Who Cares About a $600 Billion Problem That Can Kill People?
By Al McClain
According to the International Anti Counterfeiting Coalition,
counterfeit goods are a $600 billion global problem on an annual basis, cost
U.S. businesses $200 to $250 billion yearly, and represent five to seven percent
of all global trade.
The counterfeit product problem goes much deeper
than product “knockoffs” (see RetailWire – Fashion
Knockoffs: Good or Bad?) and can have deadly consequences.
Approximately two percent of all airplane parts are said to be counterfeit,
for example. In the past week, Sony warned that phony PlayStation 3 wireless
controllers could explode or ignite and the U.S. Food and Drug Administration
warned consumers about the danger of buying discounted pet medicine online
because the drugs may be unapproved or counterfeit.
Travis Johnson, VP and director of legislative
affairs and policy for the Coalition, said in a presentation to the Florida
Luxury Marketing Council this week that, while counterfeiting is a huge problem,
it is hard to get marketers, retailers, law enforcement or consumers to pay
enough attention to it. He said that it’s
not just phony handbags and sunglasses that one sees sold on city streets.
Everything from pharmaceuticals to software, auto parts, and luxury goods are
being counterfeited. While U.S. seizures are increasing year to year, mainly
via customs enforcement, goods seized represent only a tiny fraction of those
produced and sold. There is an ever increasing variety of counterfeits being
made available, primarily
over the internet on sites such as eBay.
Consequences include the loss of business
revenue, jobs, innovation and tax revenue. China is by far the largest source
of phony products (81 percent) with other developing countries such as Vietnam
part of the problem as well.
And then there are the deadly consequences.
Defective auto and airline parts have the capacity to cause fatal accidents
and counterfeit Colgate toothpaste from South Africa was found to contain
substandard ingredients such as components of brake fluid and antifreeze,
according to Mr. Johnson. The conterfeits became obvious to Colgate because
they don’t have a manufacturing facility in South Africa.
Johnson says the profits from counterfeit products go to organized
crime, drug traffickers, terrorists, and those in the slave and child labor “businesses.” Penalties
tend to be lower than those for other crimes, so it is a “low risk – high
reward” proposition for criminals.
Regarding solutions, there is the Special
301, a report that
the U.S. Trade Representative is required to present to the U.S. Congress every
year that helps define problem countries. The World Trade Organization is supposed
to handle sanctions and resolve disputes, but both the report and sanctions
are subject to all kinds of political considerations. And, there is the idea
of consumer education to decrease demand.
A recent Huffington Post column
by an IBM food and drug safety expert suggested that one solution may be RFID
and bar-coding to track products in the supply chain. Another
may be dot-matrix codes that can be laser-etched or printed on items as small
as individual medicine tablets or capsules.
Discussion Questions: How concerned should U.S. retailers be about the
counterfeit product issue? What steps can manufacturers and retailers take
to help fix the problem?
- The Truth About Counterfeiting – International Anti Counterfeiting
Coalition - How to Watch Out for Counterfeit Pharmaceutical Drugs – Huffington Post
- Warnings About Discounted Pet Drugs – The New York Times
- Sony: Beware of exploding counterfeit PlayStation 3 controllers – Examiner.com
- 2010 Special 301 Report – Office of the United States Trade Representative
There are two distinct issues here. One has to do with counterfeiting a branded product bought by consumers like you and me. The other refers to the “component” of a product such as an airplane or car bought by other manufacturers.
In the case of the component I put the onus on the manufacturer and its management. Companies have to take responsibility and are accountable for what they sell. And it’s up to management to know about the parts they put in their products, where they come from and how they are made. That is about quality control. This reference in the article is huge and I’m astounded that it hasn’t had more air time. I believe it can be dealt with directly through manufacturers and their trade associations. It can start with purchasers asking the hard questions and looking for the evidence in the responses. Sometimes I can’t believe what I have to provide purchasing agents at client companies and I’m just a small service business. My jaw dropped when I read this article.
For the counterfeit products bought directly by consumers, we have a more difficult situation to control. I think trade associations are best equipped to figure out how to go about learning the facts, educating their members, and developing strategies for the safety of customers along with the impact on the association members. Getting the news out there for products which endanger health is a first step of course. Attaching the trade association label to the news will be key to building trust for those products consumers are less concerned with, but should be.
