Counterfeiting: A Growing Threat to the Future of Global Trade
With the steep rise in volumes of counterfeit consumer goods entering the global marketplace, brands, retailers, and governments are facing new challenges.
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Counterfeiting is a silently booming industry, made more lucrative and less detectable by the Covid-19 pandemic and the steady rise of e-commerce and resale markets. In 2016, the trade and sales of counterfeit goods comprised up to 3.3% of the global economy. Unless governments enact effective policies to combat counterfeits, this slice of the economic pie will continue to grow, potentially causing devastating losses to brand integrity, tax coffers and public safety.
For every item of value, there exists, or potentially exists, a counterfeit. From glamorous Rolex watches to banal automotive parts (and everything in between), there are markets for counterfeits across all sectors.
When global commerce is operating smoothly, forgeries are easier to spot and avoid. If the price of a product is too good to be true, you can generally assume it’s a forgery and try to find an authentic version at a true market price. But the pandemic pulled the panic break on this system, and forgers have stepped in with new “solutions” to pandemic-induced supply chain shortages.
With most consumer shopping having moved online and hoarding and price gouging rampant, the counterfeit market reached new heights during the pandemic. To consumers, convenience and availability trumped brand and retailer reputation. Counterfeiters turned to SEO-tuned websites and open marketplaces like Amazon or Alibaba, attracting purchase-ready customers in panic-buying mode. Enough bad reviews eventually lead to removal from these sites, but it can take time. And after authorities shut down illegitimate websites, forgers can be back in business the very next day with a new URL.
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THE OMNIDIRECTIONAL FUTURE OF RETAIL
The pandemic’s boost to the counterfeit market was an intense yet short-lived one, as the initial panic-buying behaviour gradually faded and physical stores reopened. But the shift to e-commerce was already well underway before Covid-19, and pandemic lockdowns expedited this transition significantly.
With consumers across all age and income groups having adopted online shopping, the expanding e-commerce landscape continues to provide new avenues for the counterfeit market to fly under the radar and scale operations.
As e-commerce trends skew heavily to direct-to-consumer sales, counterfeit consumer goods are no longer arriving at ports in shipping containers for customs agents to inspect, as they have done for hundreds of years. Instead, they’re being hand-delivered, one or two items at a time, by local postal services, evading a system that cannot scale up staff numbers to inspect every parcel. And for large-scale shipping of counterfeit items, forgers take advantage of free-trade zones, effectively laundering money through cargo.
The rapid growth of the secondhand market and online peer-to-peer platforms is another significant contributor to the increase in counterfeiting. It can be difficult to detect the authenticity of products from photos or seek refunds on peer-to-peer platforms; and while major resale platforms forbid the selling of counterfeit products, it’s a challenging rule to enforce.
POLICIES TO COMBAT COUNTERFEITS – WHAT ROLE DO GOVERNMENTS PLAY?
Selling fake goods is not only damaging retailers – it is a widespread activity that has significant impacts on the world economy, public tax generation and product safety. Governments are duty-bound to prioritise health and safety, so food and pharmaceuticals must be policed to prevent illness and death from expired ingredients and counterfeit drugs. But the safety issues ripple ever outwards from there, up to and including counterfeit components for the automobile and aerospace industries.
At the same time, governments are losing sales, tax revenues and the fight against organised crime. Here, the victimised companies are mostly left to their own devices to protect their brand identity and need to recognise that the best they can hope for is to reduce, not eliminate, counterfeiting. What do the municipalities and resellers who benefit from the sales of these legitimately produced goods owe the makers, and can they collaborate to combat forgery for mutual benefit?
ENVISIONING A SECURE FUTURE FOR RETAIL AND GLOBAL TRADE
With the growth of e-commerce and the advent of a decentralised Web3, the counterfeit industry will become more difficult to track down and regulate unless necessary measures are taken today. Considering the diverse array of ways fake goods can move through the world, it’s going to take a diversely stocked toolkit to track and prevent counterfeiting.
Brands, retailers, marketplaces, and government entities will need to act together to always stay one step ahead of the ever-evolving counterfeit trade. Employing AI and blockchain solutions to increase supply chain transparency, partnerships with technology firms, and stronger authentication processes will all be parts of the solution.
