Brand positioning and anti-counterfeiting effectiveness: a study of managers' perceptions of foreign brands in China.
Copyright infringement (Case studies)
Copyright infringement (Political aspects)
Consumer preferences (Case studies)
Consumer preferences (Political aspects)
Product counterfeiting (Case studies)
Product counterfeiting (Political aspects)
Risk assessment (Case studies)
Risk assessment (Political aspects)
Business planning (Case studies)
Business planning (Political aspects)
Business plans (Case studies)
Business plans (Political aspects)
Marketing research (Case studies)
Marketing research (Political aspects)
Yang, Deli
Fryxell, Gerald E.
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Name: Management International Review Publisher: Gabler Verlag Audience: Trade Format: Magazine/Journal Subject: Business; Business, international Copyright: COPYRIGHT 2009 Gabler Verlag ISSN: 0938-8249
Date: Nov, 2009 Source Volume: 49 Source Issue: 6
Event Code: 242 Advertising; 200 Management dynamics; 290 Public affairs; 640 Foreign trade Advertising Code: 52 Advertising Activity Computer Subject: Company business management
Product Code: 9912200 Venture Analysis; 9912100 Planning

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* We pursue the previously-noted association between brands and counterfeiting one step further to examine the relationship between brand positioning and anti-counterfeiting, based on a study of 130 well-known foreign brands in China.

* We test hypotheses about managerial perceptions as to the effects of different brand positioning strategies on the effectiveness of their actions to counter counterfeiting, in other words, whether branding positioning can help to stop counterfeiting, limit damage to firms and maintain brand reputation.

* Our findings confirm that brand positioning affects anti-counterfeiting effectiveness. Specifically, product reliability and customer services are compatible with efforts to stop counterfeit production, but innovative technologies and product features and functions appear to exacerbate the problem.

Keywords: Anti-counterfeiting strategy. Brand. Brand positioning - China. Counterfeiting * Effectiveness


Counterfeiting--the unauthorised imitative production of products and/or services that are protected by owners' intellectual property rights (IPR) in the pursuit of profit (Cordell et al. 1996, Shultz/Saporito 1996, Yang/Sonmez/Bosworth 2004)--has grown into a global business. Estimates claim that counterfeits represent seven percent of global merchandise trade (Balfour 2005). International trade in pirated physical products exceeded US $200 billion in 2005, and this estimate excludes the value of counterfeit goods that were domestically produced and consumed (OECD 2007). To place this in perspective, this amount exceeds the collective domestic products of 150 of the world's economies (OECD 2007). With the increase in its scope and geographical reach, counterfeiting is now a global enterprise working through international networks.

China is regarded as a leading source of counterfeits, and accounted for 70% of the total value of seized goods by the US Customs in 2005 (IACC 2006). The problem of counterfeiting is not limited to the sphere of international trade, as fakes made in China for sale in Chinese markets undermine the prospects for foreign--and, increasingly, local--brands alike. For instance, Michi, once one of Beijing's most popular brands, cited 'widespread counterfeiting' as the principal reason for its demise (O'Neil 2001).

Given the magnitude of this problem, actions against counterfeiting have preoccupied both practitioners and policy makers. From the corporate perspective, any action that might mitigate the frequency of, or fallout from, the faking of products should be welcome. This should be especially so in the Chinese context, given the fact that China plays host not only to many foreign brands, but also to many counterfeit operations.

However, this pressing global problem has excited little academic interest. Of the existing anti-counterfeiting studies (though rich in examining strategies themselves), only two have explored the effectiveness of anti-counterfeiting strategies in any depth (Lybecker 2007, Yang/Fryxell/Sie 2006), both demonstrating that combined government/corporate actions can potentially improve anti-counterfeiting effectiveness. While the latter also finds that government measures tend to be overtaken by faster-acting corporate action, both studies stress that their findings are inconclusive, and that further work is needed.

Our study differs from prior research in three respects. First, it links brand positioning with anti-counterfeiting effectiveness. Ample prior research has confirmed a positive association between the popularity of brands and consumers' purchase of counterfeits (Albers-Miller 1999, Bearden/Etzel 1982, Bian/Veloutsou 2007, Bloch/Bush/Campbell 1993, Gentry/Putrevu/Shultz 2006, Matos/Ituassu/Rossi 2007, Pine/Peppers/Rogers 1995, Shultz/Saporito 1996); however, these studies appear not to have examined how a company positions its brand(s) can affect the effectiveness of its anti-counterfeiting strategy. Therefore, investigating brand positioning strategies taking counterfeiting into account seems long overdue, and the new insights about how the association operates provided in this study may help improve the effectiveness of anti- counterfeiting activity.

Second, this paper differs from prior research in terms of its focus. Previous work has addressed the effectiveness of both government and corporate anti-counterfeiting strategies (Lybecker 2007, Yang/Sonmez/Bosworth 2006). Based on Yang et al's (2006) insight that corporate approaches tend to overtake government actions, we fully focus on the relationship between corporate approaches and anti-counterfeiting effectiveness. In addition, this paper studies international brands, whereas Yang et al's focus was on IP as a whole, and Lybecker's on patents.

Finally, this study examines the effectiveness of brand positioning as an anti-counterfeiting stance. Where prior studies have examined firms' anti-counterfeiting strategies and their effectiveness, brand positioning is a strategy to promote authentic brands, rather than a direct anti-counterfeiting strategy. But does it have a parallel anti-counterfeiting effect?

This paper thus examines whether the positioning strategies adopted by brand companies in the Chinese market make any difference to the effectiveness of their measures against counterfeiting. Hypotheses regarding this relationship are tested using a sample of 130 international brands marketed in China.

The paper is structured as follows: the Conceptual Development section reviews prior research and establishes a conceptual model and relevant hypotheses; the Methodology section delineates the sample, instrument, data collection, measures and analytical method; and our findings are revealed in the Results section. The final section discusses the implications of the study's findings and its limitations, and suggests how this underdeveloped research field could further be enriched.

