The cost of turning a blind eye

Counterfeiting is not a victimless crime. For a start, legitimate businesses lose sales because of competition from counterfeiters. If their brand loses value (because it is seen as less exclusive or is confused with shoddy imitations), this poses a long-term threat to profitability. In addition, firms have to bear the cost of anti-counterfeiting measures. Procter & Gamble reckons that it spends $3m a year fighting the copycats.

Another headache is the prospect of legal liability. Last year, Serono, a Swiss biotechnology company, settled a case with two American customers who had sued the firm (and assorted distributors) after taking a fake version of its body-boosting drug Serostim. The plaintiffs claimed that the company should have foreseen the possibility of counterfeits entering the distribution chain and should have taken suitable precautions.

A study in 2000 by the Centre for Economics and Business Research estimated that the counterfeiting of clothing, cosmetics, toys, sports equipment and pharmaceuticals within the European Union cost the region 17,120 jobs, and reduced GDP by euro8 billion ($7.4 billion) a year. As counterfeiters rarely pay duties or taxes, governments lose further revenue. And countries with endemic counterfeiting may sacrifice foreign investment too. Sony, for example, has toned down its music operations in Hungary because of counterfeiting. There is, however, little sign that multinationals are avoiding China: quite the opposite.

Given the costs, big business is keen that consumers should feel as strongly about counterfeiting as it does. But most customers, in the developed world at any rate, are relatively unconcerned. Some argue that counterfeiting benefits consumers, particularly in developing countries, by giving them access to lower-price goods, such as software, that they might not otherwise be able to afford. And they claim that counterfeits occasionally push brand-holders into innovating in their customers' interests. Yamaha, for example, has decided to beat China's counterfeiters at their own game by introducing a new model of motorcycle at roughly the same price as the fake Yamahas on the streets.

Nevertheless, the costs of counterfeiting far outweigh the benefits. The World Health Organisation reckons that 5-7% of pharmaceuticals worldwide may be counterfeit—with too few active ingredients, too many contaminants, fake labels or recycled packaging that covers up expiry dates. The problem is most acute in developing countries. Three years ago, a survey of shops selling artesunate, an anti-malarial drug, in Cambodia, Laos and Thailand, found that more than a third of the samples analysed had no artesunate in them at all. Even in America, counterfeit medicines are not unknown. Last year, the Food and Drug Administration (FDA) launched some 30 investigations into cases of pharmaceutical counterfeiting, involving such popular brands as Combivir (against HIV) and Procrit (for anaemia).

At least as hazardous is the trade in counterfeit car parts, which may account for as much as 10% of the spare parts sold in the EU, according to a 1999 study. Even more worrying is the thriving trade in reconditioned aircraft components, passed off as genuine parts along with fake certificates of authentication. Last year, police raided three aviation-parts manufacturers in Rome, seizing more than $2m-worth of used parts—modified and repackaged to look as good as new.

Dodgy aircraft parts kill. In 1989, a plane belonging to Partnair, a Norwegian charter airline, crashed when its tail assembly fell off because of substandard counterfeit bolts holding it to the rest of the body. The CIB believes that the November 2001 crash of an American Airlines flight over New York may have been caused by the failure of counterfeit parts.

Date: 2015-01-12; view: 1247