From knock-off fashion accessories to fake mobile phones, automotive parts and pharmaceuticals, counterfeiters manufacture and sell inferior goods using another company’s trademark, brand name, logo or appearance. Benefiting from rapid developments in technology, these organizations use sophisticated means to duplicate items, making it quite difficult for customers to identify the true source of the products they purchase.
Counterfeiting is a serious crime punishable globally by fines that may run into millions of dollars and imprisonment of up to 20 years. Despite this, the counterfeit industry continues to cost the world economy hundreds of billions of dollars each year.
The Organization for Economic Cooperation and Development (OECD), an intergovernmental economic organization for world trade, estimates that trafficking in counterfeit products accounted for USD 250 billion in 2007 — approximately 1.95% of international trade. According to the International Chamber of Commerce, counterfeiting was a USD 600 billion business in 2011, amounting to 5% – 7% of global trade.
In a March 2019 report, OECD stated that trade in counterfeit and pirated goods has risen steadily in the last few years, even as overall trade volumes stagnated. According to the estimates, counterfeit trade currently stands at 3.3% of global trade.
Counterfeiting organizations are often linked to other organized crimes such as drug cartels, money laundering and exploitation of child labor. Even as law enforcement agencies increase efforts to shut down the illicit business, statistics point toward continued exponential growth in the sale and manufacture of counterfeit goods worldwide.
The need for effective risk management in the supply chain
- China is estimated to account for 78.5% of the total counterfeit market, and along with Hong Kong, continues to be among the biggest origin countries for pirated goods.
- Footwear, clothing, leather goods and electrical equipment are the top product categories targeted by counterfeit organizations.
- Counterfeit and pirated products continue to follow complex trading routes, targeting certain intermediary transit points in supply chains, especially in countries where ports are not secured.
- In 2016, up to 6.8% of EU imports comprised of counterfeit and pirated products. This amounts to as much as €121 billion.
Although it affects every product category, counterfeiting is more accentuated for businesses with a globalized supply chain. Supply chain management at large corporations can involve hundreds of links with each of those susceptible to intrusion by counterfeit organizations.
Counterfeit items can enter legitimate supply distribution chains at a number of points — the various component manufacturers, suppliers of raw materials, offshore assembly units, transportation, and even the retailers.
If not checked for quality, sources, proper delivery and authenticity throughout the supply chain, high-quality products may get replaced by cheap knock-offs at any point most convenient to counterfeiters.
As laws differ in countries, a manufacturer could potentially leave their product open to counterfeiting at any point in the supply chain when they target a market in a developing country. The market is characterized by businesses working with governments to reduce counterfeit trade. Preventive measures such as penalization, customs laws, and civil remedies work to some extent but fail to significantly reduce the problem. Often, in developing countries, regulatory authorities are ill-equipped to correctly identify original products from fakes.
There is an undeniable need to develop a far-reaching strategic approach to counter such criminal efforts with a multidisciplinary response and the active participation of a wide range of actors, each with their own expertise and specific areas of work.
The role of technology may offer significant contributions to step up deterrence and curb counterfeiting. The two most common technological solutions that companies employ are product authentication and track-and-trace systems.
Authentication methods allow customers to identify whether the products they’ve purchased are genuine or counterfeit. This usually involves assigning security holograms, QR codes and unique numbers or patterns to each product after the final quality check at the manufacturing unit. Scanning the unique code on their smartphone allows the customer to verify the genuineness of the product while informing the manufacturer about its successful sale. Security holograms for authentication can be found on nearly all credit and debit cards.
Track-and-trace systems are designed to help manufacturers identify faults in their supply chain. As the name suggests, these systems allow manufacturers to track product journey along the entire supply distribution chain from the production unit to end-customer, and customers to trace the products back to their original source.
Smart QR codes (in the form of labels or holograms) are assigned to each product. These are then scanned at every link in the supply chain using either specialized devices or smartphones. Failure to scan the right code on the right product reflects immediately in the supply chain database and allows the manufacturer to identify the point of failure and take appropriate action. This dramatically reduces the chances of intrusion by counterfeit organizations into the legitimate supply chain.
Anti-counterfeiting solutions such as track-and-trace systems allow manufacturers to not only keep track of their inventory at all stages of distribution but also make it easier to manage rewards and build customer loyalty. For more information on this, click here.
Counterfeiting is an exceedingly complex phenomenon. Legal deterrence like fines and imprisonment work to reduce the spread of fraud but do not eliminate it entirely.
With the global counterfeit industry on the rise, companies must take advantage of technological solutions to fight counterfeit. Some of the most effective methods include product authentication methods and track-and-trace systems.
While immensely effective in nearly eliminating the intrusion of counterfeit goods into legitimate supply chains, these solutions also offer added benefits such as comprehensive supply chain management, reward management, and loyalty-building.