Conceptual Development

Anti-counterfeiting Strategies and Their Effectiveness

Prior research on counterfeiting can be categorised into three streams: (1) the impact of counterfeiting; (2) its determinants; and (3) strategies against it. Literature within this third stream is especially relevant to brand positioning, and will be the main focus of this study.

Harvey (1987) proposed a simple, three-step normative framework by which businesses could address the problem of counterfeiting--awareness, action and assertion. In this framework, Awareness refers to the dissemination of information regarding the counterfeiting of products in order to alert consumers, distributors and government organisations about the nature and extent of the problem; Action seeks to establish business-media influence and encourage the creation of a specialised task force to tackle counterfeiting; and Assertion includes actions to enforce IP rights by various means (e.g., tracing counterfeits, informing government organisation, publicly identifying counterfeiters, lobbying for stringent enforcement). Delener (2000) extended this framework to include monitoring and product/packaging modification.

Olsen and Granzin (1993) proposed that, as court proceedings can be costly, lengthy and unpredictable, manufacturers need to go much further in terms of taking matters into their own hands in combating counterfeiting. This seems particularly relevant in the Chinese context, where the relative immaturity of the legal system means that efforts to seek judicial redress are prone to delay and frustration (Yang 2003) and legal recourse may require the disclosure of valuable or sensitive information (Somaya 2003). Shultz and Saporito (1996) reinforced the need for proactive, unilateral action, and advised the use of hi-tech labelling and considering the possibility of acquiring counterfeiters' operations.

Yang, Sonmez and Bosworth (2004) recommended ten corporate strategies against counterfeiting, based on case studies of British and American multinationals in China, including proactive corporate actions (e.g. technical solutions, pricing, monitoring and contractual surveillance), networking means (e.g. support from government, consumer campaigns) and defensive weapons (e.g. commercial settlement and acquisitions). The authors emphasised that, because of the prevalence of counterfeiting, multinationals should be solution-oriented and treat counterfeiting as a 'daunting challenge rather than an affliction' (Yang/Sonmez/Bosworth 2004, p. 471), and suggested using a combination of the ten strategies as the most effective approach.

Despite the merits of these strategy recommendations, only two studies appear to have linked such approaches to effectiveness, viz., how successful each strategy is against counterfeiting. Yang, Fryxell and Sie (2006) investigated the perceptions of multinational managers in China about anti-counterfeiting strategies' effectiveness, and the relationship between effectiveness and managerial confidence in the Chinese IP system (IPS). Their findings show that anti-counterfeiting strategies, including administrative support, judicial action and direct corporate actions against counterfeiting have direct and positive effects in curtailing counterfeiting. Moreover, managerial confidence in the Chinese IPS has both independent and interactive effects in predicting the success of anti-counterfeiting actions. Their findings also show that when corporate approaches are taken, administrative support and judicial action become less effective, implying the superior strategic importance of corporate actions against counterfeiting. This quantitative research confirms Yang, Sonmez and Bosworth's (2004) case study conclusions that companies should combine different strategies to maximise anti-counterfeiting effectiveness, and underscores the argument that corporate approaches are particularly effective.

Lybecker (2007) used theoretical modelling to examine pharmaceutical patents in developing countries and the effectiveness of preventive strategies against counterfeiting. She examined the impact of a range of strategies--adopting new technology, enforcement, monitoring supply chain and educating consumers and healthcare professionals--on the cost, value and enforcement of anti counterfeiting measures. Her conclusions reinforce Yang et al's findings (2006) that strategies are not all equally effective, but found that increasing government penalties and securing supply chains should reduce the amount of counterfeits on the market, and confirmed their conclusion that counterfeiting strategies do not work best in isolation, but that utilising several strategies led to increased effectiveness.

Brand Positioning and Implications for Anti-counterfeiting Effectiveness

A rich literature has been devoted to the relationship between branding, brands and business success, but the relationship between brand positioning and anti-counterfeiting effectiveness seems to have been overlooked. After defining relevant concepts, this section formulates hypotheses on the basis of value chains, resource-based views, peripheral studies and logical arguments.


A brand is "a name, term, sign, symbol or design, or a combination of them which is intended to identify the goods and services of one seller or a group of sellers and to differentiate them from those of competitors" (Kotler 1997, p.443, cf. Erdem/Swait 2004) and, if effective, can lead to value creation for the owner. Brands and value creation broadly include resources that are valued by the customer, unique to a firm and inimitable (Barney 1991), which a resource-based view would see as leading to sustainable competitive advantages. All three of these characteristics may be created and reinforced by intellectual property (IP). How a firm approaches exploiting these advantages intentionally is termed 'brand positioning', and success in positioning a brand leads to an increase in brand equity (i.e., the actual value associated with a particular brand). Such equity can be created at various points along a product activity chain, but is fundamentally based on the fact that products associated with the brand do what they are built to do properly and deliver the quality consumers expect (Aaker 1991) and thus build trust in the brand (Christensen/Cook/Hall 2005).

This value is accumulated through activity on a value chain (Porter 1990) that extends from resource acquisition to final product consumption or service use. This 'value chain' consists of upstream pre-production input, mid-stream activities associated with actual production, and downstream linkages with distributors and customers (Stonehouse et al. 2000). Companies make themselves distinctive from others in the ways they coordinate these streams and their relationships, so internal and external linkages of corporate competence and activities can create competitive advantages for the company (Stonehouse et al. 2000).

Brand Positioning and Anti-counterfeiting Effectiveness

The 'upstream' activities most strongly associated with brand equity include the embodiment of innovative technology within product design and creation. Product solutions involving the constant improvement of existing products and the introduction of new products have frequently been espoused as being useful in disadvantaging counterfeiters (Hopkins/Kontnik/Turnage 2004). Advanced technology creates barriers to hinder or delay counterfeiting because it takes time for counterfeiters to acquire the relevant knowledge, experience and technical skills to produce credible counterfeits. Moreover, adopting new technology forces counterfeiters to increase the frequency of their copies to attract consumers, thus raising their resource requirements (Lybecker 2007, Yang/Sonmez/Bosworth 2004). These assertions are based on two assumptions. First, that most product innovation is substantive (i.e., significant rather than trivial, such as color changes); and second, that counterfeiters are less advanced technologically and less well-resourced in human and financial terms than are brand-owners. Thus, based on the preponderant literature view, we expect that:

Hypothesis 1: Brand positioning based on innovative technology is positively related to effectiveness against counterfeiting.

