Top Industries Most Affected by Counterfeiting and How to Tackle the Crisis

Counterfeiting: A Looming Threat to Global Industries

The counterfeit industry is projected to reach a global value of $4.2 trillion by 2022, infiltrating markets and damaging brands across sectors. While nearly every industry is at risk, certain sectors are particularly vulnerable due to high demand, complex supply chains, and the appeal of branded goods.

Let’s explore the top five industries most affected by counterfeiting, their unique challenges, and solutions to combat this growing menace.

1. Clothing and Apparel

Fashion is like the ever-changing leaves of a tree. It has a different season, without reason. Experts tout the clothing and apparel sector as recession-free. But is it free from counterfeits?

The FMCG sector in India suffers a loss of around 200 million dollars annually due to counterfeiting. Counterfeit products piggyback on the reputation of the original brands. On average, the issue results in FMCGs losing their market share by nearly 20%. But which product is most susceptible to counterfeiting? Unfortunately, it is something that people use every day without much thought. Clothing and apparel account for most of the counterfeits in FMCG. Reports suggest that nearly 20% of fashion advertisements on social media are fake.

But why does counterfeit thrives in clothing and apparel?

The logos and other brand identity markers are easy to replicate
People buy branded clothes because it gives them a sense of exclusivity. Fake replicas of branded clothes are affordable
The demand for apparel is high, and the trend keeps changing. Counterfeit apparel brands are a thriving business
The market for apparel is mainly unregulated

Impact of counterfeit: looking beyond profit and loss

Brands suffer revenue and market-share loss due to counterfeit clothes and apparel. Also, the quality of the duplicates is questionable, leading to future failed marketing campaigns for the brand. But the impact of counterfeit clothes goes beyond the simple game of profit and loss. The dyes used in fake garments can be a health hazard. With no regard for customer safety, counterfeit apparels use dangerous chemicals to dye the clothes. Imagine letting your small children with delicate skin wear clothes that can poison them!

Food and Beverage:

Counterfeit in the food and beverages industry comes in different flavours. The most common practices are:

Adulteration and substitution
Trademark infringement and repackaging
Mislabelling and forgery
Use of unapproved or illegal enhancements

Within the sector, packaged foods are most susceptible to counterfeiting. Food fraud targets 21.7% of the products in the packaged food industry. In 2019, there were 250 major food fraud incidents across the country. Reputed products like TATA salt, Nandini ghee, and many more became victims of counterfeiting. If we add alcohol and spirits to the list the number is much higher. In 20202, alcohol and tobacco accounted for 65% of the counterfeited products in FMCG. The pandemic year of 2020 saw a 34% rise in fake alcohol.

But why does counterfeit thrives in the food and beverage industry?

Packaged foods and beverages depend on the look and feel of the package as a unique identity marker. Unfortunately, many anti-counterfeit markers do not integrate with packaging. As a result, making identical packages with fake products is an easy business.
Most of the fake foods and beverages go unnoticed. As a result, customers may not recognize that the health issues they face are due to fake food consumption.
People do not spend much time analyzing the food and beverages they consume daily. So, they may not notice the subtle signs of counterfeiting.
Suburban and rural areas suffer from lax regulations. Counterfeiters flock to the rural markets because it is an easy target

The impact of food fraud:

Bona fide brands lose the goodwill and trust of their customers
The process of raiding and removing counterfeit products is costly and time-consuming
Spurious food products and beverages can trigger allergies and cause health issues to consumers. In many cases, consuming toxic chemicals in fake food products has led to the loss of lives.

Pharmaceuticals and Healthcare

The stakes are high when it comes to counterfeiting in the pharma sector. India is a global leader in the manufacturing of low-cost generic medicines. In terms of the production volume of drugs, India ranks third. The exports of generic drugs have been on a steady rise. The Indian market thus has a conducive climate for pharmaceuticals. However, estimates state that almost 20% of the drugs sold in the Indian market are counterfeit, fake, or substandard. Also, 35% of the fake drugs sold worldwide come from India. Did you know that the sale of counterfeit medical products saw a 47% jump from 2020 to 2021? A global health crisis gave a boost to fake medicines!

The government of India has now asked companies to introduce QR codes and serialization to tackle the issue of fake medical products. Yet, counterfeit continues to thrive in the pharmaceutical and healthcare sector.

But why does counterfeit thrive in the pharmaceutical and healthcare sector?

A demand-supply imbalance has always been a key driver for fake medical products. However, the shortage and panic caused by the pandemic pushed the demand-supply gap further.
With the advent of e-pharmacies, the supply chain has become more complex
Healthcare professionals lack awareness and have no means to check the authenticity of pharmaceutical equipment helps the grey market.

