FIGHTING FAKES IN THE MIDDLE EAST

[Anonymous]

Fighting fakes in the Middle East market
According
to several IT vendors, counterfeiting is no longer the nemesis it once
was and the channels peddling fake goods are being defeated. But is
that really the case? We attempt to shed some light on an industry
problem that just refuses to disappear. GITEX Times’ Andrew Seymour
separates fact from fiction in the world of fake products.According to
several IT vendors, counterfeiting is no longer the nemesis it once was
and the channels peddling fake goods are being defeated. So why then
did nine out of every 10 respondents to a recent ITP online quick poll
claim that counterfeit IT products are more readily available in this
region than in the past? We attempt to shed some light on an industry
problem that just refuses to disappear.There isn’t a single vendor out
there that can afford to take counterfeiting lightly, particularly
given the potential economic implications at stake. A reputation that
has been built over a period of years can suddenly be destroyed, and
profit levels eroded, if a batch of fake goods finds its way into the
market. What’s more, every dollar that falls into the hands of the
counterfeiters deprives authorised go-to-market channels of additional
income.Counterfeiting can massively compromise brand equity and
credibility, especially if buyers do not realise they are handling a
rogue product. As soon as the item experiences any problems, the
possibility of the consumer associating that brand with poor quality
immediately increases tremendously.“At the end of the day, if the
product goes wrong and the reseller has either got away or is not
providing the service, it creates a very bad name for the brand,” said
Sumit Kumar, regional manager MENA at networking vendor US Robotics.A
study conducted two years ago by auditors KPMG and the Alliance for
Grey Market and Counterfeit Abatement (AGMA) estimated that as much as
10% of all technology products sold globally were counterfeit,
illustrating the scale of the problem. Translated into value terms,
more than US$100 billion of global IT channel revenue is lost to
counterfeiters each year.“In the Middle East it is difficult to
estimate the size of the problem but we do feel that compared with
other regions like Europe it is slightly higher,” admitted Sidney
Pereira, consumables product manager at the Middle East arm of imaging
and electronics vendor Canon. “We have carried out raids in Saudi, the
UAE and Egypt so I guess we have come across this problem in quite a
few places. Lebanon is another one as well; it is not restricted to one
place.”Anecdotal evidence suggests that counterfeiting is more
widespread in the larger Middle East markets where the intricacy of
local channels, coupled with the extra resources it takes to
efficiently police these environments, makes identifying the
perpetrators an arduous task. Ranjit Gurkar, general manager at Brother
Gulf, cites Egypt and Saudi as markets where the manufacturer has
witnessed a higher percentage of counterfeits.“Egypt is very high,” he
revealed. “To a certain extent — and it’s also true about Iran — the
problem is at the consumer level. They see the low prices as a bargain
until they begin having copy quality problems and request replacements
or warranty claims. Only at that stage do they face the music and
realise that it is not worthwhile in the long term.”It has to be said
that local authorities throughout the region are working increasingly
hard — particularly at customs level — to get a handle on the problem,
but some markets are confronted with a tougher task than others.Dubai’s
status as a global distribution centre, for example, places intense
pressure on the local customs authorities, especially when it comes to
keeping track of re-exported products. With such high volumes being
moved each day, several vendors insist that Dubai has become a favoured
transit route for fake kit targeted at markets such as Europe and
Africa.

