The global counterfeit economy is estimated to be worth over $3 billion a year, but some suggest that the business of counterfeiting is becoming an increasingly expensive affair.
So is it the counterfeit supply chain; spiraling costs associated with manufacturing, distribution, exporting and selling? Perhaps it’s the resources required to stay under the radar of investigators and successfully evade increasingly sophisticated detection technologies? Or maybe it’s the increasing pressure from improved legislation? Or all of the above?
It’s an interesting question – particularly given China’s incredible economic development over the past decade. With this in mind, we decided to take a quick look at the situation based on our own research and some publicly available information.
Online brand protection is a big hassle to counterfeiters
IP owners are becoming much more savvy. More and more brands are deploying technologies and engaging experts to detect and take down fake products on marketplaces, shut down illegitimate websites and find and prosecute counterfeiters.
Each marketplace listing, website, Facebook page, post, blog or app that counterfeiters create and publish has to have a tangible return. The return on investment calculation is just as important to a criminal as it is to a brand holder. Often, they’ll have teams working on an SEO and marketing strategy for each brand, in the same way the legitimate brand would. Therefore, every time they lose a website, lose a listing, get suspended on a marketplace or get blacklisted on Google it hurts their operation.
So when we start to get letters from counterfeiters asking us to allow them to keep their listing up, we know that an anti-counterfeit program is working. If this happens to just one or two brands they’re infringing, they may move onto a softer target, but when multiple brands are counterattacking their operation, their pain starts to increase.
It’s encouraging to know that programs do have a tangible impact on counterfeiters’ bottom lines, but those programs need to be sustained and adapt in the same way that the fraudsters themselves try to innovate.
Are increasing production and labor costs hurting Chinese counterfeiters?
Since 2001, hourly manufacturing wages in China have risen by an average of 12% a year. Given that manufacturing competitiveness has been a key driver the Chinese economy – which also applies to its counterfeit economy – it’s easy to understand why fraudsters are feeling the pinch.
As a result of these increasing labor costs in China, we’re seeing a growth in alternative manufacturing markets. South-East Asia, which offers a large labor pool, low wages and minimal regulation, has caught the counterfeiters’ eye; the average factory worker in China earns $27.50 per day, compared with $8.60 in Indonesia and $6.70 in Vietnam so many fraudsters have turned their attention in this direction.
A by-product of this shift of focus is that we’re finding many more counterfeits on South East Asian marketplaces. There’s also a greater proliferation of rogue websites on domain name spaces such as .co.id, .com.my and .vn, as well as some of the low cost new gTLDs.
Brand owners need to understand these shifts, and adjust their anti-counterfeiting strategies accordingly.
Improved legislation, more conviction and government intervention
In the past, the Chinese government has been criticized for neglecting to take action against counterfeiters, and Chinese laws regarding intellectual property were not strictly being enforced at the local level because of concerns about what a crackdown might mean for local jobs and trade.
However, there seem to be some positive movements. Cctv.com reported that, in 2015, Chinese customs flagged 25,000 incidents and seized around 70m counterfeit items. About 98% of those goods infringed on trademark rights.
We are also seeing more prominent cases appear before the courts. For example, French luxury label Louis Vuitton (LV) is seeking damages from individuals convicted of offering counterfeit LV items on Alibaba’s taobao.com.
A district court in Beijing has accepted the case and the decision is pending. Many other brands are eagerly awaiting a decision.
Answer the question!
So are the higher costs and pressures associated with counterfeiting affecting their operations? Yes, absolutely – but like any other industry, the counterfeiters are innovating and looking for efficiencies and new markets to explore that offer more conducive labor and manufacturing conditions.
It’s likely that over the next few years we will witness the rise of South East Asian counterfeit markets, and therefore online marketplaces such as Tokopedia and more localized sites could be the target of counterfeit lists.
Counterfeiting will never go away, but those brands that monitor the changing environment and implement a mix of programs, both online and physical, have every chance of staying one step ahead.