Synergy of the Licit and Illicit Product Market: What can we learn from the counterfeit supply chain
What does experience teach us from the investigation of the counterfeiting of brand products and how do we apply this to a risk mitigation strategy.
Quality is never an accident
Investigating counterfeit products and their national and international distribution networks can have some surprising findings. In addition to the brand reputation impact and how simple the counterfeiting was, including the magnitude of the distribution network and global marketing that allowed the counterfeit product to out perform the brand item.
Concern was raised that an exclusive product that had just been launched, had been copied and that the bottling, design and packaging was so similar to the original product that it was being marketed and sold as a cheaper version of this exclusive brand.
Having an already established distribution network and the ease of access and presence on numerous global shopping sites, adding a new counterfeit product into the market is simple.
Having a product manufactured and packaged in China in many cases makes good commercial sense, however where a manufacturer 'over-runs' a legitimate product, which was the case in this instance, creating an excess of the quantity required makes it easy for the brand product to be illegally sold off by the manufacture or rebranded as a new product and sold through a separate company or sold as a cheaper version of the original branded product.
What became clear during this investigation was is that counterfeiters in many cases have well established distribution networks and sales outlets and, in many cases, are more established than the original brand owner, using global ecommerce solution to sell their product with enforcement risk, allowing them to penetrate the market quickly with their counterfeit product or counterfeit packaged product.
The large percentage of counterfeit products are manufactured in China although there are an increasing number of countries where counterfeiting is on the rise. Companies that manufacture their brand in China have a significantly higher risk of having the product copied and IP stolen.
In addition to any procurement fraud risk mitigation strategy, when considering the counterfeit risk and financial loss, an assessment of this risk should be planned at the design stage of the product to ensure that every opportunity to mitigate this risk is considered. The areas of risk that should be assessed may include:
Assessing the level and degree of risk from the design stage through to sale ensuring that IP is protected
Risk assessing how a manufacturer is going to protect the organisation's IP
Ensuring there is the contractual ability to audit the manufacturing process, including ability to substitute materials
That the manufacturer can provide evidence of current and previous clients to verify performance and risk
Assessing the distributor and distribution network for supply chain security
Establishing what anti-fraud standards and training are in place
Producing a plan to respond to any identified counterfeiting suspicion
The cost implications in being caught out by counterfeiters can be significant in addition to the cost in investigating the route cause and analysis of gaps in an anti-counterfeiting framework.
There is no 'one size fits all' approach to risk assessment because no two organisations are the same. Investigations teach us hard lessons around financial and reputation impact, introducing a lessons learned approach into your organisations risk assessment, understanding the global threats and continual testing of your mitigation strategy is a key step in protecting your global brand and your company's reputation.