Various 'mid-stream' activities associated with the actual manufacture of the product can also build brand equity in the minds of consumers. Among those, product features and functions, and also product reliability, are frequently emphasised in brand positioning studies, and both may have implications for the frequency and difficulty of counterfeiting. A brand's value also consists goodwill and reputation, which provide a foundation for consumer loyalty (Harvey 1987, Kim/Kung 1997, Pine/Peppers/Rogers 1995). For example, product reliability was found to be the primary basis of Japanese cars' brand equity (Kim/Chung 1997), which, in turn, proved sustainable by being extremely difficult to emulate. Companies like Sony, GE and Siemens similarly use quality and reliability to generate exceptional and defensible brand value (Douglas/Craig/Nijssen 2001). Such positioning leads to brands that are considered substantially less reliant on IP laws and enforcement, as firms can rely more on their own brand reputation to gain consumer loyalty and defeat counterfeiters in the marketplace (Miller/Samsie 1996). When product features, functions and product reliability are so unique and well-differentiated that it takes time for counterfeiters to catch up, they can be kept temporarily off balance. On the basis of the above discussions, we anticipate that:

Hypothesis 2: Brand positioning based on product features and function is positively related to effectiveness against counterfeiting.

Hypothesis 3: Brand positioning based on product reliability is positively related to effectiveness against counterfeiting.

'Downstream' activities are also linked to brand equity creation, and thus can have implications for the impact of counterfeit operations. These include brand positioning relying on advertising and promotion. For example, MNCs' marketing expenditure in China exceeded US $10 billion (Leung 2002), the highest in any Asian country. Such positioning seeks to deliberately, proactively and iteratively define, modify and monitor consumer perceptions (Kalafatis/Tsogas/Blankson 2000), aiming to have both short-term and long-term effects on their perceptions of brand value (Kim/Chung 1997). This is accomplished by providing key information about the common capability of products within a particular brand identity (Christensen/Cook/Hall 2005), which also serves to accelerate demand: research has associated brand uniqueness with globalized demand-side pull (Millar/Choi/Chen 2005).

Advertising and promotion seek to create and bolster customers' desire for the authentic product, and can thus also be used as part of a more explicit anti-counterfeiting campaign, by underscoring the importance of buying a genuine product as part of a long-term strategy to educate consumers about the perils of counterfeits. Such campaigns not only emphasise the advantages of the authentic product, but may also aim to dissuade consumers from buying counterfeits by making them better able to differentiate between original and fake products (Yang/Sonmez/Bosworth 2004).

Brand positioning associated with the availability and ease of after-sale services can also be important in mitigating the impact of counterfeiters (Rao/Agarwal/Dahlhoff 2004). Despite the fact that authentic products are nearly always superior to counterfeits in terms of quality, after-sale services provide an additional advantage in attracting consumers to the authentic product, as buying a fake is a 'one-off', 'arm's length' transaction, that offers buyers no recourse in the event a product fails to perform as expected. As Yang et al. (2004) summarised: "...excellent quality and brand image, together with an after-sale warranty, will attract consumers to buy the genuine article rather than the fake". Thus, even though digital copies of software may be virtually identical to the original, people with higher IT awareness and who are attuned to a more sophisticated IT environment will tend to buy authentic software to take advantage of the after-sale services, including up-grading opportunities (Yang et al. 2004). On the basis of the above discussions, we hypothesise that:

Hypothesis 4: Brand positioning based on advertising and promotion is positively related to effectiveness against counterfeiting;

Hypothesis 5: Brand positioning based on customer services is positively related to effectiveness against counterfeiting.

The above hypotheses are graphically depicted in Fig. 1, which shows the attributes of brand positioning that are anticipated to have positive relationships with effectiveness against counterfeiting.



Sample, Instrument and Data Collection

The unit of analysis is globally branded products that are popular in China. Global brands communicate superior quality and high prestige to consumers (Johansson/Ronkainen 2005, Kapferer 1997, Keller 1998, Shocker/Srivastava/Ruekert 1994) and are consistently rated as the 'most admired' (Kochan 1996). As Delener (2000) notes: "Prestige, brand and fashion are important elements to purchasers of premium brands". Global brands are usually scarce and command high prices, while generating great appeal and aspiration among Chinese consumers (Bearden/Etzel 1982, Steenkamp/Batra/Alden 2003). Branded products from Hong Kong and Taiwan are also popular in China, due to culture similarities and their superior ability to position their brands by using the Chinese language.

Given there was no readily available sampling frame of foreign companies being counterfeited in China, our data collection efforts started with the Quality Brand Protection Committee (QBPC), an anti-counterfeiting body within China Association of Enterprises with Foreign Investment. Its 187 members include large multinationals from around the world (e.g. Microsoft, Nike, Gucci, Eli Lilly and General Motors). With the association's support, questionnaires were distributed to all these companies, and 130 valid responses were received, accounting for 73% of this population. The responding companies were mostly from Japan, Western Europe and US, and their high representation is not coincidental, but reflects the extent of their high equity brands' presence in China (Lanfranco 2004). They were all from the manufacturing sector--from a broad range of industries, such as pharmaceuticals, cosmetics, cars and textiles--where firms have encountered significant number of counterfeiters and suffered considerable losses in percentage of sales.

The data were collected through a questionnaire in English, which had been previously piloted with two corporate executives with over ten-year experience in dealing with counterfeiting and revised in light of their comments. The heavy reliance on personal networks to distribute the questionnaire via the QBPC undoubtedly boosted our response rate. The respondents to our questionnaires all hold senior managerial positions in multinational subsidiaries in China, and were either assigned to China or recruited locally by their parent company. Their countries of origin vary--75% of them were from Western Europe, US and Japan and the remainder from Taiwan, Hong Kong and mainland China--while 86% of them hold posts as managing director, marketing manager or operations manager, suggesting that these companies treat counterfeiting as a front-line operational issue rather than simply as a legal matter. These MNC executives were directly responsible for their brand(s) at the time of the study, so their responses represent first-hand views. The diversity of respondents' origins was welcome, as it allowed us to avoid associated cultural biases and gain the perception of managers with experience from varied countries, which is particularly relevant, given that culture, perception and issues of counterfeiting are inter-related (Yang 2005).

