Preparing for the Pendulum to Swing

With the proliferation of internet trade and globalization of manufacturing the pendulum has swung in the favor of counterfeiters as far as ease of access to markets and manufacturing capabilities. And no one has been a bigger lightening rod for criticism around this swing than Alibaba founder Jack Ma. Some of this criticism is well deserved, like the time Mr. Ma suggested:

“The problem is the fake products today are of better quality and better price than the real names,” he said at Alibaba’s investor day in Hangzhou. “They are exactly the same factories, exactly the same raw materials but they do not use the names.”(1)

And I suppose if one puts no value on the skills required to do market research, design and test products, develop quality plans and raw material specifications, then yes, contract manufacturers produce the exact same goods whether they carry the added logo and identification of the innovative companies that create the intellectual property and trademarks that people come to know and trust.
But recently Jack Ma wrote an open letter to China’s “parliament” suggesting that harsher enforcement against counterfeiting was key to fighting the problem.(2) It is no coincidence this change in focus from the quality of counterfeits to fighting the scourge of illicit goods comes at a time when The Office of the United States Trade Representative (USTR) reinstated the Alibaba TaoBao platform on its blacklist of “notorious markets” for selling fakes.(3)

But Mr. Ma does in fact have a point here. As reported in the article:

Alibaba says it handed over 4,495 leads on counterfeiting in 2016 that crossed the threshold of goods worth at least 50,000 yuan ($7,250). Of those, the authorities took on 1,184. That resulted in a scant 33 convictions. Alibaba has launched high-profile efforts, such as a push with the police in the city of Shenzhen and the luxury-goods brand Swarovski to shut down merchants selling fake watches. But some lawyers say those efforts amount to showboating.

But the sheer size of the problem of counterfeit distribution through an essentially frictionless market like Alibaba or Amazon Marketplace and Ebay make the follow-up on potential cases overwhelming for enforcement agencies. An activity that used to require some level of distribution and brick and mortar storefront to move counterfeit goods that could be investigated and raided is now replaced by digital entities that can literally appear and disappear with a few keystrokes. Traditional approaches to fighting illicit goods are overmatched.

So, what can a brand owner do to battle this enormous problem? The reality is that in the 21st century if you are a brand owner creating value from those intangible product qualities of design, style, quality, and ultimately reputation, you need to be investing some degree into the further differentiation of your finished good from that of your contract manufacturer. In our twenty years protecting brands we most often see hybrid and multi-layered solutions as effective means to enable different levels of inspection, from the internal security expert, all the way down to the consumer. And with the proliferation of smart devices and internet access, new tools are becoming available set to swing the pendulum back into the favor of brand owners to track the location of their products and possible illicit goods are a rate commensurate with the new internet economy. What is important is that brands consider equipping their goods with an overall brand protection program that includes monitoring and sampling contract manufacturers, distributors, and retailers to gain visibility into the flow of their products to consumers.

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1. http://blogs.wsj.com/chinarealtime/2016/06/15/jack-ma-says-fakes-better-quality-and-better-price-than-the-real-names/

2. http://realmoney.thestreet.com/articles/03/08/2017/alibaba-urges-china-get-real-fakes

3. https://ustr.gov/sites/default/files/2016-Out-of-Cycle-Review-Notorious-Markets.pdf

4. http://realmoney.thestreet.com/articles/03/08/2017/alibaba-urges-china-get-real-fakes

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