Anti Piracy
& Anti Counterfeit Blog

Counterfeits: the where, why and how

Posted by Laura Urquizu on Friday, Feb 17, 2017

Red Points examines the geographical origins of counterfeiting, the factors that contribute to its rise and its future as a changing industry.

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Where do counterfeit goods originate from? The short answer: China. In 2013 the OECD released a report that analysed the origins of counterfeit goods seized, and reported that 84.5% of all seized counterfeit goods were from China and Hong Kong. Counterfeits are springing up of almost every major branded product, from pesticides to alcohol, and the rise of e-commerce has only fuelled counterfeiting by providing an easy means of distribution through direct post.

But despite global measures to crack down on counterfeiting, with dedicated staff in customs and significant numbers of seizures, counterfeiting is not slowing. China's counterfeit problem alone is worth US$285 billion. So why is China such a hotspot for counterfeiting practices?

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The ‘Made in China’ production shift

‘Made in China’. Arguably the most-recognised trading label, the phrase is representative of China’s hold over production and trade. But this stronghold is gradually deteriorating, for a variety of economic and political reasons, and production is increasingly being outsourced to competitive countries such as Mexico and India.

High-technology factories have responded to the industry downturn by seeking alternative revenues. As a report by the UN details, contracted factories can easily make use of transport connections and machinery to rapidly manufacture a bounty of fake designer products, and through circuitous trade routes the goods can be transported to free-trade zones and shipped around the world. And the industry is highly profitable, shown to drive revenue and contribute significantly to China’s GDP.

A contention for power

The success of the counterfeiting industry rests on high profits driven by low-cost labour and mass production, and because of this powerful countries within the industry are constantly threatened by lower labour costs elsewhere. It’s possible that just as legal production in China is becoming increasingly outsourced, counterfeit production will experience a similar shift toward competitive economies. This could drive the very real threat that counterfeiting poses to the global economy, by undermining luxury brand appeal. Further to this, lower labour costs will only serve to encourage harmful criminal activity that is frequently rooted in counterfeiting profits.

Countries where counterfeiting production is significantly growing include India, Turkey, the Philippines and Indonesia, but counterfeit goods manufactured in the EU are also on the rise with the ease of e-commerce distribution. And as the data we have on counterfeiting is based on seizures and not published by many economies, it’s likely that the that the great majority of counterfeiting goes unrecorded.

Countering counterfeiting

So what can we do to combat the explosion of counterfeit products? Legally, strengthening Intellectual Property (IP) laws is paramount to the cause. Countries with weak IP laws are historically the most susceptible to counterfeit production, whereas strong IP protection sees an increase in foreign investment, contributing to its recognition in improving economic progress. Educating customs officials on how to spot fake products can also be effective, especially as counterfeiters devise new ways to disguise counterfeit goods, such as sewing unknown decoy labels over printed designer logos.

 

Conclusion

Brands also have a responsibility in deterring counterfeiters, and should work on understanding how counterfeiters work in order to work with brand protection teams to devise new strategies. An in-depth knowledge of counterfeiting practices will outline where brands should best place their resources in tackling the issue, i.e. toward e-commerce counterfeiting or street sales. In determining this it may be advisable for brands to audit their presence on e-commerce channels such as online marketplaces and social media platforms, where online counterfeiting is increasing at alarming rates, and to conduct research into technological solutions.

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About the author

Laura Urquizu

Post Written by Laura Urquizu

Red Points' CEO Laura Urquizu has over 20 years experience as an executive and board director in banking, venture capital and startups. She has worked with companies like Arthur Andersen, Caja Navarra, Corporación CAN and Inspirit. Laura is a respected expert in the startup field and innovation-based businesses.