This set of respondents represents an appropriate choice for this study for two reasons. First, our research aims to examine managerial perceptions of anti-counterfeiting effectiveness, and as our respondents had been working for their companies for five years on average--some for over ten--they had accumulated considerable knowledge and experience of the counterfeiting situation in China. The brands themselves also cover an eclectic mix of the most famous international brands, most of which can be found in the Chinese market. Second, the manufacturing sector, which accounts for 86% of the foreign operations in China (Qu/Green 1997) and conducts more IP activities than any other sector (Lan 1996), is also the one where counterfeiting is most prevalent (Yang/ Sonmez/Bosworth 2004). Focusing on the manufacturing sector for our study allowed us to capture most of the important product categories where counterfeiting has become a serious concern.


This section discusses the operationalisation of our concepts pertaining to brand positioning, and effectiveness against counterfeiting. Table I shows a summary of all the measures.

Dependent Variables

Prior research by Lybecker (2007) has measured anti-counterfeiting effectiveness by assessing the costs of dealing with counterfeiting (in terms of the costs of the measures, of enforcement, etc) and the value of counterfeited goods; by assessing the perceived views of knowledgeable informants (Yang/Fryxell/Sie 2006). We attempted to collect data associated with all these measures, but eventually decided not to adopt Lybecker's measures for the following reasons. First, companies rarely keep distinct records of the actual costs of dealing with counterfeiting and the value of counterfeited goods, as anti-counterfeiting activities tend to be combined with other activities. Second, while such figures may reveal the costs and value of a particular counterfeiting situation, they do not necessarily represent effectiveness: these figures reveal the seriousness of counterfeiting, rather than the outcomes of anti-counterfeiting actions. Third, while enforcement is an action against a particular counterfeiting act, it is unclear whether enforcement actions actually result in positive outcomes.

As a result, we have used three different 'effectiveness' measures. The first is a single composite variable previously used by Yang, Fryxell and Sie (2006): stopping counterfeiting production. This measure is relevant because eliminating counterfeiting act is all brand companies' ideal. Without counterfeiters, these companies can avoid the unhealthy competition from counterfeiters, and focus their efforts on product performance and consumer relations. Second, we have included a variable for mitigating damage to the firm, based on Yang/Sonmez/Bosworth's (2004) argument that corporate efforts, which alleviate the scale and scope of counterfeiting, will reduce the extent of damage to sales. Third, we have also expanded prior effectiveness measures to include maintaining brand reputation, as counterfeiting taints the reputation of original brands (Chaudhry/Walsh 1996, OECD 2007). Anti-counterfeiting actions in the form of brand positioning can help a company sustain its reputation and correct the bad publicity caused by counterfeited goods. In summary, the effectiveness against counterfeiting is measured as follows:

* Perceptions of effectiveness in stopping counterfeit production comprised two items measured on a 7-point Likert-type scale (Measures 1.1-1.2 in Table 1; [alpha] = 0.70);

* Perceptions of effectiveness in mitigating damage caused to the brand comprised three items measured on a 7-point Likert-type scale (Measures 2.1 2.3; [alpha] = 0.60);

* Perceptions of effectiveness in maintaining the brand's overall market reputation was measured as a single item on a 7-point Likert-type scale (Measure 3).

Normally reliability statistic below 0.70 should be regarded as evidence of inadequate measurement, but some authorities have argued that it may be acceptable to use measures that depart from this standard in exploratory research (Cliff 1987), especially when accompanying measures are above 0.70 (Hair et al. 2006). However, as imprecise measures may result in inflated error terms associated with regression coefficients, extra caution is warranted in interpreting our second measure.

Independent Variables

The brand positioning variables measure how a brand is positioned relative to its competitors on certain key attributes (Yang/Fryxell/Sie 2006). Five attributes falling within the three broad streams mapping onto the hypotheses associated with brand positioning were measured using 7-point Likert-type response scales: (1) Attributes stemming from the use of innovative technology embedded in the products; (2) Attributes associated with the physical characteristics of the product itself(its features and functional attributes); (3) Attributes associated with reliability; (4) Attributes through advertising and promotion; and (5) Attributes associated with customer services. While we measure the attributes, we put great emphasis on the importance of the attributes in positioning the brand.

Control Variables

Seven variables were included as covariates: First, 'Made in China' is measured using a dummy variable to show whether the branded product is actually manufactured in China or is imported exclusively, and coded as '1' if locally manufactured; otherwise as '0'. We need to control for this variable because a manufacturing presence in China can have both positive and negative implications. On the one hand, it can be difficult to counter problems of potential divulgence of technology, but, on the other, a presence in China allows firms to monitor the market, lobby local authorities and pursue ownership rights in court. Second, we have also included an estimate of the 'Number of Counterfeiters' associated with the brand, to measure the intensity of counterfeiting by estimating how many counterfeiters were active in copying firms' authentic products and have been dealt with by the company. This is because companies often deal with counterfeiters directly to sort out counterfeiting issues quickly without the involvement of government agencies (Yang/Sonmez/Bosworth 2004). The measure was coded into five ordered categories: 1 = '1-2 counterfeiters'; 2 = '3-5 counterfeiters'; 3 = '6-10 counterfeiters'; 4 = 'more than 10 counterfeiters'; 5 = 'too numerous to know'.

The third covariate--'Years measures taken'--refers to the number of years corporate anti-counterfeiting efforts have been in effect, based on the argument that the accumulation of experience in handling counterfeiting would allow managers to deal with counterfeiting effectively. It was also coded under five categories: 1 = 'started this year'; 2 = '1-2 years'; 3 = '3-4 years'; 4 = '5-6 years'; 5 = '> 6 years'.

