxes, and pile them together carelessly
without caring what are inside. Secondly, some packages are wrapped carelessly, after some
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bumps on the road, goods inside may easily fall out and get damaged (Sohu 2016). Other
possible reasons include bad weather and traffic accidents, like rainy days if the packages
got wet by accident, inside goods might be affected, or in snowy days delivering vehicles
become harder to control, increasing risks of accidents which also damages goods inside.
According to Measures for the Administration of Express Market, if a logistics firm has no
advanced agreement with customers on compensation of damaged goods, for insured
express, the firm should make compensation based on insured prices, while for uninsured
express, the compensation will depend on relative regulations in Postal law and Contract
Law (art.20). Fragile goods cannot be insured in express, and according to above regulations,
once fragile goods are damaged, they can only be compensated based on “contract” behind
express receipts (Tianjin Enorth 2013).
It is now encouraged that couriers should tell customers clearly of relevant rules concerning
damages of goods, especially for expensive ones and fragile ones. Shun Feng has done a
relatively better job in this field. For example, clerks there usually inform customers in
advance that they usually do not accept fragile products, but if the customer insists on
delivering, they would state it clear that compensation will be given only when the package
is lost, not damaged, advising customers either insure goods or not just use courier service
for expensive or fragile goods. And It refuses to deliver huge numbers of packages at the
same time in order to ensure its service quality, as in many cases too many packages
increase the risk of damages. Also, by application of advanced monitoring system, it uses
GPRS to supervise delivery process, ensuring packages are not damaged on the road (Money
163 2015).
Since not every staff in logistics firms has been properly trained, it is better that customers
pay more attention, and logistics firms should state their provisions clearly, especially
remind customers of the “contract” behind express receipts as art.19 of Measures for the
Administration of Express Market requires.
6. Conclusion
Logistics firms are still developing and the competition is more extensive than before.
Delivering speed matters, but the quality of goods is the key to win the competition. A
logistics firm must be technically equipped and well organized, with professional clerks and
reasonable service prices, it then can achieve sustainability with an optimistic developing
prospect.
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7. Reference List
Modern Chinese Material
常明波，《京东自营物流与淘宝第三方物流对比分析》, Chang M., ‘A Comparison
between Self‐operating Logistics in Jingdong and Third Party logistics in Taobao’, 4 June
2015, <https://wenku.baidu.com/view/cf9d01fa5acfa1c7ab00cc5c.html> (13 May 2017)
豆丁网，《生鲜商品定义》, Doc In, ‘Definitions of Fresh Food’, 3 August 2002,
<http://www.docin.com/p‐495246538.html> (13 May 2017)
费倩文，《探秘京东生鲜冷链仓库：瓜果蔬菜的漂流记》, Fei Q, ‘Exploring Cold Chain
Logistics in JD, Do News, 18 January 2017,
<http://www.donews.com/news/detail/1/2946559.html> (15 May 2017)
联商资讯，《生鲜电商面临三大问题，教你四个方面突破》, Joint Information, ‘Three
Problems Faced by Fresh Food Suppliers in E‐commerce, Solutions from Four Aspects’, 26
June 2016,
<http://www.linkshop.com.cn/(kwthrmauciseeriqsdu1ui55)/web/Article_News.aspx?Article
Id=351821> (15 May 2017)
网易财经，《快递单藏“猫腻”，易碎品损坏不予赔偿》, Money 163, ‘The Hidden Secret
in Courier Receipts, No Compensation for Fragile Goods’, 23 October 2015,
