Counterfeiting: A Global Epidemic
An expensive problem
Globally, the market for counterfeit goods is estimated at $1.8 trillion and growing at 15% a year . The EU imports some 85 billion euros (about 5% of all imports) of fake products each year, costing 800,000 jobs . 39% of EU GDP and 26% of employment come from IP intensive industries, which are most attractive to the fakers. 14.3bn EUR of annual tax revenues are lost to forgeries in the EU.
In the UK the public spend £17bn a year on fake goods costing 72,000 jobs . Food fraud costs families £1.17bn a year alone.
Pharma is particularly at risk
An EAASM report found that there was a 63% chance of receiving a fake medicine when buying online. The report estimates the cost to the pharma industry of between 1bn and 3bn euros in Europe alone . Although the EU Intellectual Property Office puts the cost at 10bn euros in the cost of counterfeit medicines (Although this latter figure does include real drugs in fake premium brand packaging). The total cost world-wide could be as high as $46bn.
Despite this the UK government only managed to seize £9m of fake medicines in one year. The OECD countries altogether only managed to 2,500 seizures a year of fake pharmaceuticals.
The cost is human too:
- Fakers put diethylene glycol in paracetamol medicines in China, resulting in 200,000 deaths
- Fake heparin in the US was a causal factor in 60 deaths.
- The prevalence of fake malaria tablets in Africa is difficult to confirm, and estimates range between 15% and 50% of treatments purchased in Africa and Asia are fake. Malaria infects 219m people and kills 600,000 people a year.
The main policy approach to the issue is enforcement – with governments directing their law enforcement agencies. However, they are only able to make the smallest of impacts on the issue, with OECD countries only making 140,000 seizures a year. Counterfeiting has evolved to take advantage of modern retail and distribution methods. Mail accounts for 62% of all fake goods seizures each year, which are generally small: 43% of seizures contain ten items or less. So rather than hunting down a container load of fakes, governments are trying to trace thousands of individual small packages. 63.2% of forgeries originate from China, meaning enforcement agencies have to work cross border.
Clearly, all the time fake products are being manufactured and released into the supply chain, governments
will struggle to keep up with the sheer volume of forgeries. The problem needs to be tackled at source; at
the point of manufacture.
It’s time for a different approach.
Cost effective solutions
Interestingly it is not necessarily the highest value products that are counterfeited. For example, Nike shoes around the £100 mark are most commonly counterfeited, whilst for Rolex watches it is lower value Rolexes that are most counterfeited. This is because very exclusive products are obvious when counterfeited, mainly because they are so exclusive. They are also less believable to the consumer. It is possible that £100 trainers have been reduced to £50. Much less likely that £300 trainers have been reduced to £50. Finally, the more valuable products are more likely to be individualised, distinctive or one of a kind, or have more sophisticated manufacturing techniques, making it hard to fake.
With counterfeiters targeting the mid to low range premium product, the cost of the solution needs to take into account the value of the product. It is quite acceptable to run a £15 history check on a car worth £4000. Much less a £15 check on a £100 pair of trainers. Our analysis suggests consumers will tolerate around 0.5% of the value of a purchase to ensure a product is genuine, but this depends on the value of the product and may range from 0.15% to low value products to around 1% of high value assets. This is the value the consumers themselves will pay to have the confidence the product is genuine.
Likewise, the value of fakery in EU imports is about 5% of total retail. It would be foolish to believe that all counterfeiting could be eliminated, and any solution would need to generate an ROI on a retailer’s investment in it, so again, the solution needs to be within 1% of product values.
Thus, solutions need to be able to operate in very small margins (i.e <1%) of the product value. This is a critical part of the challenge that ACT resolves – its cost effective for a broad variety of products.
Key market: counterfeiting
According to the OECD , the main product categories that are frequently the victim of counterfeiting, fraud, forgery or fakery are:
|Articles of Leather||Articles of Leather|
|Perfumery & Cosmetics||Perfumery & Cosmetics|
|Clothing apparel, knitted or crotched||Clothing apparel, knitted or crotcheted|
|Miscellaneous manufactured articles||Toys|
|Tobacco||Miscellaneous manufactured articles|
|Other textile articles, labels||Clothing apparel, not knitted or crotcheted|
|Umbrellas, walking sticks||Jewelry|
|Packaging||Optical, photographic, medical instruments|
|Clothing apparel, non-knitted or crocheted||Electrical machinery, equipment and parts|
|Fabrics, labels||Other textile articles|
|Tools of base material||Tools of base metal|
Countries whose businesses were most affected by counterfeiting activities are the US (20%), followed by Italy (15%), France and Switzerland (12%), Japan and Germany (8%)..
Key markets: provenance intensive industries
A secondary market for an anti counterfeit solution exists in industries where product provenance is either a legislative necessity or is associated with a premium product.
One of these is in agriculture where ‘cow passports’ where there are an estimated 23,500 that aren’t properly registered worth about £10m to the UK. A farmer must pay £30-£40 for a DNA test to establish the parentage of the calf in order to apply for a new ‘cow passport’ . The BCMS estimates the cost of administering passports at over £34m a year.
Equivalent processes existing for arable farmers, with pilots being held to take the existing paper-based grain passports electronic . The pilot estimated that the total cost to the grain industry was £7,169,126 per year and is only aiming to save £1,884,452 (26%) by shifting to an electronic system, still leaving a cost of £5,284,674 annually for the industry .
Other emerging farming markets would do well to learn from the eGrain case. Given the substantial cost in a relatively light-touch regulation industry such as grain, emerging farming markets such as cannabis growers in Canada would do well to anticipate this £7m challenge in advance. Canada sees £1.6 bn sales of Cannabis in 2018, a market which is expected to grow to $22bn by 2020 around four times the size of the UK cereals & grains industry, and as such the cost of administering tracking systems could exceed £25m.
In the medical industry, traceability of both medicines and prosthetics present a significant challenge for the industry. Some 47,000 women in the UK receive faulty breast implants from Poly Implant Prostheses. When these started to fail, because most were done through private clinics, tracing those individuals was left to the individuals themselves.