Counterfeiting remains an industry-wide problem
affecting everything from the networking hardware sector to low-end
computer peripherals, accessories and CPUs. Even counterfeit
rechargeable batteries for products such as digital cameras and video
cameras are known to have found their way into the market just
recently.“Counterfeiting is all about money and it’s all about margin,
so there’s got to be enough of a margin, or enough volume in what you
are counterfeiting, to be able to make money,” said Edward Hardcastle,
regional director at the Dubai operation of global intellectual
property consultancy Rouse & Co International.“Counterfeiters don’t
have all the research and development costs or the creative design
costs. But they have still got to have the plant to make the product
and they must buy the packaging and so on,” he added.Certain items
still remain more vulnerable to counterfeiting than others,
particularly if they possess strong brand recognition and can be
reproduced at low cost. This includes software, of course. Piracy
places a huge burden on legitimate software channels and swipes
billions of dollars from the industry in the process. Although piracy
levels have been dropping around the region over the last couple of
years, the last major study by IDC showed that the rate in the Middle
East was an alarming 22 percentage points higher than the global
average.It’s not only software vendors that are devoted to protecting
their intellectual property rights (IPR). Networking vendor Cisco has a
brand protection team of almost 40 people dedicated to overseeing
corporate governance, channel governance and counterfeit issues across
the globe.“We are seeing a number of products counterfeited, but I
wouldn’t say there is a preferred product that is targeted,” said Mike
Watson at Cisco’s Emerging Markets brand protection group. “We haven’t
seen our high-end products counterfeited as yet though,” he added.
The printer market is notorious for being a victim of counterfeiting, although it is not the hardware that remains a problem.
“When
you are talking about counterfeiting you have to separate the printers
from the supplies,” said Francois Feuillet, general manager at Lexmark
Middle East. “I would say that because of the technology involved and
the fact that we produce at very low cost, it is nearly impossible for
printers to be counterfeited. I have never encountered any counterfeit
hardware.”Indeed, it’s the production of counterfeit ink cartridges —
which illegally carry a vendor’s trademarks and packaging, and contain
an inferior product — that gives printer manufacturers their biggest
headache.Sources in the market claim fake cartridges can be procured in
China for little more than a dollar and resold for a price seven or
eight times that figure in markets such as the Middle East. It may seem
a small sum, but for illegitimate resellers capable of shifting
thousands of units at a time it is an attractive business.The impact
this has on the overall market is highly damaging, according to Gurkar
at Brother. “In terms of the extent of the problem I would say that for
all machines that were introduced in the market more than three years
ago, more than 50% of the consumables sold in the market are
counterfeited,” he said.Data from the Imaging Consumables Coalition of
Europe — an anti-counterfeiting industry body made up of printer
vendors — suggests that counterfeit imaging products represent 7% of an
EMEA imaging consumables market estimated to be worth almost US$40
billion.One dilemma facing the industry is how to overcome the
increasingly inventive methods deployed by the perpetrators of this
crime. “The counterfeiters are using pretty sophisticated tactics now,”
admitted Pereira at Canon. “What used to happen is that we would look
for customs to identify shipments where the entire product was coming
through. But we have now found out that the counterfeiters are
importing the components separately. In a toner box you typically have
literature, packing material, shrink wrap and then the box itself.
These products are coming in through different channels and then
getting assembled locally within the country.”Mobile phone vendor
Motorola even recently admitted that its own technicians occasionally
have trouble distinguishing a genuine product from a fake due to the
quality of the reproduction. Often they are forced to strip the product
down to seek the answer.

Grey days
Gurkar at Brother also
says that investigations into the components used in fake products
offer an intriguing insight into how counterfeiters make their
money.“Take samples of counterfeit fax machine film rolls that are used
in the thermal transfer process which we have picked up and sent to the
laboratories,” he said. “We have found they are being retailed for half
the price, but the length of the film roll is exactly half that of the
original! There is no way that a consumer can measure that.While
counterfeiting and grey marketing are entirely separate subjects, the
two are routinely linked to one another. As well as referring to
authorised distribution channels selling outside a designated
territory, grey marketing can also be used to describe the flow of
legitimate products through unauthorised channels.These channels are
seen as an ideal route by counterfeiters who know that the grey
marketer is unable to gauge how much volume the manufacturer is
producing and therefore can’t assess if the product is grey or
counterfeit when experiencing increases in activity.So who exactly are
the companies dabbling in counterfeit product? Authorised resellers
that obtain counterfeit stock — knowingly or unknowingly — or underhand
traders looking to make a quick buck?According to one cartridge
manufacturer it is more likely to be the latter. “If I look at our
legitimate resellers then they tend to have good relations with our
distributors so we don’t really come across any problems,” commented
the source. “It’s mainly the fly-by-night traders who deal in this. And
if it’s a middleman who buys from the source and redistributes to the
smaller people then it’s very difficult to trace them.”Hardcastle at
Rouse & Co says counterfeiters generally start off by making low
quality fakes that lack detail when it comes to the packaging. However,
he says it is quite easy for them to get it sold in the market because
people think it is old stock or they don’t know the genuine product
well enough.“As the brand owners and the market become more sensitive,
counterfeiters tend to improve the quality of the packaging so that it
is identical to the real product and therefore it becomes harder to
tell the difference,” explained Hardcastle. “Usually the longer that a
counterfeiter has been in the business for a particular product, the
better his product will be because he will invest as he is making more
money out of it. He’ll invest in improving the plant and the equipment.”

