Four Techniques for Countering Counterfeiting

By Bill Quarless
December 2008

{Note: This article appears in the December 2008 issue of Response. Click here to read it on the Response Web site.}

Counterfeit goods are the single greatest worry of companies that manufacture in China - and with good reason. They not only eat away at market share, but can also hurt a company's image when consumers fail to make the distinction between a real product and a poorly made fake.

Counterfeiting is a problem everywhere, but China's outsized share of the world manufacturing market - and some specific cultural issues - makes it a special case.

First, China's manufacturers don't understand intellectual property rights. They see other factories shipping a hot product and assume it's an "open market" item. Culturally, factory owners do not feel shame when copying a product. Quite the contrary, they are proud of their work and like to show off by having you compare their unit to the original.

Second, China is still in the infant stages of capitalism. The country does not have the resources, knowledge or willpower to address this problem. With events like the Beijing Olympics, there has been more pressure than ever to fix this. But change will happen slowly because that is the Chinese way.

Third, corruption is widespread in China. Most grievances are handled at the local level, where people with influence over local officials can stretch the law. Provinces thrive on exports, so the incentive is to ignore anything that might interfere with that trade.

One of the most counterfeited industries in America is the "As Seen on TV" business. The millions of dollars spent on TV in this industry attract counterfeiters like flies. Nearly every successful product in the DRTV space manufactured in China has been copied, sometimes within mere weeks. The primary defense is speed to market. Getting a product on TV and into major retail accounts before counterfeiters can gain any real ground is crucial.

Beyond that, four techniques have proven especially effective at countering counterfeits:

1. Monitor buyers and distributors. More and more, buyers are searching China for cheaper, royalty-free copies of popular goods. It's also become common for authorized distributors to look to increase profits by supplementing real product with counterfeits. To ensure your buyers and distributors don't "cheat" on you, make it clear that you intend to check up on them. Subtle, identifying marks placed on molds allow clients to make random purchases and see if the "real" product has been sold.

2. Monitor your factory. If you have a great relationship with your factory, you'll never have to worry about your products going out the back door. Check anyway. Frequent and random inspections of the factory are a great deterrent. "Trust but verify," as the saying goes.

3. Maintain a presence in China. If you develop a reputation for defending your intellectual property rights, most factories will stay away from your products just because they're yours. The rest can often be handled with a simple warning letter. If you don't have the infrastructure or personnel to maintain a presence in China, work with a production management firm that has a reputation for protecting client interests.

4. Walk the trade shows. Want to nip 80 percent of knockoffs in the bud? Go to the Canton Fair. Held twice a year in Guangzhou province, it's one of the largest product shows in the world - and one of the single greatest opportunities for counterfeiters to sell their wares. It doesn't take much effort at this event to find and eliminate counterfeits. Most exhibitors comply willingly, out of fear of being blacklisted from future exhibitions. There is also an office where you can file a complaint. However, follow-up inspections of previous infringers have demonstrated that a simple warning is usually all it takes.

By diligently applying these four proven techniques, you can ensure that counterfeiters don't take money out of your pocket