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Student Research Journal > Spring 2013 Issue
Current Issue

The Harmful Effects of Counterfeit Goods

Arlee Sowder

Abstract

The business of counterfeit goods is one of the largest underground industries in the world and growing rapidly. The impact on the global economy is in the billions of dollars. This article examines the reasons why counterfeiting has become such a lucrative business, the negative and harmful effects counterfeit goods have on industries and consumers, as well as the difficulties encountered in apprehending and prosecuting offenders. The role of the consumer is explored as a key factor in curtailing the activities of counterfeiters.

Introduction

From fake handbags to mock medicines, the business of counterfeit goods is one of the largest underground industries in the world and it is rapidly growing. With cheap overhead, high profits, and cloak-and-dagger business style, these global black market industries are here to stay. A counterfeit good is a product that closely resembles another product in order to trick customers into buying. Since the beginning of organized commerce, lesser goods have been portrayed as originals (BASCAP, 2009). Officials and authorities struggle to control the activities of the criminal organizations that are producing and marketing counterfeit goods. Stopping these enterprises seems doubtful because of the increasingly aggressive behaviors of fraudulent distributors. The best way to stop the manufacturing of imitated products is to inform consumers of the potential harm these products pose to the United States and its economy. If people refuse to purchase knock-off products, these rogue industries will suffer economically and ultimately disappear.

Harmful Effects

American views of counterfeit goods are often unrealistic and far from the truth. When American consumers think of counterfeit goods, fake handbags and mock paintings come to mind. Unfortunately, many citizens do not realize the harmful effects that counterfeit products have on American businesses. American businesses and industries lose approximately $200 billion in revenues annually due to counterfeits. On a broader scale, counterfeit goods account for more than half a trillion dollars each year (Levin, 2009). The lucrative market of counterfeiting has greatly impacted the electronics industry. As counterfeiters continue to produce fraudulent electronic components, the reputable electronic companies are faced with threatening statistics and slumping sales due to these knockoff parts. For example, between 5% and 20% of global electronic parts in an industry’s supply chain are estimated to be counterfeit parts. These imitated components are making their way into American distribution supply chains, like Apple and Target. According to Oneida Research Services in the United States, counterfeit parts cost the global electronic industry $100 billion (U.S.) each year. Even the most reputable retailers are troubled by the uncertainty of whether or not their stock or parts are counterfeit (Sangani, 2010).

Counterfeiters’ sneaky entry into American distribution centers also poses an ample threat to American consumers. Americans are often too concerned with paying the cheapest price for their electronics, when they should be focused on the harmful effects that these cheaply made counterfeits could have on their well being. Faulty batteries or poorly designed transformers are explosive under certain conditions (Sangani, 2010). Not only are these counterfeit goods harmful to American people, but they greatly impact American businesses as well. The rise of counterfeit products can potentially cause businesses to experience an increase in costs, as well as loss of productivity. Most importantly, counterfeits can negatively impact a company’s reputation and cost millions, sometimes billions, in lost revenue (Sangani, 2010).

Impact on Employment

In addition to lost revenues and negative reputations, counterfeiting immeasurably impacts the employment rates in the United States and in many other countries around the world. According to research analysts, approximately 2.5 million jobs worldwide have been dismantled by counterfeit black markets. Of those 2.5 million jobs lost, 750,000 jobs were located right here in the United States (Levin, 2009) and 300,000 European jobs are lost each year due to counterfeits (Eisend and Schichert-Guler, 2006). Many people affected by increasing unemployment rates will go out and find new jobs; however, it is estimated that 160,000 workers fail to find new employment. Of those who find new jobs, many earned less pay. All in all, the increasing unemployment rates caused by counterfeit markets have and continue to devastate personal financial situations for many families, as well as burden state and federal welfare programs. If counterfeiting continues to grow, which researchers predict it will, the unemployment rate will continue to rise in the United States and around the world.

Counterfeit Goods and the Internet

While sales of counterfeit goods rapidly increase, so do the fraudulent sales of counterfeit products on the Internet. Because online auction sites, like eBay, have no warranties of authenticity and quality control is nonexistent, counterfeiters can easily distribute misleading or fake products around the globe. The website eBay.com describes itself as “the world’s largest personal online trading community” (Levin, 2009, 495). This statement might be accurate; however, they forgot to mention they have become the largest online venue for counterfeit goods. Since 1998, the eBay community has evolved into a nation of 81 million visitors each month. Experts advise people not to use online auction sites because they can potentially harm legitimate merchants and leave buyers and sellers with great risks of uncertainty when it comes to trading over the Internet. Online counterfeit sales cause consumer confusion across the United States and other parts of the world (Levin, 2009).

