What are the negative effects of counterfeiting on companies?

Counterfeiting or duplication is not only harmful to the consumers but is equally detrimental for the companies. Moreover, counterfeiting not just affects big brands- assumed by many but, also decimates the business growth of small companies.

According to a report by Research and Markets, “The total amount of counterfeiting has reached to 1.2 Trillion USD in 2017 globally and is bound to reach 1.82 Trillion USD by the year 2020.”

This monstrous growth of counterfeiting is a testimony to the fact that it is badly affecting the business growth and market image of companies. Counterfeiting leads to serious problems which may even in some situations lead to a complete shutdown of businesses. Let’s discuss the major impacts of counterfeiting on businesses.

1.Drop down in sales

Counterfeiting brings down sales of genuine goods. Consider a scenario in which the counterfeit of your genuine product is sold in the market at half of its price. This will attract many consumers who are willing to buy fakes and will negatively affect the sale of your genuine products.

New research from Mark Monitor, the world leader in enterprise brand protection, has revealed that almost half (47%) of brands lose sales revenue to counterfeit or pirated goods, with one in three reporting a loss of more than 10%.

With the growth of online shopping, it has become difficult to recognize fake products. Forgers usually copy the branding and packaging of genuine products making it difficult for one to recognize fake products. The infestation of e-commerce space with counterfeits has brought down sales of legitimate companies.

2.Loss of brand reputation

Brand reputation is critical for companies across the world. A piece of negative news involving the companies name can hit its reputation badly. Similarly, a counterfeit purchased by a consumer in place of the genuine product may fail to work or worn out in a few days. This will create a wrong impression in the minds of consumers about the poor quality of the brand’s products.

It takes years of hard work and consistent consumer satisfaction to create an iconic brand image for companies.

Since word of mouth publicity plays an important role in the brand image the consumers affected by fakes will provide negative feedback on the brand. Customers may also leave negative reviews on forums and websites which further ruins the brand’s image.

3.Loss of time and money in fighting fakes

When a company finds out that they are being impacted by counterfeiting they take certain measures to fight back. However, this can be time-consuming and involves a lot of money and resources. This leads to diversion of company’s money for fighting fakes instead of investing it in other developments.

Companies suffering from counterfeiting invest a good amount of money in hiring costly legal experts and fighting legal cases for securing their products and brand from IP infringements.

E-Commerce major Amazon has taken a new initiative for fighting fakes. The online company has initiated an anti-counterfeiting move known as ‘Project Zero’ which will allow brands to directly flag and delete fake listings themselves.

What are the reasons behind the growth of counterfeiting?

Counterfeiting is a global problem which is growing on a rapid scale devouring economic growth and affecting the society badly. According to a report by the OECD and the EU’s Intellectual Property Office, “The value of imported fake goods rose to $509 billion in 2016, up from $461 billion three years ago.”

The report also states, “Global sales of counterfeit and pirated goods have soared to $522 billion a year, amounting to a whopping 3.3 per cent of world trade.” Different experts cite different reasons behind the growth and expansion of counterfeiting but there are a few main reasons which are responsible for its monstrous growth.

The trend of knowingly buying fakes: One of the biggest reason behind the rise of fakes is that there is a big market for it. The rise of luxury brand value has deeply steeped in the heart of millions and the only possible way to afford it is to buy a fake luxury product which satisfies one’s obsession for costly goods and is affordable at the same time. There are a large number of people buying fakes compared to the ones who unknowingly fall victim to counterfeit products. Moreover, counterfeits offer a high-profit margin for distributors and retailers compared to genuine products.

Poor IP laws and weak monitoring of supply chains: The governments in different countries need to make stringent intellectual property laws and should equip authorities with advance mechanisms to monitor supply chains. Perhaps one of the reasons behind the flourishing counterfeit business is due to the absence of these two steps. In the presence of strict IP laws, the chances of copyright violations come down drastically and curb the practice of counterfeiting. Besides, government authorities should also be equipped with advanced monitoring technologies to look out for any loopholes.

The rise of counterfeit business on the web: Nowadays, counterfeiting has intruded the online marketplace. We regularly encounter spurious websites and social media links on the web which showcase alluring deals on different kinds of products. But do we really know how the product actually looks like? According to the International Trademark Association, “Criminals prefer to sell counterfeits on the Internet for many reasons. They can hide behind the anonymity of the Internet with the Dark Web even their IP addresses can be hidden. The Internet gives them the reach to sell to consumers globally-outside of the national limits of law enforcement.”

The growth of free trade zones: Another factor behind the growth of counterfeiting worldwide is the rise of free trade zones in different parts of the world. Free trade zones provide tax advantages and other exemptions which helps to boost the economy of the host country. However, it also leads to a rise in counterfeiting and piracy as there are little checks and easy transport facilities available in these zones.

Lack of use of anti-counterfeiting technologies: Many organisations do not take counterfeiting seriously and they ridicule the use of anti-counterfeiting technologies. However, the fact is that duplication eats their business from within like cancer and at times the financial damage is huge. It is high time that organisations utilise the power of anti-counterfeiting technologies to deter counterfeiters from sneaking into their profits.