BAD

Good!

Insight: Fake Apple store cuts to core of China risk to brands

By Jason Subler | Reuters

SHANGHAI (Reuters) - A fake Apple store in China, made famous by a blog that said even the staff working there didn't realize it was a bogus outlet, is probably the most audacious example to date of the risks Western companies face in the booming Chinese market.

Few products have captured the imagination of Chinese consumers quite like Apple's iPhones and iPads. Demand is surging across the country of 1.3 billion people, even hundreds of miles away from the tech giant's official stores in Beijing and Shanghai.

That marks a huge opportunity for Apple to sell its iconic products, but it also leaves the most valuable brand name in the world vulnerable to the sort of scam perpetrated by the fake store in Kunming, in southwestern Yunnan province.

Complete with the white Apple logo, wooden tables and cheery staff characteristic of real Apple stores worldwide, the Kunming copy left even regular industry watchers startled at the elaborate fake.

"I'm not aware that there have been actual fake stores like that before," said Bob Poole, vice president of the China operations of the U.S.-China Business Council in Beijing.

"If your products are being sold as fakes, then your reputation goes down and people are going to be less willing to buy. We have to maintain active vigilance."

Apple has authorized close to a thousand resellers in China to sell its goods. They are required to comply with certain standards and rules on store layout and customer service to get the rights to sell such items as Apple's iPhones and iPad tablet computers.

The Cupertino, California-based company, which global brands agency Millward Brown says has the world's most valuable brand worth some $153 billion, has just four official stores in China, two of them in Beijing and two in Shanghai.

In spite of the number of resell outlets, many more copycats have popped up. They often sell real Apple products, obtained from illicit channels, such as smuggling, or through the grey market via Apple agents and distributors.

The blogger who made the store an overnight online sensation said the Kunming store was a "beautiful rip-off" and the salespeople "all genuinely think they work for Apple."

The bogus store, where staff admitted to Reuters Friday was not an authorized reseller, cuts to the core of the risk big brands take in China.

The widespread unauthorized reselling even of real consumer goods means it is more difficult for companies like Apple to manage their brands and risks undermining their longer-term plans to make inroads into the country.

"It's becoming more of a problem I think," said James Roy, a senior analyst with retail consultancy China Market Research in Shanghai.

"A lot of foreign brands are increasingly really seeking to set up a real retail presence in China, not just selling to resellers or through franchisees," he said.

DIFFERENT FROM PIRACY

That China is a hotbed for piracy is nothing new. Multinational companies have long seen problems such as intellectual property theft and unclear regulations as the price of doing business in the world's fastest-growing major economy.

The United States and Europe have persistently pressed Beijing to do a better job of enforcing intellectual property rights and stamp out the production of everything from fake DVDs to medicine.

An increasing number of U.S. companies in China say the enforcement of intellectual property rights has deteriorated in the last year, an annual survey by the American Chamber of Commerce in Shanghai released in January showed.

China has said it is cracking down, particularly on piracy, and Western companies have claimed some victories.

This week, Baidu Inc, China's biggest search engine, agreed with top music studios to distribute licensed songs through its mp3 search service, ending a legal dispute over accusations the company encouraged piracy.

The less-publicized phenomenon of unauthorized vendors setting up shop to peddle real products has grown alongside China's manufacturing prowess. Many of the factories that produce brand-name goods on contract have been known to do extra runs of the goods to make extra cash, analysts say.

Paul French, chief China analyst at retail consultancy Access Asia, said Apple had two choices to clamp down on fake stores.

"One is they either have to police their operations better, or two, they have to sell everything through their own stores and cancel their reseller agreements," he said.

China's high import duties on many goods have also encouraged the likes of the fake Apple store in Kunming, analysts suggest.

Shop owners can buy everything from computers to cosmetics at significantly lower prices overseas, smuggle them into the country, and undercut the prices of official Chinese retailers.

Vendors often turn to Chinese students studying abroad to buy products in the United States, Hong Kong, Australia and other countries.

Internet "bulletin boards" are full of advertisements soliciting interested parties, who can earn 100-200 yuan ($15-30) in fees per iPhone or iPad they manage to sneak past customs agents when returning home for the summer or winter break.

LOSS OF CONTROL

At first glance, it might appear that companies would not mind having their products bought in other countries or obtained through other means and resold in China through resellers, as it helps drive sales but with less expense and hassle over customer service.

After all, building up a retail presence in a country as vast as China takes time and is expensive. That's why many companies have sought to expand their presence through licensees.

The problem is, any negative experiences customers have with service at unauthorized resellers can backfire on the brand because customers relate their disappointment with the product.