<http://money.163.com/15/1023/08/B6JMSQS300253B0H.html> (15 May 2015)
散文网，《2017 传统物流行业的发展机遇》, Prose Press, ‘Development Opputuinty for
Traditional Logistics Industry in 2017’, 12 February 2017,
<http://sanwen.net/a/wsizyqo.html> (15 May 2015)
搜狐财经，《11 月快递申诉率出炉，这几家快递要小心》, Sohu Economics, ‘Be Careful
with Following Courier firms, Based on Complaints Rate in November’, 14 December 2016,
<http://mt.sohu.com/20161214/n475907914.shtml> (16 May 2017)
搜狐互联网，《快递公司提出安全加强方案预防快件丢失》, Sohu IT, ‘Courier
Companies Propose Enhanced Safety Plans to Prevent Loss of Packages’, 18 November 2011,
<http://it.sohu.com/20111118/n326125779.shtml> (16 May 2017)
搜狐互联网，《2016 上半年中国快递市场研究报告》, Sohu IT, ‘Report of Study on
Courier Market in the First Half of 2016’, 13 October 2016,
<http://mt.sohu.com/20161013/n470210895.shtml> (14 May 2017)
搜狐，《如何防止快递包裹丢失 这些技巧你不得不看》, Sohu, ‘How to Prevent Loss of
Packages, You Have to Learn Following Tips’, 1 December 2016,
<http://mt.sohu.com/20161201/n474680404.shtml> (16 May 2017)
天津北方网讯，《快递易碎品，让人伤不起：寄送要承担额外风险》, Tianjin Enorth,
‘Delivering Fragile Goods Requires Taking Extra Risks’, 29 June 2013,
<http://news.enorth.com.cn/system/2013/06/29/011107461.shtml> (15 May 2017)
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杨明，《生鲜电子商务物流配送的模式比较》, Yang M., ‘Comparison of Fresh Food
logistics Patterns in E‐commerce’, 2016, <http://www.doc88.com/p‐9945269815482.html>
(17 May 2017)
English Material
BBC Monitoring Asia Pacific, 2016, ‘Online Shopping in Rural China Nearly Doubled in 2015’,
Business and Economics, Political Science, 9 April, BBC Worldwide Limited, UK
Gould, S. 2001. Supply Chain Management Review, July/August, Vol. 45, viewed 3 April
2017.
Shi, J. 2014, ‘Express Delivery Sector Opens Up’, 25 September, China Daily, viewed 20 May
2017, <http://www.chinadaily.com.cn/business/2014‐09/25/content_18657570.htm>
Zou YF, Xie RH and Lin CP, 2013, ‘Study on Safety Reliability of Foods Cold Chain Logistics’,
Contemporary Logistics 33‐38, Brighten East, Issue 12, Australia
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8. Legislation List
《中华人民共和国合同法》 Contract Law of the People’s Republic of China 1999 (National
People’s Congress)
《快递服务国家标准》 Courier Services to National Standards 2012 (General
Administration of Quality Supervision, Inspection and Quarantine of PRC and
Standardization Administration of PRC)
《电子商务法（草案）》 E‐commerce Law (draft) 2016
《快递市场管理办法》 Measures for the Administration of Express Market 2013 (Ministry
of Transport of PRC)
《中华人民共和国邮政法》 Postal Law of the People’s Republic of China 1986 (Standing
Committee of National People’s Congress)

How Can Multinational Software Corporations Protect Their Copyright in China: A Case Study of Microsoft
Abstract
Microsoft is a multinational corporations which was founded in 1975 in America. Its main business is to develop, manufacture, support and sell computer software, personal computers and services. Microsoft is one of the earliest MNEs entered into the Chinese market. Back to 1992, it had already realized that China is the most promising market and started to develop strategy. As Chinese market was not mature and the market participants had a weak awareness about protection of copyrights, Microsoft’s earnings in China did not meet the expectation. However, Microsoft made a wise response: utilize piracy to expand the market and fight back when it has a dominant market share. Microsoft has sued several Chinese companies and won most of them. This research paper will use Microsoft as an entry point to discuss how can multinational software companies protect their copyright in China. This article will analysis this issue in three main angles: China’s angel, legal angel and business angel.