Counterfeit Medicines

Lastly, and most importantly, the American people should be aware of counterfeit medicines. Imitating pharmaceutical formulations poses a serious and fast-spreading threat to the health and safety of the people. Like retail merchants, counterfeit medicines create multitudes of problems for legitimate drug manufacturers by undermining their reputations and revenues. In addition, it jeopardizes the credibility of health and safety authorities like the Food & Drug Administration. It is estimated that about 10% of medicines worldwide are counterfeit. Due to the increasing demand for cheap medicines and low production costs, counterfeiting drugs has become a vast and extremely lucrative market. In 2008, the U.S. government seized $28.1 million worth of fake pharmaceuticals, a 152% increase from 2007 (Chaudhry and Stumpf, 2011). Researchers predict that counterfeit drug sales will reach $75 billion (U.S.) by next year.

Almost any pharmaceutical formulation can be counterfeited. High priced lifestyle medicines like drugs for treating erectile dysfunction, fat reducers and sleep remedies, in addition to antibiotics, anticancer drugs, and inexpensive versions of painkillers or histamines can be counterfeited. What constitutes a fake drug differs from country to country (Martino, Malet-Martino, Gilard, & Balayssac, 2010). This causes difficulties for consumers and health and safety authorities. The most commonly used definition is that of the World Health Organization. It defines a counterfeit drug is one that is purposely and fraudulently mislabeled with respect to identity and source. Years ago counterfeit medicines could be identified by physical appearance or by reading labels for ingredients. However, over the past few years, counterfeiters have become more sophisticated, causing visual inspection to be ineffective. Today, chemical analysis is the only way to detect whether a drug is fake or legitimate (Martino, et al., 2010).

Conclusion

All things considered, counterfeit goods are extremely harmful to the health and safety of the American people. Counterfeit products are not only harmful to the economy, but also to each individual’s well being. It is important that consumers understand the multi-faceted complexities of counterfeit markets: the economic impact on businesses, the enormity of counterfeit Internet sales, and the significance that counterfeit medications present in health and safety issues. By spreading the word about the harm caused by counterfeit goods, people could potentially put an end to these lucrative industries of counterfeit products.

As regulating authorities work constantly to keep American consumers safe, citizens of the world must join the fight against illegal commerce. If consumers continue to make transactions with counterfeit merchants, these black markets will never diminish. All consumers should share the responsibility of verifying the authenticity and origins of their purchases. The only way to put an end to the fast-growing market of counterfeit products is to stop purchasing these products. Without revenues or support, counterfeit sales will decrease and force the fraudulent criminals out of business.

References

  • BASCAP. (2009, May). The impact of counterfeiting on government and consumers. Frontier Economics, 1-55.
  • Chaudry, P. E., & Stumpf, S. A. (2011). Consumer complicity with counterfeit products. The Journal of Consumer Marketing, 28(2), 139-151.
  • Eisend, M., & Schuchert-Guler, P. (2006). Exploring counterfeit purchases: A review and preview. Academy of Marketing Science Review, 2006(12), 1-22.
  • Levin, E. K. (2009). A safe harbor for trademark: Reevaluating secondary trademark liability after Tiffany v. eBay. Berkeley Technology Law Journal, 24(1), 491-527.
  • Martino, R., Malet-Martino, M., Gilard, V., & Balayssac, S. (2010). Counterfeit drugs: Analytical techniques for their identification. Analytical & Bioanalytical Chemistry, 398(1), 77-92. doi:10.1007/s00216-010-3748-y
  • Sangani, K. (2010). Buyer beware. Engineering & Technology, 5(7), 28-31. doi:10.1049/et.2010.0704


Arlee Dee Sowder is a senior pursuing a degree in Logistics and Supply Chain Management with an anticipated graduation date of Summer 2013. She is a member of Delta Mu Delta and Phi Theta Kappa Honor Societies. Arlee’s hobbies include photography, baking, and hiking.



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