Brand Risks: Counterfeiting
Do highly discounted offers point to counterfeits?
The scary truth is that the answer to this question is probably "yes".
For the High Tech Industry
"I see requests that encourage re-marking, repackaging, or flat out counterfeiting to meet demand.”
"Even if it is a legitimate product, doesn’t “leakage” of over-discounted
or excess product on the market result in lower than desired prices?"
There are four main challenges to finding counterfeiters and those involved in gray market activity, and getting them to cease operations:
- Top management does not understand the bottom line cost of this activity
- Manufacturers don’t know how to find the counterfeits (Often they find out about a counterfeit part when, because of poor quality, it comes in for warranty repair.)
- Once they find the counterfeits, many companies either lack the resources or don’t know how to go about enforcement and getting the counterfeiters to cease operations
- Ongoing monitoring of distribution streams is difficult and resource consuming
According to a KPMG white paper on Managing the Risks of Counterfeiting in the Information Technology Industry, Counterfeiting is among the most challenging issues facing the information technology (IT) industry today. Illegal replicas of brand-name high tech products are flooding the marketplace, cutting into legitimate companies’ revenue and reducing their ability to invest in research and development (R&D). Proliferation of technology used to make computers, servers, and a host of high tech products—as well as a lack of regulatory enforcement in developing nations—is accelerating counterfeiting. It is now estimated that as much as 10 percent of all high tech products sold globally are counterfeit.
Despite IT products’ sophisticated design and complex manufacturing, counterfeiting is a growing problem. As many as one in ten IT products sold may actually be counterfeit, according to interviews conducted with electronics industry executives.
In some specific product cases the percentage of counterfeits may, in fact, be even higher (e.g., network interface cards). Conservatively estimated, this equates to about US$100 billion of global IT industry revenue that is lost to counterfeiters annually. Indeed, according to estimates by the International Chamber of Commerce, all counterfeit goods accounted for
7 percent of world trade in 2009, valued at a whopping US$1.2 trillion.
For the Pharmaceutical Industry
Is the US with all its regulations safe from counterfeits?
No. Within the legitimate U.S. supply chain, medicines are commonly sold directly by pharmaceutical companies to major authorized distributors, which then supply them to hospitals and pharmacies where they are dispensed to patients. However, drugs may also move sideways from the authorized distributors to middlemen or secondary wholesalers who sell drugs to one another. It is at this point that fake or unapproved and potentially dangerous drugs from other countries can enter the U.S. supply chain.
What are the causes of counerfetiting?
- Technology to produce everything from labels to active pharmaceutical ingredients is now widely available.
- Globalization has made distribution channels easy targets for introducing counterfeit products.
- The Internet provides counterfeiters with ready access to consumers and markets.
- Regulations governing the drug distribution system do not provide a strong enough deterrent, in terms of enforcement and penalties, to discourage counterfeiters.
- Organized crime has become increasingly involved in counterfeiting as it becomes more profitable.
What are the consequences of counterfeiting?
Counterfeiting has significant social and economic consequences. Most importantly, consumers don't get the safe and effective products they pay for and, instead, may be put at significant risk.
On the economic side, legitimate manufacturers of pharmaceuticals suffer from patent and copyright infringement. Counterfeiting, in reality, "hijacks" the brand.
Additionally, counterfeiters take full advantage of the fact that someone else paid the upfront money for research and development expenses; all counterfeiters have to do is to copy the product.
Governments lose as well. Huge amounts of resources are necessary to combat counterfeiting, there is also a negative affect on tax revenues. In fiscal year 2001, U.S. Customs seized over $57 million in counterfeited and pirated products, which represented a significant loss in taxes. Additionally, health plans are being defrauded.
Counterfeiting is a "lose-lose" situation for consumers, governments, and legitimate manufacturers as well.New Momentum’s Enterprise Brand Intelligence solution gives you visibility into the worldwide market, and provides real-time information formatted in a way that’s easy to use.
For the Luxury Goods Industry
Customers can’t tell the difference between a real and counterfeit product, and often neither can the experts. Yet, the damage these perpetrators do to a manufacturer’s/ brand and revenues cannot be understated. No industry or market segment is immune. The Internet has provided counterfeit and gray market operators with ready access to consumers and markets. Given the current economic environment, the number of counterfeit sites will only increase. The number of visitors to counterfeit e-marketplaces jumped threefold annually last year.
The FBI estimates that organized retail crime losses in the US are $15-20 billion. According to the National Retail Federation (NRF), organized retail crime (ORC) refers to “groups, gangs, and sometimes individuals who are engaged in illegally obtaining retail merchandise through both theft and fraud in substantial quantities as part of a commercial enterprise.” Criminals use the Internet because it can be an anonymous marketplace into which they dump counterfeit goods. This practice is called “e-fencing.”
Counterfeiters often pretend to be legitimate and then purchase products in bulk to “salt” the merchandise – or blend fakes in with legitimate product. They also purchase scrap or other wastes discarded by manufacturers and then produce a subpar product. According to the Global Intellectual Property Center, rights holders need to monitor the retail space and report IP infringements.
How can you stop this problem?
Legislation; high tech tags and labels; product packaging (see our white paper) and New Momentum’s sophisticated brand protection technology are all weapons for finding the violators and shutting them down so you can recover the revenue and brand reputatio n lost to counterfeits.