OEMs
are taking a variety of different approaches to combat the
counterfeiters, starting on the manufacturing floor where policies are
put in place to ensure that anti-counterfeiting production techniques
are strictly adhered to.Making sure that this is being enforced by
contract assembly partners, which may be responsible for overseeing
packaging and security labelling, is vitally important too.The use of
holograms, for instance, has become a popular mechanism to indicate a
product’s authenticity, although it isn’t necessarily foolproof. “The
problem is that unless the consumer has a device with which they can
differentiate between an authentic hologram and a fake hologram it can
be difficult to tell the difference,” conceded Gurkar at Brother.Beyond
that lies the process of education. It is becoming increasingly common
for vendors to address the issue of counterfeiting at the point of
destination — the end user.Many consumers do not understand the
significance of intellectual property rights, which is why vendors such
as Microsoft regard high-profile end user campaigns that raise
awareness or appeal to an end-user’s conscience as valuable exercises.
This is also evident at channel level where several vendors,
particularly in the hardware space, are stressing the importance of
buying through authorised partners. “We are trying to make sure that
people are aware of the Cisco authorised channel partner programmes
through which we strongly recommend they buy their products to be more
assured of receiving genuine products,” explained Guido Romagnoli,
channel director MEA at Cisco.He says the company’s Gulf operation is
liaising closely with its colleagues in brand protection to develop
programmes that promote the role of official distribution partners.
This is particularly important for markets in Africa where the
distribution structure may not be as established and resellers are
accustomed to sourcing products from places like Dubai. “We now have
distributors in the African continent so I think it’s a two-fold
issue,” said Romagnoli. “On one side there is the governance of course,
but it’s also about making sure that the channel is visible — that
resellers know where to buy legitimate products and where to get their
discount, rebates or promotions.”

Lexmark, too, is looking to
utilise its partner schemes to better understand how widely the sale of
counterfeit products is impacting its business in the Middle East.
Regional boss Feuillet reveals that the company is currently pioneering
a channel programme that “rewards fidelity” by promising financial
incentives to resellers that submit sales-in and sales-out data.“As we
manage the prices in our region, anyone selling at a low price without
being on our radar screen in terms of being rewarded or being supported
will automatically raise suspicion,” he said.Other vendors, meanwhile,
recommend alternative measures. Several years ago, USRobotics saw its
OEM products become a target for counterfeiters, particularly in
markets such as Kuwait and Saudi Arabia.However, MENA boss Kumar claims
a concerted effort to alert partners to the perils of counterfeiting
has contributed to a marked decrease in the problem. “We have been
educating our channel partners on the service side and warranty of the
products, which will not be there in the counterfeit products,” he
explained. “Sometimes when you have counterfeit products in the market
you can also drop the price considerably. This makes the counterfeit
products unprofitable and not worth bringing in, which helps a lot.”The
ongoing work of a number of lobby groups in this region is also a key
factor in addressing counterfeiting, particularly as they promote the
sharing of knowledge and encourage affirmative action when necessary.
As the Middle East market evolves and more vendors increase the amount
of resources they have in the region, there is a higher chance that the
counterfeiters will find it more difficult to penetrate the
market.Addressing the problem from a central location always has its
drawbacks, whereas a strong and visible local presence makes it easier
to transmit a consistent anti-counterfeiting message and monitor what
is happening in the market.The Middle East channel has a huge role to
play in eradicating counterfeit products from the market, but it must
understand that the nature of the threat is constantly changing.

[Author]

April 25, 2007 at 11:20 AM