From the perspective of China, this article will illustrate the Chines cultural and economic environment and find out why piracy is so prevalent in China. For the legal part, the article will analysis two of the law suits Microsoft made in China and show what legal weapons multinational companies could use in China to protect their copyright. For the business part, the software industry in China will be analyzed. Moreover, by learning the Microsoft’s practice in China, it is possible to find out some useful suggestions for multinational enterprises that has already entered or want to enter Chinese market about how to protect their copyright.
Introduction
Microsoft is a multinational company which was established in 1975 in America. The main business of this company is to provide products and services related to software and personal computers. Microsoft not only offer useful and high quality goods to
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customers but also greatly influenced people’s working experience and lifestyle by its products (Microsoft 2015). Customers of Microsoft spread all around the world and most of them are familiar with some of its products. One of the most famous products of Microsoft is Microsoft Windows, the operating system. It has several editions, some of them can be used on computers and some can be served on mobile devices. Moreover, Windows has dominated the operating system market for a very long period.
From the end of last century when China began to ‘entered into the world’, the Chinese government started to encourage the inflows of investment and technology and outflows of domestic products (Shen and Mantzopoulos 2013). The open-door policy is not only a good chance for China’s economic development and communication with the world but also a good opportunity for multinational companies to enter Chinese market. Subsequent to the China’s participation in the World Trade Organization (WTO), an increasing number of international corporations made strategies of entering China (Strategic Direction 2003). At that time, Microsoft has dominated the software and operating system market for a very long period and undoubtedly China is a new large promising market to explore. However, not all the things could happened as planned. After Windows appeared in China, it indeed attracted a lot of attention and spread fast among computer users. Nevertheless, customers’ enthusiasm wasn’t reflected in the sales revenue of Microsoft as majority of the software provided in China is pirated. Since then, Microsoft started its long journey in China on the protection of its copyright (Strategic Direction 2003).
This article will firstly give two cases about software piracy and then discuss the Chinese conditions of copyright protection in China and finally present some recommendations for software businesses.
Background
Microsoft has brought several lawsuit against different Chinese companies on piracy.
One of the most famous cases on piracy is Microsoft vs. Tomato Garden (TG). TG was a popular website established in 2004 which provided freely downloadable pirated
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software and operating system such as Windows and Office to customers, the website’s revenue was mainly generated by providing advertisement services on the webpage. In 2008, the Business Software Alliance (BSA) prosecuted the website for piracy. Consequently, the founders and main executives of the website were sent to prison for more than three years and got a fine of RMB 1 million (US$146,000) for each of them (Hille 2009). Spokesman of BSA said that ‘This is the first successful criminal case to crack down, on such a large scale, on online software piracy in China’ (Hille 2009).
Another kind of case is that Microsoft against companies which used its software without licenses. On 22 April, 2010, the Shanghai Pudong People’s Court ordered Dazhong Insurance to pay RMB2.17 billion to Microsoft. Dazhong Insurance is a very large insurance company based in Shanghai who has a lot of branches all around the country. Investigation showed that the company installed more than 400 sets of pirated Microsoft software (Perez 2010). Although Microsoft has warned a lot of times, the company still refused to use the authorized software. Consequently, Microsoft brought lawsuit against the insurance company and got a large amount of compensation (Perez 2010).
Analysis
There are a lot of aspects businesses need to notice why piracy is so prevalent in China. This article will divided these aspects into three main parts: cultural and economic environment, legal environment and business environment.
I. Cultural and Economic environment
The private concept is contrast with some traditional Chinese culture. China has a very long history with prosperous culture. In ancient days, Chinese people was living in the influence of Confucius for a long time. Confucianism highly appreciated the concept of collectivity and family (Pang 2011). These conceptions made people focus on the group interest and reputation instead of individuals’ (Lu 2009). Therefore, people valued sharing very much in their daily life not only for products but also ideas. There is a famous old saying said that people could focus on himself when he is poor but he
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should help others or even the whole country when he is rich enough (Tian 2008). This saying is a typical summary of this sharing concept. As a result, the concept of sharing is opposite to the exclusive right of private intellectual property in America and other western countries.
