Counterfeit products: new risks in global value chains

24
Nov
2014
The practice of counterfeiting has expanded from its traditional core markets of art and luxury goods to electronics, food, beverages, pharmaceuticals, automotive parts, agricultural products and more. But the most worrying and widely underestimated aspect of counterfeiting, according to a report just released by Zurich Insurance, is the pace at which it is evolving.

The impact of a globalised economy, digitalisation and investment by international organised crime groups is rapidly enhancing the production and organisational quality of counterfeiting. In many cases, this has led to anti-counterfeiting technology being bypassed. Elaborate initiatives such as the establishment of entirely fake companies have also become more prevalent.

Recent cases have shown that counterfeiters quickly adopt any new fabrication and packaging technologies that assist their illicit activities. In future, this might include 3D printing and other advanced computer-controlled manufacturing techniques which allow for the production of fake goods directly in the targeted markets, avoiding risky imports through customs.

For businesses impacted by counterfeiting, its presence causes concern over loss of revenue and reputation as well as loss of consumer trust. Counterfeits also pose real risks to consumers, whether or not they are aware that the product is a fake.  For example, counterfeiters routinely ignore health and safety regulations, which results in many counterfeits being ‘laced’ with unsuitable and often harmful substances to cut production costs. And counterfeits also have negative consequences for workers, public finances and the environment.

The increasing sophistication of counterfeiters means that their products are no longer limited to cheap imitations sold on the black market.  Because of new opportunities provided by globalisation and outsourcing, counterfeits are now infiltrating distribution chains, masquerading as authentic products to wholesalers and retailers.  Counterfeits are also entering official supply chains as intermediate products, for example as parts of automobiles or aircraft.  The difficulty for distributors and manufacturers in identifying fakes exposes them to liability claims where the offending products cause harm to consumers, costly product recalls and expensive lawsuits.

To respond effectively to the threat posed by counterfeiting, governments, regulators and the private sector must work together. Regulation must be applied more consistently at a regional and global level and loopholes need to be closed. Governments must similarly address counterfeiting on a broader basis, with an emphasis on raising public awareness, protecting intellectual property rights and customs enforcement.

Businesses must prioritise the fight against counterfeiting as a board level issue. They should look to increase their internal resilience around IP and supply chain management, and consider new technology to identify fakes.  Greater understanding of a firm’s market and customers will also be helpful in these efforts, as will collaboration with industry peers and authorities at a national and international level. 

Companies should assess their insurance coverage to clarify the extent to which risks posed by counterfeits are covered. They can then take appropriate action, drawing upon the risk engineering and safety expertise of insurance providers where necessary.

 
pdf
Risk Nexus November 2014 - Counterfeit Products

Type: pdf (368Kb)

Counterfeit products: new risks in global value chains

 

ENDS

For further information contact:

Helen Black
Head of Marketing, Communications & Customer
Zurich Financial Services Australia
Business ph: +61 (02) 9995 1368

Zurich Insurance Group (Zurich) is a leading multi-line insurer that serves its customers in global and local markets. With about 55,000 employees, it provides a wide range of general insurance and life insurance products and services. Zurich’s customers include individuals, small businesses, and mid-sized and large companies, including multinational corporations, in more than 170 countries. The Group is headquartered in Zurich, Switzerland, where it was founded in 1872. The holding company, Zurich Insurance Group Ltd (ZURN), is listed on the SIX Swiss Exchange and has a level I American Depositary Receipt (ZURVY) program, which is traded over-the-counter on OTCQX. Further information about Zurich is available at www.zurich.com.