"People might have a bad experience, they might blame the brand," said Roy.

Many Western brands are now opting to take back control of their operations. It may mean a more measured pace of expansion, but it gives a company greater control.

Starbucks last month took back control of its retail stores in southern China, having worked in the past through a joint venture.

While the issue of unauthorized retailers has not yet garnered the same attention as piracy, China has made efforts to crack down on such activities, stepping up screening to try to catch smugglers.

But if Beijing's track record with combating piracy is any guide, analysts say, it is unlikely that fake stores -- Apple or otherwise -- will be stamped out anytime soon.

"China has very low penalties. It's almost considered a good business deal to get caught, then move and set up shop again," said Poole of the U.S.-China Business Council.

(Additional reporting by Jane Lee in Shanghai and Beijing newsroom; Editing by Neil Fullick)

More Poison from China

By Gabriel Bouys | AFP – Thu, Jul 7, 2011

Authorities in Beijing have halted the sale of 31 brands of bottled water after they failed safety tests, the government reported, in the latest such scare to hit China.

Random market inspections found bacteria colonies in the water, the Beijing Administration for Industry and Commerce said on its website, citing a joint study with the capital's product quality bureau.

"In order to prevent these substandard products from entering the distribution chain, the product quality bureau has taken measures to halt sales," the administration said in a statement Wednesday.

Tests on one brand of bottled water -- Yiqun -- found that bacteria levels were 9,000 times above safety standards, while those in Tianxing Special Water were 560 times higher, a report in the state-run Beijing Times said.

The tests were carried out on large barrels of water and did not include the smaller bottles of water normally bought in supermarkets, the report said.

Drinking the tainted water could lead to bouts of diarrhoea, dizziness and vomiting, it added.

Part of the problems stemmed from quality controls at factories, including the failure to clean and sterilise water pipes and replace and disinfect filters, the paper said.

China is regularly hit by food scares. In 2008, authorities found that milk tainted with melamine killed at least six babies and left more than 300,000 sick with kidney stones, in a scandal that caused huge outrage.

Tainted pork, toxic milk, dyed buns, melons laden with chemicals and others have also surfaced in recent months, highlighting a lack of oversight in China's huge food industry.

In May, China's top court ordered capital punishment for food safety crimes that result in fatalities, as the government metes out harsher penalties amid rising social discontent over tainted foodstuffs.

US "balance" of trade with China is NOT in balance!

China Still Selling Tainted Dairy Products

Manufacturing.Net - January 13, 2011

BEIJING (AP) -- Authorities in China have detained dozens of people and confiscated huge caches of dangerous milk powder in the latest bid to root out the melamine-tainted dairy that killed six children and sickened hundreds of thousands in 2008, state media reported Thursday.

Launched in July, the crackdown shows China's dairy industry remains stubbornly contaminated. Partly to blame are incompetent product safety officials who have failed to do their jobs, the official Xinhua News Agency said.

Over the last six months, authorities have detained 96 people for violations linked to melamine-tainted milk and confiscated about 2,132 tons of tainted milk powder, Xinhua reported, citing a report by the Food Safety Commission of China's cabinet, the State Council.

Xinhua said the seized powder wasn't newly manufactured but leftover from 2008 or earlier. China ordered all contaminated dairy, including infant formula, yogurt and other products, burned or buried, but the government did not carry out the destruction itself. Some people have apparently saved the tainted products.

In the 2008 scandal, some profit-hungry dairy farmers, middle men and distributors were accused of adding melamine to watered-down milk to make it appear to still be rich in protein in quality tests that measure nitrogen, found in both the melamine and protein. Health problems from the chemical include kidney stones and kidney damage.

Seventeen of the 96 detained since July have already been convicted, Xinhua said, including two sentenced to life in prison. Details of their cases weren't provided. The rest were either awaiting trial or under investigation while still in police custody.

Xinhua said the government had found loopholes in the country's quality control system that were allowing the products slip though, but didn't say what they were. It said 191 product safety officials had been punished for failing to do their jobs.

Bad Johnson&Johnson!  ETHICS ETHICS ETHICS

FORT WASHINGTON, Pa (AP) -- Johnson & Johnson said Friday it is recalling nearly 47 million packages of Tylenol, Sudafed and other nonprescription drugs manufactured at a Pennsylvania facility that has already been subject to a series of massive recalls, battering the company's household brand.

The latest recall affects certain lots of Tylenol, Benadryl and Sudafed products because of insufficient cleaning procedures, though the company does not believe that quality was impacted. The company also recalled certain lots of Rolaids tablets because they do not include certain labeling information.