Besides that traditional cultural reason, there is also modern cultural rationale supporting sharing. After the establishment of the People’s Republic of China in 1949, the Communist Party of China became the ruling party and the largest party in China. In the last decades of last century, the national leader of China implemented the open-door policy and realized the importance of technology and knowledge. However, the private concept is still not the main concept among Chinese (Tian 2008). ‘Selfless contribution and public sharing’ is the theme of the whole society (Tian 2008). Collective ownership is the base of the country and evidence can be found from the constitution: ‘the economic system of China is based on the socialist public ownership, which means the production of the society is namely owned by the whole people’ (Constitution of the People’s Republic of China 2004 Article 6 Chapter 1). Thus this is also a reason why it is hard to protect private copyright in China.
Education is another important aspect. The lack of copyright protection education in Chinese schools and colleges is also a significant reason. Unless the students’ major is law, their lectures and classes will not cover a lot of law knowledge including intellectual property laws (Tian 2008).
In addition, there are also some economic conditions businesses need to understand. Firstly, the living standard and income level of Chinese people is much lower than Americans. However, Microsoft made the sales price of its products in China the same as the price in America. The price may be cheap for American customers but most of the Chinese customer cannot afford it (Shen 2005). This is important for companies to consider when they decide to enter into another countries.
Another economic condition is the distinction of the economic structure between the two countries. Compared to America and other developed countries, Chinese economic
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structure is mainly depend on manufacturing (Tian 2008). Although the Chinese government is encouraging the development of high-tech industries and supporting the self-build brands, it will take a long time for the transition of the whole structure (Blanchard 2007). The manufacturing based economy means most of the domestic companies are labor-intensive and lack innovation. This in turn shows the fact that China need to import high-tech products and services from other countries. When the legal copy is too expensive to afford, pirated copy seems to be the better choice.
It is important to understand a country before a multinational enterprise start to open business there. The culture in China is much different from many western countries, this may be a challenge for some foreign corporations to run business there while it also can be a competitiveness if the firm understand it and utilize it well.
II. Legal environment
In addition to the cultural and economic aspects, businesses also need to understand the current legal environment in China in order to protect their copy right.
Firstly, the TG cases mentioned before can be a good entry to this part. From the judgment it can be seen that the case is not only a copyright case but also a criminal case. The founders and executives reproduced and distributed Microsoft’s software products without its permission and they made a lot of profits from the piracy activity. Moreover, the amount of the profit is huge and the circumstances are serious enough to consider it as a ‘crime of copyright infringement’ (Ma and Guo 2012). The main laws involved in this case are the Article 47 of the Copyright Law of the People’s Republic of China and Article 217 of the Criminal Law of the People’s Republic of China (Ma and Guo 2012). Another case is Microsoft vs. Dazhong Insurance. According to Intellectual Property Protection by Shanghai Courts (2010), the defendant Dazhong Insurance initially agreed to change its all sets of software to legal copy instead of pirated copy and signed a ‘minutes of meeting’. However, the firm did not do what it should do and continued to use pirated products after the agreement. Then the plaintiff Microsoft brought a lawsuit against Dazhong. From the trial it can be seen that several
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laws were involved. For example, Article 2, 48 and 49 of the Copyright Law of the People’s Republic of China and the Article 21, 25 and 26 of Interpretation by Supreme People’s Court on the Issues in the Application of Laws in Trial of Copyright Civil Cases and Article 24 of Regulations for the Protection of Computer Software were all involved. From these two cases it can be seen that there are a lot of Chinese laws can be used for multinational companies to protect their copyrights.
