I guess it is difficult for companies to monitor and enforce IP laws aggresively in order to combat the counterfeiting bugbear in countries where there is considerable laxity and official disinterest in implementing them. It would definitely be interesting to understand and appreciate what else the big boys (adidas, Nike, Puma et al) are doing to fight this. Some of the measures which seem to make sense at first pass are developing non-imitable technologies ( it would take quite some ingenuity to fake an adi F50 or a Nike Mercury Vapor fly in a time frame which makes economic sense), grass roots brand building programs with the younger market demographic thereby taking a pro-active rather than a preventive measure to train and ingrain in them to buy real and real stuff alone.

The NY times had a very interesting write up giving a bird’s eye view of how the secondary industry works by tracing an order of 3000 Nike Tiempo shoes from the Chinese source to the Italian customer who placed the order. Scary and enlightening at the same time, it shows the latent threat of operating in an industry where cloning of products has become second nature and dangerously profitable to cease at any point in the near future. While the fact that counterfeiting happens in China may not be that much of an eye opener – what really stunned me was this bit on how the Chinese government views it:

Beijing’s top intellectual-property officials, meanwhile, seem to disagree over what even constitutes counterfeiting. Last year, a debate occurred between the heads of the State Intellectual Property Office and the National Copyright Administration. The dispute revolved around shanzhai, a term that translates literally into “mountain fortress”; in contemporary usage, it connotes counterfeiting that you should take pride in. There are shanzhai iPhones and shanzhai Porsches.

In February 2009, a reporter asked Tian Lipu, the commissioner of the State Intellectual Property Office, whether shanzhai was something to be esteemed. “I am an intellectual-property-rights worker,” Tian curtly replied. “Using other people’s intellectual property without authorization is against the law.” Chinese culture, he added, was not about imitating and plagiarizing others. But one month later, Liu Binjie, from the National Copyright Administration, drew a distinction between shanzhai and counterfeiting. “Shanzhai shows the cultural creativity of the common people,” Liu said. “It fits a market need, and people like it. We have to guide shanzhai culture and regulate it.” Soon after that, the mayor of Shenzhen, an industrial city near Hong Kong, reportedly urged local businessmen to ignore lofty debates about what is and isn’t defined as counterfeiting and to “not worry about the problem of fighting against plagiarism” and “just focus on doing business.”

And if that was not startling enough, the response mechanism of the companies bewildered me:

But none of the major footwear companies I contacted ventured an estimate of the scale of their counterfeiting problems. For them, it’s something better not discussed. Peter Humphrey, the founder of a risk consultancy firm in Beijing called ChinaWhys, suggested this could be for one of two reasons: a wariness of “upsetting the Chinese authorities” or being “afraid to admit publicly too loud” that they have a counterfeiting problem. “Because when word gets around the consumer market,” Humphrey said, “then everyone starts wondering if their shoes are real or not.”

How do counterfeit products translate to the bottom line of the legitimate company? Is each fake Nike or Adidas tennis shoe a lost sale? A senior employee at a major athletic-footwear company, speaking on condition of anonymity, reflected on counterfeiting as a simple fact of industrial life: “Does it cut into our business? Probably not. Is it frustrating? . . . Of course. But we put it as a form of flattery, I guess.”

And the kick in the mouth comes in the end. This game is not about making a few easy bucks while the going is good. This is about the bad guys digging in for the long haul and using the experience/infrastructure/channels gained out of this little racket to launch to an organic brand of their own in the future. Something which perhaps fits in with the Chinese goverment’s philosophy of “shaizan” discussed above.

It could also be a form of industrial training. In Putian, Lin told me of his real ambitions. “Making counterfeit shoes is a transitional choice,” he said. “We are developing our own brand now. In the longer term we want to make all our own brands, to make our own reputation.” Lin’s goals seemed in line with China’s de facto counterfeiting policy: to discourage it as a matter of law, but also to hope, as a matter of laissez-faire industrial-development policy, that the skills being acquired will eventually result in strong legitimate businesses.

Memories can become a bit jaded. But I guess, it is worth remembering that Li Ning, Anta are slowly eating the big boy’s lunch now in the NBA and other markets. Never give a sucker an even chance is what I have learnt and never seems more truer than here.