We have also included five 'anti-counterfeiting' strategy covariates that were tested as effective by prior research (Yang/Fryxell/Sie 2006): (1) 'Administrative support'--the extent to which government takes action against counterfeiting; (2) 'Judicial actions'--the extent to which government pursues civil or criminal actions against counterfeiting; (3) 'Initiating enforcement'--the extent to which the firm initiates the pursuit of raids and seizures of counterfeit products through the police and other agencies; (4) 'Lobbying' involves networking with government officials so that policies and laws can be promulgated to tackle counterfeiting; and (5) 'Monitoring' wholesale, retail and virtual markets for fake products.

Two other control variables were also considered initially, but were eliminated in our final analysis. We would have preferred to control for the 'Size of Firm' associated with the brand, but had an insufficient number of cases where the respondents gave us this information, either because respondents did not immediately have such information at hand, or because there may have been some confusion about the way boundaries were defined in our request (i.e., local, regional or global operations). It seems unlikely, however, that this covariate would have been very influential as, in practice, counterfeiters infringe regardless of firm size. Another possibility is that, in controlling for firms' aggressiveness in implementing various anti-counterfeiting measures, we have already effectively incorporated size as a control, since larger operations would likely have greater resources for such activities. Further, controlling for Industry would also have been desirable, but the number of different industries represented in our study was too diverse to be readily categorised into a manageable number of dummy variables: even our broadest trial categorisation left us with too few cases (e.g., the largest category 'Food and Drink' only had around 20 cases) and too many variables.

Collecting data entirely from corporate managers raised a possibility of mono-method bias, and we tested for this possibility empirically as suggested by Podsokoff and Organ (1986). A factor analysis was run on all the measures on Table 2. Specifying one factor accounted for only 21% of the variation between items, indicating that a single method factor is probably not a serious problem: when all the items for this factor are 'partialed out' the main effects remain relatively unchanged. It seemed that our assessment of brand positioning is likely to have been grounded in a reasonably objective understanding of brand strategy, while those pertaining to effectiveness in dealing with the problem were based on physical evidence, reports, corporate actions and/or anecdotes of actual events. This approach is reinforced by other studies, which provide some reassurances about perceptual measures by showing that they often correlate with objective measures better than has been generally assumed (Delaney/Huselid 1996, Venkatraman/Ramanujam 1987, Makino/Lau/Yeh 2002).

Analytical Methods

The hypotheses were tested using hierarchical ordinary least square regression analysis as available in SPSS. The control variables were entered initially, followed by the addition of the main effects, and each measure of effectiveness analysed separately. Although structural equation modeling would be an ideal method for testing the model, it seems inappropriate due to relatively small sample.


Table2 provides descriptive statistics for all the variables included in the model. The means show that approximately 2/3 (65%) of the respondents reported their company as manufacturing some of its branded products in China at the time of the study. Most respondents report that their company has ample experience dealing with counterfeiters (i.e. 3.77) and has been engaging the problem for 3-6 years on average (3.45). Moreover, most respondents report trying to cope with the problem aggressively, as shown by the means for 'Administrative support ', 'Initiating enforcement' and 'Monitoring' all being over 5.0. 'Judicial Actions' are rated somewhat lower, probably because of the costly, lengthy and unpredictable nature of legal action in China, while 'Lobbying'is rated below 4, indicating some level of corporate indifference to this strategy, suggesting that these firms favor dealing with anti-counterfeiting problems more on a case by case basis.

Most respondents appear to believe in the superiority of their brands in terms of innovation, product features/function, reliability, advertising/promotion and customer services (i.e. all means score at least 5.0). This corroborates our earlier claim to have included most of the leading brands in our sample, but may also reflect some 'upward' bias in these self-reports. The strongest belief in superior brand positioning appeared in product reliability (6.30) and in advertising and promotion (6.07); responses were generally somewhere between 'slightly agree' and 'agree' on most other statements, with respondents least inclined to attribute brand positioning to innovative technology (5.29). Overall, the correlations are modest, but with a substantial number being statistically significant (p<0.05). Among the highest are those between anti-counterfeiting strategies, viz., the strongest being between 'administrative support' and 'initiating enforcement' (0.79). Among those correlations involving our main effects and dependent variables, the strongest was between brand positioning through 'advertising and promotion'and 'stopping counterfeiting' (0.42). Such levels give little concern about multicollinearity effect on estimates associated with the main effects.

These estimates, along with their standard errors and t-values, are reported in Table 3, which reveals noticeably different patterns of relationship for each dependent variable, and substantially different power for each model. In keeping with how difficult it is to deal effectively with counterfeiting, significant relationships are fairly sparse.

Only two of the numerous control variables are significant--experience (i.e., years Measures Taken) and initiating enforcement. 'Years Measures Taken 'against counterfeiting is negatively associated with 'mitigating the damage to firm' showing that past experience in handling counterfeiters effectively does not have an alleviating effect. Regardless corporate experience, counterfeiters would copy an authentic product and speculate the market for profit. It is also observed that 'initiating enforcement actions' has a positive effect on respondents' perceptions of 'stopping counterfeiting'. This indicates that initiating enforcement in the form of raids and seizure is a practical solution to stop counterfeiting problem.

When entered into the regression model as a group, the brand positioning variables explain a modest amount of variation in anti-counterfeiting effectiveness indicating their role in 'supporting' main anti-counterfeiting strategies. They account for modest improvements in perceptions regarding success in 'stopping counterfeiting production' (i.e. [DELTA][R.sup.2] = 7.5%; P< 0.05), in 'limiting damage' (i.e., [DELTA][R.sup.2 = 8.4%; P< 0.10), and 2.5% (but insignificant) with respect to 'maintaining brand reputation '.