However foreign companies also need to know that the Copyright law in China is still not consummate enough to meet the multinational corporations’ needs. The Copyright Law of China firstly established in 1990 and then experienced twice revisions in 2001 and 2010. Before China joined in the World Trade Organization, the Copyright Law was revised to meet the demand of the Agreement on Trade-Related parts of Intellectual Property Rights (TRIPS) of WTO (Xue 2013). The second revision in 2010 was merely to meet the demand of WTO Dispute Report and the 2001 edition is largely in use currently. China is now preparing the third revision and a revision draft was published in March 2012.
Law shall not go apart from culture. Usually there are two ways where law comes from. One is that there is a tradition in a country and then people make law to protect this tradition. Another is there is no custom in this country, people make law or invite law from other countries to comply with the global trends. As illustrated before, the culture in China is largely different from western cultures. The appearance of Chinese Copyright Law can be seen as the latter way (Tian 2008). Thus, it is hard for the Copyright Law to be well improved unless the Chinese culture could merge with the concept of private intellectual property rights.
Lack of enforcement is another issue. The separation of Chinese administration, legislation and jurisdiction is not as distinct as some western countries. According to Cohen (2009), the Communist Party of China has almost absolute control of the legal system. Therefore, the administrative departments have huge authority power not only in legislation but also in jurisdiction (White 1999). However, the centralization of law’s function flowed downside to local administrative organs, which means the local
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congress also has ‘power to draft, present, examine, adopt and promulgate law’ (White 1999). This makes the implementation of certain laws became more complex in different areas. Therefore, it is important for foreign companies to notice this difference when they choose specific regions of China to enter. Moreover, corruption is also a significant issue in China which adversely affected the independence of judgment (Cohen 2009). This problem, together with the issue of ‘incompetence of judges’ makes the justice in court doubtful (Pang 2011).
In summary, although there are some legal problems for foreign software companies to enter Chinese market, the legal environment is improving and problems are solved step by step. Multinational companies need to notice those problems as well as have confidence in the market.
III. Business environment
Computer software and services industry in China began in 1970s. In the beginning stage the industry mainly focused on domestic demand (McManus 2011). After the open-door policy, the Chinese government started to pay more attention to this industry. From then on, China regarded the software industry as a significant pillar for economic growth (McManus 2011). In recent years, the government has issued a large amount of policies to support the development of software industry.
Tax deduction and exemption policy is a huge advantage for the development of software industry. The government offered Value Added Tax (VAT) refund for software companies’ research and development activities and productions (McManus and Floyd 2004). This policy deduct ‘the effective VAT for software companies from 17% to 3%’ (McManus and Floyd 2004). Moreover, the policy also allowed new founded corporations exemption of enterprise income tax (EIT) for two years (McManus and Floyd 2004). In addition, software companies could also get exemption for tariffs. Multinational companies may not enjoy those tax benefits but at least the government shows a positive attitude towards the software industry.
The infrastructure is improved. The government has invested a large amount of money
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in building software parks across the country. Some local governments also funded specific projects to support the development of software infrastructure. For example, Shanghai has launched several projects to improve the financial systems, business and trade automation, social information services and remote education to support software industries (McManus and Floyd 2004).
There are also some other advantages for developing software in China. Although the software market has existing for several decades, the demand of Chinese people for software products are still increasing. Along with the rising of people’s living standard and income level, the huge demand in this market is hardly to weaken in a long run (Business Wire 2009). Furthermore, the Chinese human resource in software area is adequacy, there are hundreds or thousands graduates come to the employment market every year (Business Wire 2009) and the labor cost is also relatively low compared to those developed countries. Well-developed hardware industry provides powerful foundation for software industry. Additionally, the software products was bundled to the hardware goods in the past thus the software industry is relatively backward compared to some developed countries (McManus 2011). This is also a good opportunity for those world famous software companies to open mark in China.