Using my industry of marketing research as an example, we’ve taken issues of quality, authenticity (yes, there are tainted facts out there) and guidelines through our associations, CASRO, American Marketing Association, MRA, ARF and other ad hoc groups that want to insure quality standards are adhered to. You might not think of it as counterfeit, but client companies are pushing the DIY envelope when it comes to marketing research. They don’t necessarily have the know how for quality research but will use their results to make multi-million business decisions. We can’t just watch and say “tsk, tsk.”
This is an incredibly serious problem (unlike fashion knock-offs, which isn’t quite the same as counterfeit product in my mind).
Definitely one of the strong opportunities for identifying counterfeit product comes from item level RFID, but overall, it does fall to retailers to positively confirm that the product they buy is legitimate and has been legally obtained by the seller. That means cutting down on the purchase of “gray market” products–those sold by diverters.
If we need to create a “chain of custody” to establish merchandise provenance, than we should do that. Again, RFID is helpful here…but in any case, it has to be done.
China is by far the largest source of phony products, however, U.S. retailers and suppliers are the largest consumers of the same.
Counterfeiting is a huge issue both for public health and patent/trademark holders. Counterfeit toothpaste, baby products, etc, can and do cause permanent injury/death, to say nothing of counterfeit parts in airplanes and cars (there are also news reports of counterfeit parts for nuclear plants and defense department weapons systems, which is truly scary). The government, retailers, and manufacturers must closely cooperate to minimize this threat. Consumers also need to be wary, for example there are certain goods you should never buy at a flea market or from a third party reseller, and use common sense when “designer” items are at an unbelievable discount. If it’s too good to be true….
This is a very serious problem. It is especially serious when considering the production and sale of counterfeit components. Every member of most corporate procurement departments have income tied to cost reductions. The opportunity to grab some cheap parts is pretty enticing.
Unfortunately, China seems to be the primary source of counterfeit goods and parts. The Chinese have found the west a ready purchaser of almost everything they make. Our government does little to protect us and I don’t expect that to ever change.
I will be that every one of us will be harmed in some way by the counterfeit products industry. You will buy medication that is fake and suffer or you will be harmed by the failure of a counterfeit component in a stoplight, or a computer, or even an airplane or car. It’s going to happen and it would appear that few people beyond luxury product manufacturers are trying to control the flood of counterfeit products coming into the USA.
Incredibly thought provoking discussion. Let me add in another element–the level of trust that makes capitalism work between unknown parties, as noted in the book “The Wisdom of Crowds.”
I bought a bag of frozen shrimp at Waldbaum’s the other day without much thought or hesitation that it came from Thailand. Then, when I got home, thought why did I do that? I’ve never been to Thailand, heard some bad things about it, and never heard of the brand. I bought it because I trust the retailer to sell safe products so I can focus on features and price and not worry about safety. Basically, trust is taken out of the equation.
If counterfeiting leads to the “trust switch being flipped into the ‘off’ position, commerce could spin out into space off its axis.
This is a huge consideration that I hadn’t focused on before this discussion.
I don’t usually write this late in a discussion and don’t have much to add. The comments are very good.
Yes, there are two issues here. The primary one is safety. We don’t pay enough attention to that. The other, like “handbags on the street” is an area we likely pay too much attention to. Most people who buy the “LV” item for $30 knows it is a knock-off and don’t pretend it is not. They even boast about it. That counterfeit item in truth is not a counterfeit. It is brand in itself called “FAKE LV”!
The other issue is safety. Paula’s recommendation to create a “chain of custody” is excellent and one that could be implemented quickly and cheaply. But David Biernbaum makes the single point that overrides the entire discussion…”U.S. retailers and suppliers are the largest consumers of [phony products].
It is all made possible by the customers. This is no different than illegal immigration being made possible by those in the U.S. who employ cheap labor. Or, providing illegal drugs to the biggest users in the world. If there were no customers for phony products, cheap labor or illegal drugs, none would be a problem.
“Johnson says the profits from counterfeit products go to organized crime, drug traffickers, terrorists, and those in the slave and child labor…”
And I hear it hurts little puppies too. I’m happy to see the respondents here can recognize the various dimensions of counterfeiting–legal, safety and marketing issues–without succumbing to Coalition’s somewhat self-serving attempts to lump them all together. Unfortunately, recognizing the issue(s) in a non-hysterical manner doesn’t solve it. And will the panelists here, who yesterday were nearly united against anti-China measures as examples of government meddling (when the core issue was currency valuation), shift gears and support them when the rationale is protecting property rights?