Fake hurts Real

In addition to death and taxes perhaps the only other unchanging reality is counterfeit sneakers and no lack of a market of suckers or customers ( depending on how you view them .) Apart from the obvious revenue shortfall, it also leads to other subte but equally damaging repercussions for companies like brand dilution, acceptace of the counterfeit product as a viable alternative, quality issues wrongly attributed to the original etc which in combination would all add up to a general discontent with the brand.

I guess it is difficult for companies to monitor and enforce IP laws aggresively in order to combat the counterfeiting bugbear in countries where there is considerable laxity and official disinterest in implementing them. It would definitely be interesting to understand and appreciate what else the big boys (adidas, Nike, Puma et al) are doing to fight this. Some of the measures which seem to make sense at first pass are developing non-imitable technologies ( it would take quite some ingenuity to fake an adi F50 or a Nike Mercury Vapor fly in a time frame which makes economic sense), grass roots brand building programs with the younger market demographic thereby taking a pro-active rather than a preventive measure to train and ingrain in them to buy real and real stuff alone.

The NY times had a very interesting write up giving a bird’s eye view of how the secondary industry works by tracing an order of 3000 Nike Tiempo shoes from the Chinese source to the Italian customer who placed the order. Scary and enlightening at the same time, it shows the latent threat of operating in an industry where cloning of products has become second nature and dangerously profitable to cease at any point in the near future. While the fact that counterfeiting happens in China may not be that much of an eye opener – what really stunned me was this bit on how the Chinese government views it:

Beijing’s top intellectual-property officials, meanwhile, seem to disagree over what even constitutes counterfeiting. Last year, a debate occurred between the heads of the State Intellectual Property Office and the National Copyright Administration. The dispute revolved around shanzhai, a term that translates literally into “mountain fortress”; in contemporary usage, it connotes counterfeiting that you should take pride in. There are shanzhai iPhones and shanzhai Porsches.

In February 2009, a reporter asked Tian Lipu, the commissioner of the State Intellectual Property Office, whether shanzhai was something to be esteemed. “I am an intellectual-property-rights worker,” Tian curtly replied. “Using other people’s intellectual property without authorization is against the law.” Chinese culture, he added, was not about imitating and plagiarizing others. But one month later, Liu Binjie, from the National Copyright Administration, drew a distinction between shanzhai and counterfeiting. “Shanzhai shows the cultural creativity of the common people,” Liu said. “It fits a market need, and people like it. We have to guide shanzhai culture and regulate it.” Soon after that, the mayor of Shenzhen, an industrial city near Hong Kong, reportedly urged local businessmen to ignore lofty debates about what is and isn’t defined as counterfeiting and to “not worry about the problem of fighting against plagiarism” and “just focus on doing business.”

And if that was not startling enough, the response mechanism of the companies bewildered me:

But none of the major footwear companies I contacted ventured an estimate of the scale of their counterfeiting problems. For them, it’s something better not discussed. Peter Humphrey, the founder of a risk consultancy firm in Beijing called ChinaWhys, suggested this could be for one of two reasons: a wariness of “upsetting the Chinese authorities” or being “afraid to admit publicly too loud” that they have a counterfeiting problem. “Because when word gets around the consumer market,” Humphrey said, “then everyone starts wondering if their shoes are real or not.”

How do counterfeit products translate to the bottom line of the legitimate company? Is each fake Nike or Adidas tennis shoe a lost sale? A senior employee at a major athletic-footwear company, speaking on condition of anonymity, reflected on counterfeiting as a simple fact of industrial life: “Does it cut into our business? Probably not. Is it frustrating? . . . Of course. But we put it as a form of flattery, I guess.”

And the kick in the mouth comes in the end. This game is not about making a few easy bucks while the going is good. This is about the bad guys digging in for the long haul and using the experience/infrastructure/channels gained out of this little racket to launch to an organic brand of their own in the future. Something which perhaps fits in with the Chinese goverment’s philosophy of “shaizan” discussed above.

It could also be a form of industrial training. In Putian, Lin told me of his real ambitions. “Making counterfeit shoes is a transitional choice,” he said. “We are developing our own brand now. In the longer term we want to make all our own brands, to make our own reputation.” Lin’s goals seemed in line with China’s de facto counterfeiting policy: to discourage it as a matter of law, but also to hope, as a matter of laissez-faire industrial-development policy, that the skills being acquired will eventually result in strong legitimate businesses.

Memories can become a bit jaded. But I guess, it is worth remembering that Li Ning, Anta are slowly eating the big boy’s lunch now in the NBA and other markets. Never give a sucker an even chance is what I have learnt and never seems more truer than here.

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