Even cliches have their uses at certain times. I guess the oft repeated one in the case of corporate success stories is that the tough part for any business is not reaching the top but staying there for a sustained perio d of time. Nike is one of those companies that I respect but for irrational brand reasons don’t admire. Nonetheless, what they as a company have achieved and continue to achieve is nothing short of phenomenal. However its not been all as suave and smooth behind the scenes. Retail flooding, missing the lifestyle trend in footwear, lack of appetite from consumers for overpriced sneakers, emergence of K-Swiss, Puma, New Balance and other competitors all contributed to a mini crisis for the company in the earlier part of this decade. Another problem was the perennial curse that afflicts upstart firms when they grow big – how do they realign their overall strategy now that they are the “establishment” themselves?

This Business Week article talks about Nike’s restructuring behind the scenes which led them to be more innovative, responsive and also how they struck the right balance between their brashness and new found industry leadership status.Even though the article is dated 2004, I would still believe it is relevant in today’s context. Afterall certian truisms dont change in the business world. I couldn’t resist highlighting a few excerpts but the entire article is worth a read.

Nike’s new grown-up philosophy:

In the old days, Nike operated pretty much on instinct. It took a guess as to how many pairs of shoes to churn out and hoped it could cram them all onto retailers’ shelves. Not anymore. Nike has overhauled its computer systems to get the right number of sneakers to more places in the world more quickly. By methodically studying new markets, it has become a powerhouse overseas — and in new market segments that it once scorned, such as soccer and fashion. It has also beefed up its management team. And after stumbling with its acquisitions, Nike has learned to manage those brands — Cole Haan dress shoes, Converse retro-style sneakers, Hurley International skateboard gear, and Bauer in-line and hockey skates — more efficiently. Indeed, part of Nike’s growth strategy is to add to its portfolio of brands.

Nike’s management shake-up:

Knight made his boldest management move in 2001, when he named two longtime Nike insiders, creative brand and design wonk Mark G. Parker and operations maven Charles D. Denson, as co-presidents. With Grossman and Blair providing an outsider’s perspective and with Parker and Denson steeped in the company’s culture, Knight hoped to achieve a balance between the old and the new, the creative and the financially responsible. The unusual co-president structure was hardly Business 101, and many observers figured the new team wouldn’t last. Few believed co-presidents could survive the inevitable political maneuvering and clash of egos.

The nuts and bolts – Supply chain

Nike also overhauled its supply-chain system, which often left retailers either desperately awaiting delivery of hot shoes or struggling to get rid of the duds. The old jerry-built compilation strung together 27 different computer systems worldwide, most of which couldn’t talk with the others. Under Denson’s direction, Nike has spent $500 million to build a new system. Almost complete, it is already contributing to quicker design and manufacturing times, and fatter gross margins — 42.9% last year, up from 39.9% five years ago. Nike says that the percentage of shoes it makes without a firm order from a retailer has fallen from 30% to 3%, while the lead time for getting new sneaker styles to market has been cut to six months from nine.

I will resist the temptation to paste further snippets, but there are certain insights about how Nike refined its brand portfolio management strategy with Cole Haan, Converse et al which make this article one of those precious gems which looks at the sports business industry as a business and not just a pimped up world of athlete endorsements.

P.S: In case you were wondering, the guy at the top is indeed Eric Cantona. Legend.

Hot on the heels of a football world cup which seems to be going swimmingly well for adidas ( 4 teams in the quarterfinals as I write this and a big FAIL for the Nike stars ), comes even better news for the Herzo based group in the form of leadership in the global golf market. In numbers just in, the adidas owned golf brand posted impressive numbers to secure overall golf market leadership.

Any apparel/equipment brand worth their salt would want to establish a predominant position in the golf market primarily because the very nature of the golf demographic indicates a certain degree of price insensitivity leading to better numbers. As I was doing some further research on this, what struck me was the fragmented nature of the market with established players like Nike, Callaway, Titleist and Ping. Cue – more acquistions in the future? Would be an interesting place to keep track of.

Erich Stamminger

While finishing the second part of our adidas brand asset valuation report, I read this Interbrand interview of Mr Erich Stamminger, the CEO of the adidas brand ( not the adidas group as is used interchangeably. The group is headed by Herbert Hainer ). It was very interesting to read through some of the points he had stated and I excerpt a couple of them here. The whole interview can be read on the Interbrand website.

How is brand building different in today’s age?

