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(Business Weekly)
Updated: 2006-01-23 13:48

The contrast is striking. Pictures of counterfeit products line one wall of the company's conference room, with over 60 legitimate items along the opposite side of the room.

Coconut Palm's message is clear: The Haikou-based beverage maker in South China's Hainan Province is serious about intellectual property rights (IPR) protection and innovation.

Wisdom comes from experience, and the company has learned the hard way over the past several decades. Haikou Canned Food Factory, Coconut Palm's predecessor, lost market share on some of its products due to a complete lack of IPR protection. The company even published the technology behind its snail canning operations back in the 1970s, completely unaware of the need to protect its copyrights.

"We had to stop production," says Vice-President Liang Zhenze.

Coconut Palm immediately applied patents to its new natural coconut beverage in 1988, and also registered it in six neighbouring countries, including Philippines, Malaysia, Thailand and Singapore. The drink later became one of China's leading natural fruit beverage exports.

Liang says the company has encountered a number of issues in its anti-counterfeit campaign.

"The largest problem has been related to brand registration," he says.

Several small companies that produce coconut juice have used words and other details in their packaging that suggest a connection to Coconut Palm.

"It misleads customers sometimes," Liang says.

Some small independent producers have gone even farther; one operation collected used Coconut Palm cans, cut the tops off, refilled them with counterfeit juice and resealed them.

"It was very hard, even for us, to distinguish them from our own products," Liang says, adding that although they seized the fake products, they failed to identify who was responsible.

Coconut Palm now runs a number of IPR related programmes. It rewards employees who help protect the company's copyrights, and even buys life insurance for staff who specialize in IPR protection.

The company has poured over 10 million yuan (US$1.2 million) into its campaign against counterfeit products over the past several years. It dealt with 458 cases, with the help of national, provincial and municipal institutions.

Coconut Palm started focusing on technical innovation and research and development over 20 years ago, and had established clear regulations for developing new products by 1986. A number of incentives have been established to encourage innovation. Employees who came up with marketable new ideas were initially given 5,000 to 10,000 yuan (US$ 617.3 to 1,234.6 ), with 3 to 5 per cent of that product's net profits.

Within a year, the initiative had led to the development of a process that separates natural oils from fruit juice. Over 30 new products, including mango and starfruit juice, were developed as a result of the new technology. It helped the company eliminate its financial deficit and brought in profit as well.

"The employees involved picked up at least 300,000 yuan (US$37,037)," Liang says.

Innovation and IPR protection have helped the company stay competitive over the past 18 years. Total sales revenue now stands at 18.29 billion yuan (US$2.26 billion). The stage is now set for further expansion into foreign markets. The company is working on using sale channels in Hong Kong to develop the Japanese, South Korean, and US markets.

"Our overseas sale revenue has been growing a lot over the past few years," Liang says. "But it still only accounts for a small proportion of our total annual revenue, less than 8 per cent."

Liang adds that it costs a lot to expand into potentially lucrative markets such as Japan and the United States. Yet the company is committed to international expansion, and may diversify into lower cost markets such as Russia to ease the transition onto the global stage.