Fast-moving fakes

Counterfeiting is an age-old pursuit. From ancient times people have palmed off fake valuables as the real thing. In the 17th century, Domingo Navarette, a Spanish priest, complained that “the Chinese are very ingenious at imitation. They have imitated to perfection whatsoever they have seen brought out of Europe.”

The past quarter of a century has, however, witnessed a remarkable rise in the counterfeiting of consumer products. Ian Lancaster of Reconnaissance International, an anti-counterfeiting research group, points to several forces behind this. Since the 1970s, technological advances have taken much of the skill out of manufacturing. This has allowed big business to move its manufacturing base to poor countries to take advantage of low labour costs. Unfortunately, many of these businesses paid insufficient attention to the sort of intellectual-property rights (IPR) on offer in such places. Now they are paying the price.

This migration coincided with the growing popularity (and rocketing value) of brands. Through ingenious marketing, a simple designer label can turn a comfy $10 T-shirt into a $100 object of aspiration. So much of a product's worth is now tied up in its brand and intellectual property, rather than its material constituents, that it becomes easy prey for counterfeiters who can exploit consumers' expectations of quality and service without the cost of having to fulfil them (see chart).

Although multinational firms are the loudest complainers about counterfeiting, they are not the only ones to suffer. Because counterfeiters copy popular brands, local firms in counterfeiting hotspots can also be losers. In Thailand, domestic firms such as GMM Grammy, which produces movies and music, and Jim Thompson, an upmarket silk producer, have seen their Thai sales falter because of counterfeiting. The state tobacco monopoly has launched a vigorous campaign to stop counterfeit versions of its Krongthip cigarettes flooding in from abroad.

Counterfeiting is as diverse as any legal business, ranging from back-street sweatshops to full-scale factories. Counterfeiters often get their goods by bribing employees in a company with a valuable brand to hand over manufacturing moulds or master discs for them to copy. One of the most infuriating problems for brand owners is when their licensed suppliers and manufacturers “over-run” production lines without permission and then sell the extra goods on the side.

Distribution networks can be as simple as a stall in the street, or a shop on the other side of the world. The internet has been a boon to counterfeiters, giving them detailed information about which goods to copy and allowing them to link consumers and suppliers with ease and relative anonymity.

Peter Lowe, head of the CIB, reckons that some $25 billion-worth of counterfeit goods are traded each year over the internet.

The complex distribution network required by the larger counterfeiters has attracted organised crime. Interpol is well aware of the connection; last year it established a special working group to improve co-ordination of international action against counterfeiters. Of growing concern to authorities, however, is evidence that terrorists too are in on the act. The 1993 bombing of the World Trade Centre was financed, in part, by sales of counterfeit T-shirts in New York; and the CIB maintains that the IRA has funded some of its activities in recent years through video piracy. The World Customs Organisation is now working on new ways of monitoring and controlling international supply chains. Its explicit aim is to clamp down on smuggling by terrorists; but a happy side-effect may be to cut back on counterfeits too.

Date: 2015-01-12; view: 1092