Fake products cost millions and can also cost lives. Changes in the supply chain have made life easier for counterfeiters, so the time is right to consider counter-measures.
For some tourists a trip to the Far East wouldn’t be complete without picking up a fake Rolex or dodgy copy of The King’s Speech, but for industry, counterfeiting is a scourge cutting into revenue, destroying reputations and in some cases putting lives at risk.
Counterfeiting is a major criminal enterprise that cost the world economy some 465m euros last year and destroyed 2.5 million legitimate jobs through lost sales to counterfeiters, according to the International Chamber of Commerce.
Things are unlikely to get better in the near future, says the organisation, which runs a campaign against counterfeiting called Business Action to Stop Counterfeiting and Piracy. It expects the cost of counterfeit products in lost revenue, lost taxes and police time to double by 2015.
The human cost of passing off poor imitations as the real thing is high too. An earlier study by the International Chamber of Commerce estimated that 3,000 people per year in the European Union die as a result of taking counterfeit food and medicines.
Changes in the supply chain have made life easier for counterfeiters. The trend towards outsourcing to manufacturers in countries with low labour costs has enabled crooks there to learn and copy designs and production techniques. Corruption and lack of resources make it difficult for governments to enforce intellectual property rights in these developing countries.
The problem has reached such a pitch that one trainer manufacturer now limits access to its stands at trade shows to prevent would-be counterfeiters from taking samples and pictures. Other companies have hired secret agents to protect their brands.
However, the supply chain is at the heart of efforts to stem the flow of fakes, which range from everyday items such as cement and clothes through to expensive high tech products such as computers and pharmaceuticals. Not surprisingly, given the ease with which they can be reproduced, music, games and software are the most popular targets for bootleggers.
Traceability is the key to thwarting the fakers: if regulators and legitimate businesses can be sure where goods have come from and that consignments have not been tampered with it is far more difficult to get counterfeits into the supply chain.
There have been efforts in many industries to get supply chain participants to collaborate on agreeing procedures, standards and technology to aid tracking. Radio frequency identification (RFID), for Business Action to Stop Counterfeiting and Piracy expects the cost of counterfeit products in lost revenue, lost taxes and police time to double by 2015. example, has been taken up by many industries to trace goods through the supply chain.
The small transponders can be quickly read, incorporated into a variety of packaging and can contain quite large amounts of information about the item to which they are attached. Cost still remains an issue, however, as does the fact that RFID tags are themselves open to being counterfeited.
But there is increasing pressure from legislators for producers to invest in better product identification and traceability. For example, in the EU, where an estimated one per cent of drugs supplied through legal channels are fake, a recent directive will require prescription medicines to be marked with a two-dimensional barcode.
Under the EU Pharmaceutical Anti-Counterfeiting Directive, which will eventually be incorporated into legislation by member states, an authentication system based around scanning will be the key to reducing the risk of counterfeit medicines reaching patients.
The legislation calls for serial numbers to be placed on individual packs to identify them, guarantee their authenticity, and enable pharmacists to check whether the outer packaging has been tampered with.
If a medicine is suspect, all actors in the supply chain and in other EU states must be rapidly alerted. If the falsified medicines reach patients, then the alert must be given within 24 hours, so that the medicines can be recalled.
Pharmaceutical distribution networks are becoming increasingly complex. They involve not only distributors, who are already covered by existing legislation, but also medicinal product brokers.
These brokers will have to register under the new legislation.
Members of the European Parliament wanted not only imports but exports of medicines to third countries to be better regulated. They therefore stipulated that the rules on information must apply to the supply of medicines to people outside the EU too.
Reducing the impact of counterfeit goods is often a matter of trusting your supplier. Those involved in buying and selling electronic components, where electronics counterfeiters have become so expert that they use the same machines and production processes as legitimate manufacturers, making their products very difficult to detect, have taken this maxim so much to heart that the spot market in components has been virtually killed off.
It puts a whole new perspective on holiday shopping.