Brand-Damaging Bargains: The World of Counterfeits

Counterfeiting is rife throughout the world and across an unbelievable range of industries. The potential damage inferior products can do to a company’s brand and its consumers could be catastrophic. Cosmetics, pharmaceuticals and medical devices, food and beverage, and industrial, electronic and automotive products are all targets for counterfeiting. Unfortunately, many of the companies in these industries rely on a reputation for high quality, safe products.

The case studies in Asia, the counterfeit capital of the world, are beginning to pile up.

The cosmetic industry has long been a target for counterfeiters. Counterfeit skin care products are notorious for being made from cheap ingredients, even rat waste, or using untested formulas. Recent seizures by government authorities in Asia give a hint at the problem: Vietnamese officials recently seized 200kg of raw material and 31,000 counterfeit cosmetic products at a location near the Chinese border, while Korean officials seized 100,000 face masks that had been counterfeited from a leading brand.

The danger of counterfeit cosmetics often originates in Asia, but the threat is material to consumers and sales revenue in developing markets. Police in the UK were forced to issue a warning after Chinese-made counterfeit MAC products (including foundation, lip gloss, eyebrow pencils, bronzer and eye shadow) were discovered. Counterfeit MAC products were alleged to have penetrated the supply chain of Target, a leading department store in Australia, resulting in litigation, a hefty settlement and corrective advertising.

The food and beverage industry faces similar challenges. Crime rings in Vietnam have been discovered brewing and distilling an array of counterfeit alcohol, hijacking the supply chains of industry powerhouse Heineken and Vodka Hanoi. The wine trade has long been experiencing a tough time in Asia, where expensive and sophisticated brands have been duplicated to the disadvantage of the consumer, who could be harmed by dangerous substances such as methanol and to the brands themselves, who face significant loss of sales from the counterfeits.

Conventional manufacturers are also affected. The automotive industry potentially loses $12b USD per year in sales to counterfeiting. Brake pads are a common target: Toyota was forced to warn consumers about asbestos-laden counterfeit brake pads for their leading utility model, and Ford discovered compressed woodchips or sawdust in counterfeit brake pads bearing their logo. An exceptional athlete would be required to generate the forces to stop an average car using counterfeited brake pads bearing the logos of Volkswagen, SEAT, Skoda and Audi. In addition to the dangers to consumers, the risks to brand and reputation from these products is considerable.

Across in the electronics industry, Sennheiser claims it loses $2 million per year in sales due to counterfeit headphones, a large portion of which originated in Asia. Given that these high performance headphones, worth several hundred dollars, were substandard, the brand itself was surely damaged by its inability to control the supply chain.

Companies have to tackle counterfeiting at its roots. Private investigation is a vital tool to assist companies to mitigate these risks at the source. Established local investigators can effectively implement market surveillance and supply chain auditing to reduce the risks of damage to reputation. Don’t take the “head in the sand approach”: a firm’s proactive engagement with the risk needs to be demonstrated before the event occurs.

SMCS Risk is your trusted risk management partner in Asia. Contact us today to discuss the protection of your brand.