21 March 2007
Counterfeits account for up to a quarter of unit sales and cause manufacturers to lose up to 28% of profit in Asia
A study conducted by Spire Research and Consulting has revealed that counterfeit products make up between 10% and 25% of unit sales in four key industries in Asia – luxury goods, automotive, pharmaceuticals and IT. Profits lost to counterfeits are estimated at between 13% (FMCG) and 28% (automotive). China is overwhelmingly cited as the No. 1 source of internationally traded counterfeits in Asia, followed at a distance by Hong Kong, Indonesia,Thailand and Korea. “The invasion of this bootleg industry from branded luxury products into everyday items like milk powder and over-the-counter medication has had devastating consequences with many unnecessary deaths,” said Leon Perera, Group Managing Director of Spire.
Consumers may well be aware of the rampant circulation of counterfeit Louis Vuitton or Hermès handbags and other luxury items. But in recent years, it is the appearance of fake everyday products in daily use such as shampoo or over–the-counter (otc) medication that is raising alarm bells.
The World Health Organization (WHO) has estimated that a fifth of the one million annual deaths from malaria could have been prevented if all medicines taken for it were genuine.
And the adoption of fake products is spreading to everyday, mundane household items. In China, over 200 babies were reported to have died from malnutrition in 2004 after being fed milk powders of inferior quality.
Based on customs seizures, the value of counterfeit goods traded internationally is estimated at nearly US$1.9 billion across 92 countries. However this figure represents only the tip of the iceberg, as it is an estimate based on customs seizures. Moreover, it excludes the large number of fakes produced and consumed within economies.The growing globalization of manufacturing will exacerbate the problem.
Many multi-national corporations (MNCs) locate their manufacturing facilities in Asia, primarily China, but also other countries in the region such as Thailand, Malaysia and Vietnam. Intellectual property – designs, molds, specifications – often pass through the hands of contractors, subcontractors and even factory operators, affording ample opportunities to for theft of IPR.
An analysis from the 30 member countries of the Organisation for Economic Cooperation and Development (OECD) shows that close to 60% of all seizures originated in China, Thailand, Hong Kong, South Korea and Malaysia. With other locations such as Indonesia and Philippines capturing an increasing share of the counterfeit production market, the scale and level of counterfeiting have crossed yet more borders (see Appendix A, fig. 1).
Spire Research and Consulting interviewed nearly 40 global companies operating in Asia on the increasing sophistication of counterfeit production over the last half decade.
The resulting insights include:
The liberalization of trade barriers between countries has led to an increase in counterfeiting. Consistent and organized efforts are necessary at the international level to deal with the issue. China, for one, has taken strict measures – last year, the State Drug Administration clamped down on over a thousand illegal factories and investigated cases of counterfeit drugs worth US$ 57million.
Main business model of counterfeiters:
About Spire Research and Consulting
Spire Research and Consulting is Asia’s leading strategic market intelligence consultancy. Spire’s competitive advantage lies in its ability to deliver to its clients actionable intelligence on the external business environment in support of their strategic decision-making in marketing and business development. Spire is one of the few companies in its industry to be headquartered in Asia. Spire’s clients include over 20 Fortune 500 organizations as well as Government agencies in nine countries. For more information, visit us at www.spireresearch.com.
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Spire Research and Consulting is the leading research consultancy in global emerging markets. Spire's competitive advantage lies in its ability to deliver actionable intelligence on the external business environment in support of its clients’ strategic decision-making in marketing and business development. Spire's clients include 50 Global Fortune 1000 companies and government agencies in 15 countries. For more information, please visit www.spireresearch.com.