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The Counterfeit Economy

Posted by Mary De Asis | April 18, 2018

Product counterfeiting and piracy are pervasive across almost all countries and industries. In total, this black market is expected to represent $991 billion of the global economy by 2022.

In an online study covering 10 countries, 34% of respondents said they believe it’s a brand’s responsibility to protect them from counterfeits. Similarly, almost four out of 10 consumers who unwittingly bought fakes complained directly to the brand. Clearly, counterfeits are not just a threat to consumers and a company’s profits — they are an existential threat to brand promise. Pharmaceuticals, electronics, and consumer goods are just a few of the industries affected by counterfeiting. How can they protect their brand integrity and save consumers from fakes?

 

Infographic: A Few "Fun" Facts About Counterfeiting Across Industries

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Pharmaceuticals

Unlike a fake pair of Nikes, inauthentic, adulterated medicines pose a real danger to consumers. As the pharmaceutical market has grown and become more globalized, the need for regulatory bodies dedicated to addressing counterfeits has arisen. The MEDICRIME Convention, an international legal instrument criminalizing the production and distribution of fake medicinal products, was adopted in 2010. In the US, the Drug Supply Chain Security Act (DSCSA) aims to identify and trace the distribution of certain prescription drugs. These and other legal arms have opened avenues for pharmaceutical companies to address fake products in their supply chains.

Sanofi, Pfizer, and Roche have created dedicated laboratories for counterfeit identification. Johnson & Johnson is another company that has taken fraud reduction into its own hands, establishing a Global Brand Protection team that works closely with its supply chain to train employees, monitor the market, and refine product security features. Supply chain professionals have turned to technology to answer many of their problems, and counterfeiting is no exception. In particular, blockchain is catching on as a way to achieve complete transparency across the lifecycle of a product. Until now it’s mostly been applied to food, but there’s clearly potential for it to be used in other industries. Roche is one of the first pharmaceutical companies to make early inroads in medical blockchain technology.

According to the FDA, a collaborative system that allows for better communication down the medical supply chain is imperative in order for any new regulations to actually have an effect. This warning also applies to technologies like blockchain. Manufacturers, packagers, distributors, and logistics providers need to be able to work together to create and communicate a new set of standards and norms.

 

counterfeit-medicines
Electronics

Electronics and electrical equipment represent 63 percent of counterfeited goods. Issues like insufficient security from production to distribution affect the industry. Based on INTERPOL figures, $169 billion worth of counterfeit electronics and semiconductors are sold annually in the global market. Counterfeiting doesn’t just affect finished goods — electrical components are also at risk of fraud. These fake components proliferate not only in consumer electronics but also in the auto industry, and take OCMs, businesses, and consumers unaware.

The implications for revenue loss are huge, and the electronics sector has taken mitigating measures. The World Semiconductor Council assembled an Anti-Counterfeit Task Force (ACTF), which collaborates with authorities to identify criminal syndicates and orchestrate raids on illegal distribution centers. On the business side, ACTF helps to spread public awareness about best practices in disposing of old electronics so they can’t be repurposed by counterfeiters.

Tightening security along the supply chain can also go a long way. Companies should limit access to certain forms of data to those who work directly with it. This is good advice regardless of industry, but the complex engineering of electrical components makes it particularly important for electronics companies to protect institutional knowledge.


Consumer Goods

Counterfeit consumer products pose health and safety risks, economic impacts, and legal implications. Allergic reactions, swelling, skin rashes, and chemical burns have been associated with counterfeit cosmetic products. In the black market of cheaply made knock-offs, unsanitary factory conditions and dangerous doses of chemicals are common. When it comes to over the counter medicines, the doses of active ingredients in counterfeits can be incorrect — yielding zero benefit at best, and at worst, dangerous side effects.

The retail industry has responded to counterfeits with innovations like mobile applications specifically used for detecting fakes, enhanced packaging with anti-counterfeit protection, and tracking systems with traceability certification to reassure consumers of the authenticity of their purchases. By providing a decentralized ledger that stores information about a product’s entire supply chain journey, blockchain could also provide huge opportunities for retailers fighting counterfeiting.


Final Thoughts

In the past, companies could afford a degree of complacency about the fake products circulating under their brand because consumers had neither the information nor the tools to demand transparency and accountability. But today’s global supply chain is more interconnected than ever, making fraud a more serious threat to more industries than ever before. New regulations and technologies like blockchain will be vital parts of a new anti-counterfeit arsenal. But successfully implementing any of these solutions depends on having a system in place to connect supply chain operations for more effective communication up and downstream, and greater responsiveness to brand threats.



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