When companies construct supply chains around new products, they often decide to engage with partners in China or other low-wage nations for manufacturing. However, this choice comes with the risk of counterfeiting.
ARC recently published a strategic report titled “Global Strategies for Anti-Counterfeiting and Brand Protection” by Janice Abel and John Blanchard (available to ARC clients only). One of the examples cited in the report was the case of fake Amazon Kindle e-readers, based on an investigation conducted by OpSec Security late last year. According to the OpSec press release:
On launch day, Kindle DXs were already available for purchase on a major B2B trade board from a company located in China. A sample of 8 seller listings on a popular trade board had an estimated 40,000 Kindles available within a few weeks after the DX launch. Suspect Kindle knockoffs were found for sale on trade boards and auctions in colors and languages not sold by Amazon.
The product launch of a highly anticipated consumer electronics product, such as the Kindle DX, presents a challenge to manufacturers desiring to maintain supply chain control in the global market. Even on the day of launch, Kindle DXs were offered for sale on a B2B trade board raising questions on how the product was acquired. Thousands of Kindle e-readers were available on trade boards from sellers, many offering significant quantities at deeply discounted prices. One seller offered 2,500 Kindle 2 e-readers per week at a unit price of $65, well below the list price of $299. Of 33 B2B listings offering Kindles when the DX launched, 75% of the sellers were located in Indonesia and China.
ARC was not told how this counterfeiting occurred, but one possibility, if you read between the lines, is that the offshore manufacturer(s) Amazon worked with were either responsible for the counterfeiting or sold the specs to other companies.
According to the ARC report, “Counterfeit goods make up 5-7 percent of world trade. The International Anti-Counterfeiting Coalition (IACC) and the US Federal Bureau of Investigation estimate that counterfeiting and piracy cost the US economy between $200 to $250 billion per year, contributing to the loss of approximately 750,000 American jobs.”
In addition to lost profits, counterfeit products can damage a company’s brand reputation, create liabilities, and the loss of intellectual property can result in new competitors emerging.
“To address the tremendous global counterfeiting problems,” say Abel and Blanchard, “manufacturers must understand the range of solutions, technologies, and methodologies they can employ to prevent counterfeiting. A ‘one solution fits all’ approach may not be best to solve the counterfeit or diversion problem. It’s important to understand the extent of methodologies and technologies that address anti-counterfeiting and brand protection. The right solution must examine the supply chain, the product, the technologies, policies, training, global standards, organizational teams, and enforcement.”