A Flawed Sino-German Business Connection

If a Hong Kong department store had not caught fire in 1994, J.H. Hochköppler would have never thought about investing in China. The fire had been caused by a faulty electric connector that bore the name of Hochköppler's company, Adels-Contact.

As a result, the connector was sent back to Germany to find out what happened.

"We didn't think about the possibility that the connector wasn't actually produced by us," Hochköppler said, adding that product piracy wasn't a big issue back then.

Losing billions

But technical tests showed the connector had in fact been counterfeited. And while it perfectly matched the original in terms of appearance, it was seriously flawed in terms of technology.

Hochköppler had joined the ranks of a growing number of German businesses that suffer as a result of product piracy.

According to estimates, German manufacturers lose about 30 billion euros ($38.4 billion) because of counterfeiting each year. Roughly 70 percent of these fake products are made in China.

While no longer threatened by reparation claims as a result, Hochköppler began searching for Chinese product pirates who were copying his connectors. He found the culprits and proposed cooperation.

Futile negotiations

"Maybe we could meet to talk about producing functioning connectors," he told them, hoping this would prevent further problems in the future. Hochköppler spent a year negotiating a joint venture: He proposed Adels-Contact hold 51 percent of the Hong-Kong-based company, with the counterfeiter holding 49 percent.

"In the end -- the contract was almost ready -- we found out that he'd kept copying our products," Hochköppler said, adding that he stopped negotiations immediately.

He's not thought about venturing into China again.

"I can understand the euphoric feelings about China," Hochköppler said. He said he also might reconsider a second attempt to come to the Chinese market in the future -- "maybe, if we have more legal security."

"Wages aren't everything"

Until then, Adels-Contact will continue to produce connectors in eastern Europe and ship them to China.

"That's not much more expensive than producing in China," he said, adding that raw materials such as brass and bronze cost more in China than in Europe. "Wages aren't everything."

In the meantime, Hochköppler's counterfeiter continues to produce his connectors and even tried to offer them at a trade fair in Germany. Hochköppler threatened to sue and the Chinese retracted.

Watching the copy-cats

Since then, Adels-Contact officials carefully observe what's happening in China. They haven't spotted any other copy attempts since.

"People know we're watching them," he said, adding that the counterfeiter has since started producing his own connectors.

"But they're not good enough for the international market," Hochköppler said. "We're not worried about him any more."