An examination of these main effects provides 'tests' of our five hypotheses. Our first hypothesis predicted that brand positioning based on innovative technology would be positively related to anti-counterfeiting effectiveness. This hypothesis is not supported, as only one of the three coefficients is significant, and that relationship is negative. We did not anticipate the negative effect this factor apparently had on firms' ability to mitigate the damage to firms; the coefficient of the relationship is significant at the < 0.05 level of confidence. A possible explanation for this negative relationship might be that the branded products in this study tended to involve relatively incremental technological innovation. Such innovation may be relatively easy to copy, and may also create a level of demand for the 'new and improved' product, that could, in turn, benefit counterfeiters as much as brand owners. This possibility is reinforced by the general tendency of MNCs to delay introducing their latest 'home-run' product innovations in China. Moreover, it is too easy to underestimate the sophistication of Chinese counterfeiters, who can reengineer and quickly copy branded products' innovations. In one of the most famous recent Chinese IP cases, General Motors sued the Chinese automobile manufacturer Chery for pirating a new model that was to be manufactured under license in China by GM's partner Daewoo. Chery's 'QQ' model certainly bore a striking resemblance to GM's 'Spark'--there were even many interchangeable parts--but Chery had managed to launch its version six months before the GM/Daewoo product was ready for the Chinese market! Furthermore, such frequent incremental changes may actually confuse the ability of consumers--and even legal authorities--to identify genuine products: in fact consumers often find it difficult to distinguish genuine products from fake brands (Bian/Veloutsou 2007).

Our second hypothesis--which anticipated that brand positioning-based on product features/function would be positively related to anti-counterfeiting effectiveness--is not supported. Our speculation for this finding more or less parallels that in the previous argument: the line between highly incremental innovation and simpler product feature changes can become somewhat difficult to discern. We would expect, however, that as small changes in product features and function become easier to copy, they are probably also less powerful in stimulating 'spill-over' demand (i.e., unintended additional demand for counterfeit products). This may account for the finding that technological innovationbased brand positioning seems to encourage counterfeit production more than positioning based on product features and function.

The third hypothesis--predicting that brand positioning based on product reliability would be positively related to anti-counterfeiting effectiveness is supported. The significant and positive coefficient lends support to the expectation that such positioning helps stop counterfeit production ([Beta]=0.305; p<0.05), and confirms our argument that branding based on reliability constitutes a unique value not easily copied by others. As purchase transactions are normally bound by the caveat emptor principle--and since reliability matters to purchasers--counterfeiters' activities are inhibited by buyers' lack of trust in their products' reliability. This is reinforced where legitimate manufacturers back up their products with warranties, which are rarely offered by fake providers. As a result, demand for counterfeits diminishes and counterfeiters disappear from the market.

The fourth hypothesis--that brand positioning based on advertising and promotion activities would be positively related to anti-counterfeiting effectiveness--is not supported, as the coefficients are insignificant in any of the three models. This is probably because, while advertising and promotion are potent in increasing the desire for the original, they risk encouraging demand for counterfeit goods in equal measure.

The fifth hypothesis--that brand positioning based on customer services would be positively related to anti-counterfeiting effectiveness--is supported in two of the three models. Brand positioning derived from a firm's customer service competence is observed to stop counterfeit production and to mitigate damage to the firm because, by going beyond the 'buyer beware' relationship inherent in the purchase of counterfeits, such firms effectively reduce the desirability of fakes.

Discussions and Conclusions

Findings and Implications

This paper examines the relationship between firms' brand positioning and the effectiveness of their anti-counterfeiting measures. Investigating 130 foreign brands currently marketed in China, we have uncovered several novel insights showing that how a brand is positioned can either discourage--or may sometimes in fact encourage--counterfeiters. Among the approaches that seem to 'support' anti-counterfeiting effectiveness are brand positioning emphasizing reliability, and customer services; positioning associated with innovative technology, product features and function, by contrast, appear to risk making matters worse. Accordingly, firms may want to think carefully when considering investing their technology in China and, if they do, take every possible unilateral precaution to protect them. In this regard, we note that it is likely to be easier to guard against counterfeiters with more fundamental than with incremental product innovations, which can be more easily reengineered by sophisticated counterfeiters.

Product reliability and customer services offer important ways to frustrate counterfeiters and discourage their presence. Both product characteristics exploit the vulnerability in the 'one-off', arm's length transaction of an illegal operator, who cares little about how well a product performs post-purchase, and would very likely prove difficult to find in the event it doesn't. Thus, consumers will make considerable effort to ensure they are buying an original (for example) Sony[R], product because they believe it will work well for long time and, in the unlikely event it should not, the brand's customer services operation will offer a quick and effective remedy.

The non-significant effect of advertising and promotion in inhibiting counterfeiting needs strategic attention, as these activities can stimulate demand for copies as much as for originals. The success of their influence would arguably depend to a great extent on what message or 'theme' was being emphasized. Thus, advertising and promotion emphasising product reliability and the availability of customer services might reinforce the positive influence, efforts that simply promote customer demand for a product seem likely to benefit counterfeiters as much as brand-owners. Advertising and promotion certainly have the potential to be used directly in targeting counterfeit activity, for example, by educating consumers about the hazards associated with counterfeits and helping them identify fakes. However, given our knowledge of counterfeiting in China, we would question the efficacy of simply emphasising the 'immorality' of purchasing counterfeits, and suggest such efforts concentrate instead on more tangible short- and long-term costs and benefits.

This study indicates that managers should link brand positioning as a weapon of defence and prevention with more direct anti-counterfeiting activities (e.g. corporate anti-counterfeiting strategies and government actions) to enhance their effectiveness. The findings support arguments that such a combination could be a useful part of efforts to stop counterfeit production, confirming previous findings that corporate-governmental collaboration (Yang/Fryxell/Sie 2006) and mixed strategies (Lybecker 2007, Yang/Sonmez/Bosworth 2004) are effective against counterfeiting.

Limitations and Future Research

The limitations of this study point to areas for future research. In theoretical terms, indepth studies are needed to explore why and how innovative technology and product features/function can erode perceptions of anti-counterfeiting effectiveness. Likewise, brand positioning was found to have little influence in maintaining brand reputation in the presence of counterfeits, and further studies are needed to confirm and explain this finding. Moreover, the finding that advertising and promotion has no effect against counterfeiting appears to contradict early findings that advertising incorporating anti-counterfeiting slogans can enhance strategy effectiveness (Yang/Sonmez/Bosworth 2004). Further research can help to clarify the contradictions and detail the reasons behind this apparent ineffectiveness.

