The counterfeiting of products has long been a prevalent and growing trend. Its origins are lost in the past, primarily associated with important documentation and fiat currency for obvious reasons. But in today’s world, and with lesser stakes than direct fraudulent intent, it’s a trend that has gained a degree of social acceptance, which is why today originators and brand owners have lobbied for greater protection from government.
That social acceptance has come within the last 40 years as aspirant consumers sought the halo effect of designer couture and accessories at without premium pricing. Initially comprising of ‘midnight production runs’ of the real item, the growth of Eastern capabilities across clothes manufacture, handbag production, watch-making etc etc, provided cultural and geographic seclusion and with that protection.
Such success of basic copy-cat consumer goods like clothes, coupled with the advancement of Eastern capabilities across many different manufacturing sectors has seen the value rise to an estimated $500bn annually. The main problem is that counterfeits are now far more widespread and even unrecognised, not just by the odd gullible market-stall buyer, but for business to business procurers or aftermarket retailers of safety-critical products and components.
Thus, corporate lobbying has managed to raise the issue as high as the European Commission, the president of which, Jose Manuel Barroso, is about to open the Counterfeiting Summit to highlight the problem and provide informational exchange across sectors as to how to combat the issue. Whilst governments such as the UK have made tackling counterfeiting a priority within new empowered divisions such as SOCA (the Serious Organised Crime Agency) under the belief that such profiteering is often co-ordinated by much larger criminal gangs.
An example given of the ingenuity and coverage of counterfeiting was citing unauthorised copies of the iconic 1967 Ferrari P4. This serendipitous illustration highlights that the issue has been within automakers and parts suppliers’ scope for some time. Whilst design and production licenses are agreed to third parties for anything from a complete car through to proprietary component as industrialisation has advanced in less regulated and more corrupt regions so the problem has grown and grown.
Moulds and other tooling, once removed from proprietary OEM’s control can be exploited, indeed such is the advancement of ‘replication’, only the original CAD drawings are needed to make a copy-cat mould or such. And without those, an original component can be reverse-engineered, possibly using 3-D scanning, to get a very good dimensional and visual – though often not performance rated – copy.
The quality of packaging used by counterfeiters is also improving, making it difficult for both consumers and enforcement personnel to distinguish between real and fake goods. Importantly, counterfeiters are increasingly shipping their products around the world for final assembly and distribution, thereby minimising the risk of seizures in the countries where components are produced. Trademark owners are increasingly finding counterfeit production and distribution operations in Russia and the former Soviet Republics, China, India, the Philippines, the Middle East and Africa and some Latin American countries.
As Barroso recognises, for Europe, this problem gives particular cause for concern as the enlargement of the EU and subsequent reduction in the numbers of customs officers, coupled with the extension of the border of the EU towards the east can only make the task of preventing these illegal imports far harder.
The first global congress on the issue, held in May 2004 highlighted that counterfeiting:
1. Damages investment and innovation
2. Has potentially disastrous economic consequences for small businesses
3. Escapes taxation - smuggled into countries or with forged or invalid documents
4. Puts a severe strain on law enforcement agencies
5. Diverts government resources from other priorities
The headline topic and associated IPR & Profitability concerns are those that automakers primarily seek to fight, and thankfully since that inaugural congress the reality of counterfeit products has become more availed as the topic gains attention.
Besides the now estimated 1 in 8 copy-cat auto-parts that are in existence, the real aghast came when certain Chinese car producers blatantly copied full vehicles such as the Chery QQ (based on Daewoo Matiz) and BYD infamous for its creations such as the CEO (based on BMW X5) & F8 (based on Merc CL) and Nobel Minicar (based on Smart ForTwo). In September ’07 BMW set-out a law-suit against the European importers and distributors of the CEO, which (like BYD) claims that no wrong has been done given that it did not contravene any Chinese statute laws. Daimler also plans legal action against the Noble Minicar, hence the importance in timing of the EU Commission’s President’s words.
BMW and Daimler legal teams are hoping the precedent has been made by Continental, who managed to defeat the importation and sale of counterfeit Chinese tyres by German aftermarket sellers.
The World Retail Congress, to be held next month in Barcelona, will look at the ‘future-proofing’ of marketing, distribution and retailing efforts of many companies from a myriad of sectors, and of course the hot-topic of counterfeiting will be deeply discussed
Broadly, whilst we see incremental improvement amongst the political thinkers in understanding the scale of the problem in Europe, and seemingly prompting to do something in what are flat-demand and necessarily protected markets, the bigger issue for multi-national corporations is the extent to which the counterfeiting problem is entrenched in fast growing and far less ‘protectable’ BRIC+ markets.
For it will be in these regions that consumers will seek-out affordable fake symbolistic yet also performance dependent products like Continental tyres on performance cars. and beyond this worrying prospect come the concern for revenue. Reputation and revenue…nothing could be higher on companies’ agendas.