However, there are also some issues in Chinese software market. Firstly the industry in China is very fragmented (EIU ViewsWire 2003). One reason is that the government’s supporting policy is mainly focusing on small companies. Lack of management skills and experience is also a problem for Chines software companies then it is hard for them to expand their business scales. Additionally, different regions have very different policies and standards for the software firms and this limits the development of some firms (EIU ViewsWire 2003). This may be a bad side for Chinese domestic companies but it is an advantage for multinational companies such as Microsoft as it is very hard for those small companies to compete with such a big and famous international brand. Secondly, piracy is another big issue, both domestic companies and multinational companies will be affected by this problem (Business Wire 2009). From the Microsoft’s case it can be seen that on one hand, pirated products seriously reduced the company’s
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sales revenue in China, on the other hand, piracy help Microsoft dominate the market in an incredible fast speed. Thus, multinational companies need to think hard about how to deal with this problem and how to use it as a developing tool. Thirdly, finance shortage is a problem in the long run for domestic industries. Actually most of the Chinese banks are reluctant to offer loans to small or medium companies as it is too risky compared to lending money to state-owned companies (McManus 2011). Furthermore, software companies usually have large amount of intangible assets instead of physical ones, this makes banks more unwilling to lend money to them (McManus 2011). However this is not a big problem for multinational companies as they could get fund from their own countries and financial bases are also much stronger than Chinese domestic firms.
Recommendations
Recommendations could be explored on the base of understanding Chinese environment.
As unaffordable high price is the main reason for Chinese individuals to choose pirated products, companies could use different price strategy in China. Dell actually is a good example for those multinational companies to learn who use lower sales prices in China to attract customers (Tian 2008).
Microsoft made a good model for business how to utilize piracy as an expanding strategy. In the end of last century Microsoft had already realized piracy is the main reason to dilute its revenue in China. However, it didn’t fight back immediately, it use piracy to dominate the Chinese market and then use legal weapon to protect its benefits (Strategic Direction 2003).
Taking legal weapons. Although there are a lot of problems with Chinese copyright law, companies still could use them to protect their copyrights. The victory of Microsoft’s cases against some Chinese companies also illustrate the Copyright Law of the People’s Republic of China and the Regulations for the Protection of Computer Software are useful for multinational companies.
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Cooperation with the government. The Chinese government need the help of multinational software companies to develop domestic industry. International corporations need to seize the opportunity. Microsoft has established many joint ventures with Chinese companies as well as acquired a large number of contracts with the government entities (Blanchard 2007). This is also a good way to protect their copyright as government entities will not accept pirated products.
Makin use of Chine’s supporting policy for software industry. China now is transiting its economic structure from manufacture-based structure to high-tech base structure. Multinational should use every beneficial policies to develop their business in China (Strategic Direction 2003). Moreover, as different regions has different standards and policies, international corporations should make investigations and find out the suitable places before enter into Chinese market (McManus and Floyd 2004).
Investing in Chinese education and training project. According to Blanchard (2007), Microsoft has invested a large amount of money in Chinese education and training project. Although this will cost a lot of capital, it is worth doing as corporations could see it as a promotion or marketing approach. Investment in education could improve companies’ reputation in a new market. Moreover, companies could open training project to teach people about the importance of copyright and this in turn would encourage more and more people to use legal copy of software.
Updating protection technology of software products. Microsoft has used ‘black screen’ method to check whether the users installed the legal copy of their products. Although this is a controversial action and is suspected as an invasion of customers’ privacy (Xinhua News Agency 2008), it opened a right orientation that companies should put more effort on protect their own products. Piracy not only exists in China but all around the world. Setting useful protection methodology may be the most useful way to against piracy.
Conclusion
Software industry is a new but significant sector in Chinese economy. Chines software
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market illustrates promising future and hopeful prospects for international companies. Although the current environment in China has problems and issues for foreign companies to run business here, the conditions are keeping improved all the time. As long as multinational corporations could understand those conditions and realize opportunities there, they could achieve success in this emerging market.
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