Further, the role consumer discrimination plays in effectiveness against counterfeiting is a new field for exploration. Efforts to enhance consumers' ability to identify fakes are an obvious strategy for corporate brand owners seeking to reduce counterfeit sales. Such efforts can both enhance consumers' ability to assess product quality before making a purchasing decision (Lybecker 2007), and persuade them to be more vigilant about dangers of purchasing fakes (Yang/Fryxell/Sie 2006). They may also encourage consumers to report the existence of counterfeiting, thus supporting anti-counterfeiting efforts and forcing counterfeiters to frequently change their fakes. However, for brands positioned as having characteristics that are inherently desirable, but which are difficult to discern on purchase, we would expect the high profit margins available to counterfeiters to attract new operators into the market, making life even more difficult for brand holders. The pervasiveness of fake products may even serve to stimulate demand for the 'real thing'. Consumer discrimination of fakes may have moderating effect against counterfeiting. For example, comparative or experimental studies focusing on ease and difficulty of authentication from the consumers' perspective would complement this piece of research.

In empirical terms, China is large and challenging enough to be of interest in its own right, but is it unique enough to generalise these findings to other industrial and country settings? Our study could be replicated elsewhere to provide new insights for the proposed model. Moreover, it did not consider industrial differentiation, but strategies against counterfeiting across industries may need to be diverse, for example, branding associated with high-tech industries may need to put great emphasis on reliability and customer services to drive away counterfeiters. However, brands associated with customer after-sale services may have little effectiveness against counterfeiting in the fashion industry. Therefore, future research focused on fewer industries would allow more in-depth analysis to test our model's validity for specific industries. Such empirical work would also serve to counter the scarcity of existing work on anti-counterfeiting effectiveness, and allow rigorous comparative studies across countries.

In terms of its methodology, the data collected from this study may have been affected by common method variance, a relevant concern in any study where the data is collected by a single instrument. Although there is evidence that self-reporting by managers correlates reasonably well with objective measures, it is still possible to take further steps to improve methodological soundness. For example, statistical tests with larger samples using probability data would further validate this study's preliminary findings, and other types of respondents (such as consumers could be used to address questions of effectiveness and consumer discrimination). Such a deductive approach to drawing conclusions could also be triangulated with in-depth case studies, allowing the model to be operationally tested to help provide pragmatic solutions both for counterfeiting problems and as part of longitudinal research efforts.

DOI 10.1007/s11575-009-0019-2

Acknowledgements: We would like to express our sincere appreciation to the journal editors and the anonymous reviewers for their helpful comments in the process of revising this paper.

Received: 21.01.2007 / Revised: 08.09.2007 / Accepted: 05.05.2009


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Prof. D. Yang ([mail])

Burr-Clark Professor in International Business

Department of Business Administration, Trinity University, San Antonio, USA


Prof. G. E. Fryxell

Professor of Management

China Europe International Business School, Shanghai, China
Table 1: Measures

Construct              Factor or Variable       Measures

Anti-Counterfeiting    1. Stop Counterfeiting   1.1 We are better than
Effectiveness          ([alpha] = 0.70) (a)     our major competitors
                                                to control the spread
                                                of counterfeit goods;

                                                1.2 Our
                                                strategies have an
                                                overall deterrent
                                                effect on

                       2. Mitigate the Damage   2.1 Reduce the scale
                       to the Firm by           and scope of our
                       Counterfeiters           products being
                       ([alpha] = 0.60)         counterfeited in

                                                2.2 Reduce the extent
                                                of damage
                                                counterfeited goods on
                                                our sale;

                                                2.3 Our ability to
                                                achieve sales growth
                                                targets in the past
                                                two years have not
                                                been affected by

                       3. Maintain Brand        3. Uphold our image
                       Reputation               and reputation amongst

Brand positioning      1. Innovative            1. Our brand has a
                       Technology               reputation for
                                                innovative technology
                                                quickly via
                                                extensions, upgrades
                                                and new product;

                       2. Product Features      2. Consumers derive
                       and Function             value from our branded
                                                products because it
                                                delivers the desired
                                                product features and
                                                functional attributes
                                                better than those of
                                                the major competitors;

                       3. Product Reliability   3. Consumers find our
                                                products are more
                                                reliable compared to
                                                major competitors'

                       4. Advertising and       4. Use advertising and
                       Promotion                promotion to increase
                                                awareness of authentic
                                                products and alert
                                                consumers the
                                                existence of fakes;

                       5. Customer Services     5. Our company is more
                                                committed than our
                                                major competitors to
                                                invest in customer
                                                services in order to
                                                bolster the
                                                configuration of
                                                consumer value
                                                embedded in the brand.

(a) Cronbach's reliability for multiple item measures.

Table 2: Descriptive Statistics (a,b) (n=130)

                                 Mean    SD        1         2

1) Made in China                 0.65   0.48
2) Number of Counterfeiters      3.77   1.14   -0.22#
3) Yr. Measures Taken            3.45   1.07   -0.16      0.36#
4) Administrative Support        5.47   0.99    0.21#     0.02
5) Judicial Actions              4.79   1.24    0.03     -0.02
6) Initiating Enforcement        5.58   0.92    0.05      0.15
7) Lobbying                      3.93   1.23    0.02     -0.04
8) Monitoring                    5.26   0.93    0.05      0.02
9) Innovative Technology         5.29   1.37    0.28#    -0.10
10) Product Features/Function    5.76   1.33    0.09      0.10
11) Reliability                  6.30   0.73    0.06      0.12
12) Advertising and Promotion    6.07   1.25   -0.15      0.04
13) Customer Services            5.86   1.07   -0.01      0.04
14) Stopping Counterfeiting      5.23   1.04   -0.09     -0.01
15) Limiting Damage              4.35   1.17   -0.11      0.10
16) Maintaining Brand Image      5.95   0.92   -0.02      0.01

