DISCUSSION

Who Cares About a $600 Billion Problem That Can Kill People?

October 1, 2010Written by RetailWire Staff

According to the International Anti Counterfeiting Coalition, counterfeit goods are a $600 billion global problem on an annual basis, cost U.S. businesses $200 to $250 billion yearly, and represent five to seven percent of all global trade.

The counterfeit product problem goes much deeper than product "knockoffs" (see RetailWire - Fashion Knockoffs: Good or Bad?) and can have deadly consequences. Approximately two percent of all airplane parts are said to be counterfeit, for example. In the past week, Sony warned that phony PlayStation 3 wireless controllers could explode or ignite and the U.S. Food and Drug Administration warned consumers about the danger of buying discounted pet medicine online because the drugs may be unapproved or counterfeit.

Travis Johnson, VP and director of legislative affairs and policy for the Coalition, said in a presentation to the Florida Luxury Marketing Council this week that, while counterfeiting is a huge problem, it is hard to get marketers, retailers, law enforcement or consumers to pay enough attention to it. He said that it's not just phony handbags and sunglasses that one sees sold on city streets. Everything from pharmaceuticals to software, auto parts, and luxury goods are being counterfeited. While U.S. seizures are increasing year to year, mainly via customs enforcement, goods seized represent only a tiny fraction of those produced and sold. There is an ever increasing variety of counterfeits being made available, primarily over the internet on sites such as eBay.

Consequences include the loss of business revenue, jobs, innovation and tax revenue. China is by far the largest source of phony products (81 percent) with other developing countries such as Vietnam part of the problem as well.

And then there are the deadly consequences. Defective auto and airline parts have the capacity to cause fatal accidents and counterfeit Colgate toothpaste from South Africa was found to contain substandard ingredients such as components of brake fluid and antifreeze, according to Mr. Johnson. The conterfeits became obvious to Colgate because they don't have a manufacturing facility in South Africa.

Johnson says the profits from counterfeit products go to organized crime, drug traffickers, terrorists, and those in the slave and child labor "businesses." Penalties tend to be lower than those for other crimes, so it is a "low risk - high reward" proposition for criminals.

Regarding solutions, there is the Special 301, a report that the U.S. Trade Representative is required to present to the U.S. Congress every year that helps define problem countries. The World Trade Organization is supposed to handle sanctions and resolve disputes, but both the report and sanctions are subject to all kinds of political considerations. And, there is the idea of consumer education to decrease demand.

A recent Huffington Post column by an IBM food and drug safety expert suggested that one solution may be RFID and bar-coding to track products in the supply chain. Another may be dot-matrix codes that can be laser-etched or printed on items as small as individual medicine tablets or capsules.

Discussion Questions: How concerned should U.S. retailers be about the counterfeit product issue? What steps can manufacturers and retailers take to help fix the problem?

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