Made in China: Understanding Chinese Counterfeit

Posted on April 26, 2011 in Business and Economy

By Amritapa Basu:

‘No Guarantee, No Warranty — Chale to Chand tak, Nahi toh Shaam Tak

This an old joke associated with Chinese products — Chinese standing for counterfeit or fake products. A few days back when my modem adaptor got damaged and the reputed big stores refused to sell me an adaptor unless I buy a brand new modem (which would have cost me something like Rs. 1500 plus), my friend popped in, “Get a Chinese one, it will come cheap”. Desperate to get my modem working again and the internet connection back, I stepped into the Chandni Market (ironically, when the passers-by showed me the way, they said it so fast that it sounded so much like Chinese Market) and I had an adaptor in my hand in no time and that too for only Rs. 70! It had a small ‘Made in China’ written in a corner. The sight I saw at the Chandni or rather Chinese Market, practically set me thinking whether it’s the anything-from-phoren syndrome or the cheap rates which helps these Chinese counterfeit products to thrive in the markets.

Counterfeiting a product is different from the crime of copy-right violation. Counterfeit is a product promised to be something that it is not but copy-right infringement is when there is unauthorized transfer of a licensed product. Product counterfeiting is considered to be an organized crime and a consumer fraud. It damages the commercial interests of the authentic company and at times compromises with the safety of the consumers. Products are made into similar designs, packaged and branded in ways which make them indistinguishable from the originals.

They are then introduced into parallel markets or the mainstream supply market. It has been found that in some markets in some parts of the world, counterfeit are more common than the originals because they are much low-priced. China is (in)famous for being the largest exporter of counterfeit products. The world has witnessed series of seizures of Chinese counterfeit products in different parts of the world and not even the big names like Microsoft, Nike, Puma, Johnson & Johnson, Garnier have been able to escape from the web of Chinese counterfeits. The Times of India carried a report in September 2009 about a consignment of baby care products and herbal shampoo, together worth Rs. 20 lakhs which was held at Chennai Seaport Customs. A confusion regarding the port of origin from where the container had come aroused the suspicion of the Customs officials and they seized the consignments. When the samples were sent to Johnson & Johnson (for baby products) and Proctor & Gamble (for herbal shampoos), both confirmed that these were spurious products. A little deeper look into it showed the port of origin to be China. Such fake products compromise with the health factor especially babies as Dr. Swati Padankatti, a Chennai-based paediatrician, said, “Use of spurious baby products like shampoo and milk bath, depending on their ingredients, can cause rashes, irritation of eyes or even conjunctivitis.” (TOI) Chinese toys which flood the markets carry toxins and can affect the children even mentally had created a furor a few years back.

Apart from this, the existence of counterfeit products is a blow to the economy. The International Anti-Counterfeiting Coalition states that fake goods cost US companies upto 50 billion US dollars every year. (Reuters)

In October, 2009, Rs 6-crore worth counterfeit cosmetics and mobile phone batteries of popular brands like Garnier and Nokia respectively were seized. In September, Rs 5.5 crore worth substandard Chinese toys were seized for violation of import rules and on October 14, Rs 1.5-crore worth adulterated and misbranded food products sourced from China, Malaysia, Thailand and Vietnam were confiscated. — TOI

The Organization for Economic Co-operation and Development estimates the total value of fake brands in US has doubled to 250 billion US dollars from 2001 to 2007. The internet has in fact facilitated the whole racket. Experts like Richard Halverson from the US-based International Intellectual Property Rights, Co-ordination Center while describing how the internet has only made the problem worse said,“In the last ten years what we have seen really is that it has made easier for the manufacturers overseas to direct market and to sell their goods directly to people in United States whereas 10-15 years ago before the internet really took off, you would have to go down to your local flea market, to your local discount stores, local town area where you know counterfeits are sold and walk into a store and physically buy it.”(Reuters) A Louis Vuitton product worth 1600 US dollars can be found online for a tenth of the price. Also with the easy access through internet, anyone can download and re-design company trademarks and brand designs. Sometimes they make foray into markets when the company may not have any supply-base. Like the consignment seized at Chennai contained the Malayasia-based Gervas’ herbal shampoo named Gervenne which has no market exposure in India. Sometimes they even release the product in the market ahead of it formal release by the company. Timothy Trainer, president of the U.S.-based International Anti-Counterfeiting Coalition in 2007 said, “First of all, sales of these companies drop because consumers think they are buying the real thing and only find out problems later. Secondly, some consumers ask to return the counterfeits to genuine IP-holders, (Intellectual Property holders) who have to deal with customers or even compensate the latter for fear of losing clients. Thirdly, the victims must hire lawyers and private investigators to spend money to combat counterfeiting and thereby reducing the funds for product research and development.”

The Chinese have come up with Anti-Counterfeit programs, but few companies are being caught and prosecuted. Senior officials have promised to impose methods to curb the production, sales and export of counterfeit products. But Chinese regulations, as reported by an Oakley official, allows one to confiscate counterfeited products but not counterfeiting equipments. So when they ransacked a counterfeiting factory and seized products, the factory re-opened the next day. (Oakley is a well-known brand which deals in shirts, sunglasses, watches etc). The Customs office has a control rate of about 3%. A large part doesn’t get checked. This leads to many of the goods leaving this country and being shipped overseas. Also the Customs penalty is not very high, and so doesn’t severely affect the exporter’s production cost. According to data published by the U.S. Customs Service, 66% of the counterfeits found in U.S. ports in 2003 came from China. Well, that’s the statistics in US which is diametrically on the opposite side of the globe. The situation in India must be worse as the Chinese products need be sent through ports but being immediate neighbouring countries can be easily smuggled into the markets. So the Rs. 20 toy you buy at the fair, the adaptor which is supporting my modem now, or the Canon digicam you got at less than half-price (only to find an extra ‘n’ in the Canon and the memory card slot missing), no wonder, have the well-known ‘Made in China’ engraved on them.

Consumerism being a cyclic process — consumers will buy cheap products and producers make money by selling them — Chinese products are here to stay and thrive.