                                     3        4        5        6

1) Made in China
2) Number of Counterfeiters
3) Yr. Measures Taken
4) Administrative Support         0.14
5) Judicial Actions              -0.02     0.41#
6) Initiating Enforcement         0.27#    0.79#   0.57#
7) Lobbying                       0.17     0.41#   0.32#    0.30#
8) Monitoring                     0.21#    0.54#   0.52#    0.66#
9) Innovative Technology         -0.10     0.07    0.20#    0.01
10) Product Features/Function     0.03     0.30#   0.20#    0.32#
11) Reliability                   0.05     0.22#   0.21#    0.23#
12) Advertising and Promotion     0.30#    0.35#   0.31#    0.51#
13) Customer Services             0.09     0.33#   0.28#    0.25#
14) Stopping Counterfeiting       0.19#    0.32#   0.32#    0.45#
15) Limiting Damage              -0.01     0.23#   0.02     0.14
16) Maintaining Brand Image       0.02     0.11    0.20#    0.16

                                    7        8        9        10

1) Made in China
2) Number of Counterfeiters
3) Yr. Measures Taken
4) Administrative Support
5) Judicial Actions
6) Initiating Enforcement
7) Lobbying
8) Monitoring                    0.35#
9) Innovative Technology         0.34#    0.06
10) Product Features/Function    0.22#    0.31#    0.28#
11) Reliability                  0.26#    0.18#    0.36#     0.29#
12) Advertising and Promotion    0.19#    0.47#    0.04      0.13
13) Customer Services            0.25#    0.24#    0.37#     0.19#
14) Stopping Counterfeiting      0.21#    0.42#   -0.01      0.11
15) Limiting Damage              0.19#    0.12     -0.09    -0.08
16) Maintaining Brand Image      0.09     0.11      0.08     0.02

                                   11       12       13       14

1) Made in China
2) Number of Counterfeiters
3) Yr. Measures Taken
4) Administrative Support
5) Judicial Actions
6) Initiating Enforcement
7) Lobbying
8) Monitoring
9) Innovative Technology
10) Product Features/Function
11) Reliability
12) Advertising and Promotion    0.26#
13) Customer Services            0.16     0.32#
14) Stopping Counterfeiting      0.29#    0.42#    0.28#
15) Limiting Damage              0.07     0.06     0.22#    0.31#
16) Maintaining Brand Image      0.08     0.09     0.09     0.25#


1) Made in China
2) Number of Counterfeiters
3) Yr. Measures Taken
4) Administrative Support
5) Judicial Actions
6) Initiating Enforcement
7) Lobbying
8) Monitoring
9) Innovative Technology
10) Product Features/Function
11) Reliability
12) Advertising and Promotion
13) Customer Services
14) Stopping Counterfeiting
15) Limiting Damage
16) Maintaining Brand Image      0.13

(a) Pearson correlations; (b) Boldfaced correlations are significant at
least at p<0.05.

Note: Boldfaced correlations are significant at
least at p<0.05 is indicated with #.

Table 3: Predicting Anti-counterfeiting Effectiveness

Variables                        [beta] (a)       SE      t (b)

a) Constant                           0.420     0.989      0.425
b) Controls
Made in Mainland China               -0.101     0.202     -0.499
Number of Counterfeiters             -0.085     0.089     -0.955
Yrs. Measures Taken                   0.020     0.094      0.209
Administrative Support               -0.175     0.159     -1.100
Judicial Actions                      0.023     0.089      0.260
Initiating Enforcement                0.463#    0.211#     2.189#
Lobbying                              0.004     0.086      0.050
Monitoring                            0.136     0.137      0.989
[R.sup.2]                             0.258#
c) Main Effects
Innovative Technology                -0.090     0.082     -1.098
Product Features and Function        -0.082     0.079     -1.033
Reliability                           0.305#    0.138#     2.211#
Advertising and Promotion             0.084     0.087      0.964
Customer Services                     0.206#    0.098#     2.109#
d) Model Information
[R.sup.2]                             0.333#

Variables                        [beta]       SE      t (b)

a) Constant                       1.698     1.235      1.375
b) Controls
Made in Mainland China           -0.156     0.252     -0.618
Number of Counterfeiters          0.114     0.111      1.033
Yrs. Measures Taken              -0.199#    0.117#   -1.702#
Administrative Support            0.205     0.198      1.031
Judicial Actions                 -0.152     0.112     -1.357
Initiating Enforcement            0.127     0.264      0.483
Lobbying                          0.148     0.108      1.368
Monitoring                        0.093     0.172      0.539
[R.sup.2]                         0.116#
c) Main Effects
Innovative Technology            -0.188#    0.103#   -1.824#
Product Features and Function    -0.169#    0.099#   -1.715#
Reliability                       0.254     0.172      1.479
Advertising and Promotion        -0.096     0.109     -0.877
Customer Services                 0.303#    0.122#     2.489#
d) Model Information
[R.sup.2]                         0.200#

Variables                        [beta]       SE      t (b)

a) Constant                       3.893#    1.024#     3.802#
b) Controls
Made in Mainland China           -0.025     0.210     -0.177
Number of Counterfeiters          0.037     0.092      0.408
Yrs. Measures Taken              -0.020     0.097     -0.206
Administrative Support           -0.080     0.164     -0.484
Judicial Actions                  0.073     0.092      0.797
Initiating Enforcement            0.279     0.218      1.282
Lobbying                          0.013     0.090      0.140
Monitoring                       -0.096     0.142     -0.681
[R.sup.2]                         0.057#
c) Main Effects
Innovative Technology            -0.005     0.086     -0.060
Product Features and Function    -0.088     0.082     -1.078
Reliability                       0.145     0.142      1.021
Advertising and Promotion        -0.011     0.090     -0.127
Customer Services                 0.104     0.101      1.028
d) Model Information
[R.sup.2]                         0.082#

(a) Unstandardised coefficients;

(b) Coefficients and related statistics that are significant at at
least p<0.10 are bold-faced.

Note: Coefficients and related statistics that are significant at at
least p<0.10 are bold-faced is indicated with #.
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