Consumers these days are interconnected. Trends that rise today in one area of the world can spread within days, hours, even minutes, into the rest of the world. Before this development started, we had kind of an easy job. Exchange between markets was limited, and a bit slow. So, we were able to build the brand slightly differently in different markets, based on local consumer needs and the distribution landscape. Today, differences in how your brand is perceived and valued by the consumer are fully transparent, which forces brands to build a consistent picture of the brand in consumers’ minds globally, driven by clear values and brand propositions.

How do you go about building a succesful brand?

The first and most critical element is to define values that make the brand stand out and define the guardrails for everything you do and don’t do under the name of your brand. We have a clearly defined brand mission, vision, and values. Authenticity plays a vital role here. It is not only one of our brand values, but it also describes how every activity we do has to fit into that clearly defined frame of mission, vision, and values. It builds trust and credibility with the consumer and provides the basis for identification with your brand, and it must never be jeopardized.

Johan Cruyff

The rivalry between the Dassler brothers which led to the birth of Puma is part of folklore. What is lesser known is the shenanigans and the interesting anecdotes which came along with it. I wanted to share one of my favorite ones, that of Johan Cruff and the Dutch national team kit and this comes from the Guardian out of their famous Q/A knowledge section:

The Dutch FA had a deal with Adidas to supply their kit, and your Johnny Reps and Rob Rensenbrinks of this world were only too happy to wear the stripy orange shirts during the 1974 World Cup in Germany.Cruyff, of course, had other ideas. He had an exclusive personal deal with Adidas’s rivals Puma, who supplied him with their classic Puma King boots. Because of this, he was unwilling to sport the three trademark stripes of Adidas and insisted on a two-striped version instead. As you would expect, he got exactly what he wanted.

Although Cruyff wasn’t around to cause the German kit giants bother when Holland embarked on their 1978 World Cup campaign, his rebellious spirit lived on. The van de Kerkhof twins, Rene and Willy, insisted on being issued with Cruyff-style two-striped shirts else they were off. But did the Dutch FA give in to this blatant show of player power?Of course they did.

Reebok

I stumbled across this interesting snippet which highlights the genesis of Reebok’s Indian success story. Reebok has been a definite trail blazer in India having captured by rough estimates over half of the lucrative Indian market.

The interview is with the Reebok India MD, Subhinder Singh Prem and is dated 2005. I have had the fortune of having personally met him on account of my internship with Reebok India this summer and it was a privelege to have done so.Interning there this summer was a phenomenal experience and deserves a detailed post in its own right. But till then a few excerpts for you:

Here is Mr Singh on the painful lessons learnt:

Our short-sighted approach showed up and showed us up in another initiative. In 2003, based on our finding that most women wear their husbands’ T-shirts and trackpants, or salwar-kameez for walking, we launched a sports salwar-kameez in knit fabric.The focus groups who were shown the product praised it and even suggested changes such as a closed neckline that would do away with the need for a dupatta.But the product bombed. Indian women wanted clothes the rest of the world was wearing — and we hadn’t given hem that. It was perhaps the only product in Reebok India’s range that failed.

On new markets created not entered:

Our learnings were clear: “Ask not what percentage of an existing market your brand can achieve. Ask how large a market your brand can create by putting resources behind creating a category.”

The most efficient, most productive, more useful aspect of branding is creating a new category. Start something totally new. After all, what was the market for home-delivered pizzas before Domino’s began operations? Zero.In 2004, we began to treat our womens’ business initiative as if we were launching a new brand. We started promoting the category by opening women’s-only stores that would meet the special needs of our women customers.

Karhu

Karhu Sports ( a Finnish sports brand whose logo is seen above ) sold the three stripe trademark to Adidas for (the equivalent of) 1600 euros and two bottles of Whiskey. Yup, the same iconic brand which today is valued at 5.4 billion $ by interbrand. Stunning.

Hopefully, the whisky tasted good for Karhu.

My switch was flipped when I first saw this ad by adidas in the mid nineties. I have tried to introspect and figure out why it had the influence on me which it did. Was it the sight of the smile that slowly spreads across the old woman’s face towards the end – highlighting the sports sans age barriers credo? Was it the fact that we as a nation finally had our sports icon who could complement the new generation? To this day, I still can’t figure out what it was which resonated with me (as a highly impressionable youth at that that time) but fair enough to say it was a powerful pull. It sure would be an interesting exercise to see how brand equity varies with the proportion of rational/irrational adherents the brand might have.