The recalls are aimed at wholesalers in the U.S., the Caribbean and Brazil. Consumers do not have to take any action, the company said. Consumers who have the products can continue using them.

All of the products were made at the company's plant in Fort Washington, Pa., before it was shuttered in April following a Food and Drug Administration investigation. FDA inspectors found a slew of manufacturing problems at the plant, including equipment covered with thick layers of dust and others held together with duct tape.

J&J issued several recalls related to the problems, the largest of which involved more than 135 million bottles of infants' and children's Tylenol and other medicines.

New Brunswick, N.J.-based J&J said the latest round of recalls related to its review of internal manufacturing at the Fort Washington plant going back to 2007. The company said certain manufacturing standards had not been followed and some products did not include all the labeling information required by regulations.

The company said it recently completed the review, which is one requirement of a broader remediation plan required by the FDA.

J&J is conducting additional reviews at other manufacturing sites.

Comment: Management at the plants in question must be fired and ethics instruction provided to new managers.

—Chris Reich

Big cheer for Southwest Airlines!

Hero Pilot Pulls Out the Stops to Help Grandpa Reach Funeral: 2011's Most Heartwarming Travel Story?

By WILLIAM LEE ADAMS William Lee Adams Sun Jan 16, 1:55 am ET

The most important trips aren't about getting somewhere. They're about getting to someone. (via Elliott.org)

But in an age of mounting airline fees, reduced in-flight services, uncomfortable security pat-downs and multi-day delays caused by erupting volcanoes, it's easy to forget that.

Amid the cries of "I've already paid for my hotel!" and "You need to get me to Atlanta!" anger and inconvenience frequently blind us to the fact that travel is ultimately about people. We also forget that airline employees - bound by big company rules and regulations - get frustrated, too.

Enter Nancy, whose travel triumph, tempered by a great deal of sadness, has turned an unnamed Southwest Airlines pilot into an online hero. (More at NewsFeed: Meet the 13-Year-Old HERO of the Australian Floods)

Nancy reads a blog by Christopher Elliott, a consumer advocate and journalist, and wrote to him about her husband's recent ordeal traveling on flights from Los Angeles to Tucson to Denver. Their situation makes complaints about leg room look downright petty.

"Last night, my husband and I got the tragic news that our three-year-old grandson in Denver had been murdered by our daughter's live-in boyfriend," she wrote. "He is being taken off life support tonight at 9 o'clock and his parents have opted for organ donation, which will take place immediately. Over 25 people will receive his gift tonight and many lives will be saved."

So early in the morning, after what must have been a torturous night's sleep, Nancy and her husband arranged for him to fly from Los Angeles, where he was traveling for work, to Tuscon, where he would step off one plane and immediately onto another one headed to Denver. "The ticketing agent was holding back tears throughout the call," Nancy wrote. "I'm actually her step-mother and it's much more important for my husband to be there than for me to be there."

Mourning the loss of his child's child, and no doubt worrying about his grieving daughter, he was likely in no state to travel. Airport stress only compounded his despair. He arrived at LAX two hours before his scheduled flight time, but quickly realized that delays at baggage check and security would keep him from making the flight. (Travel photos: Amazing snapshots of travelers stranded by holiday blizzards)

According to Nancy, he struggled to hold back tears as he pleaded with TSA and Southwest Airlines staff to fast-track him through the lines that were moving like molasses. Even though missing his flight could mean missing a final chance to see his grandson, no one seemed to care.

Too much was at stake to simply roll over and cry. When he finally cleared security - several minutes after his flight's planned departure - he grabbed his computer bag, shoes and belt, and ran to his terminal wearing only his socks. The pilot and the gate agent were waiting for him.

"Are you Mark? We held the plane for you and we're so sorry about the loss of your grandson," the pilot reportedly said. "They can't go anywhere without me and I wasn't going anywhere without you. Now relax. We'll get you there. And again, I'm so sorry."

It's hard to underestimate the courage of the pilot's decision. The flight, which ultimately departed 12 minutes late, likely had hundreds of passengers rolling their eyes in contempt. And given that any delay has knock-on effects for passengers at the destination airport, his decision placed Southwest at risk of facing the wrath of travelers, and more than a few demands for compensation.

Elliott, who brought the story to the blogosphere's attention, approached Southwest about the story, half expecting the airline to be outraged by a pilot's refusal to push the on-time departure.

Instead, they told him they were "proud" of their pilot, a man who clearly understands that taking a child off life support has consequences that run deeper than a flight taking off late. As Nancy wrote: "My husband was able to take his first deep breath of the day." Hopefully, over time, his daughter can do the same. (Southwest Airlines Photos: The History of Co-Founder Herb Kelleher)