The impact of counterfeit medical products: A life and death situation

Diluted, substandard, and spurious active ingredients play with the health and lives of helpless people
The genuine brands may end up losing money over litigations and allegations of negligence
Along with lawsuits, negligence across the supply chain can make it difficult to track the origin of fake medicines.
People often pay a heavier price when they buy branded medicines instead of generic ones. The price they willingly pay is because they trust the brand. Brands have a social responsibility to uphold people’s trust.

Electronics and electrical appliances

What happens when a counterfeit leads to a national security breach? Did you know that 15% of the pentagon components in the USA could be faked? While counterfeit has infiltrated all walks of life, fake consumer electronics and electrical components remain high. Does your new mobile heat up very quickly? Do you need to keep recharging your branded phone continuously? Of course, the issue of counterfeit electronics and electrical appliances goes beyond batteries.

Regarding fake electronic and electrical appliances, there are designated hubs across the country (e.g., Palika Bazaar in Delhi) that have always been a breeding ground. In such corners, the estimated counterfeit electronic and electrical appliances go as high as 40%.

E-commerce websites are increasingly becoming a portal of choice for manufacturers of fake electronic and electrical appliances to sell their products.

The lucrative business of counterfeit electronics and electrical components:

Fake spare parts and appliances are cheaper. The steep discounts make people ignore the quality of the products while buying them
The sale of electrical appliances and spare parts depends largely on the local electricians and technicians. The corruption in the supply chain starts at the grass-root level
E-commerce and the bumper sales offered online have made fake electronics a lucrative and easy business opportunity.

The dangers of fake electronics and electrical appliances:

It is not just about the revenue loss that the original brands suffer. Fake electronics and electrical products lead to an increase in customer grievances. The brands pay the price for returns and replacements.
Fake electronics impede the adoption of new technology because customers lose faith in the product
Dangerous spare parts do not follow safety protocols. For example, fake electronics and electrical appliances can cause injury due to faulty mechanisms.

Cosmetics

About 10% of all the cosmetics seized in 2019 were fake. In the US alone, the market share of fake cosmetics accounted for 8% of the total sales. As the upper-middle-class population increased in India, cosmetics became an evergreen sector. But unverified and uncontrolled sales of fake cosmetics have put a damper on the growth of the sector. Social media and eCommerce are the two culprits for the growing sale of counterfeit cosmetics. The growth in influencer marketing on social media has given a sense of authenticity to fake cosmetics. However, the Drugs and Cosmetics Act of 1940 has still been unable to make online retailers liable for selling counterfeit cosmetics.

Why does counterfeit thrive in the cosmetics sector?

The certificates of authenticity provided by brands can be replicated.
Many unauthorized cosmetics sellers have their eCommerce platforms
Deceitful advertisements use blurry images of the genuine brand to dupe customers. Nowadays, many fake advertisements have stopped using trademarks to avoid legal hassles.
People are always looking for cheap but branded cosmetics. Counterfeit cosmetics are substandard but cheap.

The impact of counterfeit cosmetics:

Registered retailers and the brand suffer losses due to the sale of fake cosmetics
Increase in counterfeit results in anti-competition and a decrease in domestic production. Even personal care products will not find it lucrative to manufacture locally.
Raids and lawsuits damage a brand’s reputation. Customers will start associating the brand with illegal activities
The import of fake cosmetics has been linked to illegal drug sales
Fake cosmetics ignore quality and safety checks. As a result, they are a health hazard for unsuspecting buyers.

Anti-counterfeit solutions across sectors:

Track and trace mechanism to increase visibility and trust across the supply chain: Every sector benefits from keeping its supply chain clean and transparent. The increased visibility and easy authenticity verification for food and beverages mean improved customer trust. Customers can see the story behind their final product and information on the raw materials.
QR codes and blockchain: The regulations require medical products to adopt QR codes and serialization to track and trace their products. A blockchain and 2D or 3D codes that integrate with packaging provide better protection. Pharmaceuticals have long been known to improve their packaging. With anti-counterfeit technology, brands can ensure tamper-proof and tamper-evident packaging on every unit.
Authenticity certificates: Cosmetic brands issue authenticity certificates to dissuade the sale of fakes. But anti-counterfeit technology can ensure that the certificates cannot be replicated.
Warranty management: Anti-counterfeit technology extends to after-sales operations too. Sectors like electronics and electrical appliances spend a lot of money on replacements and repairs within warranty. At the same time, they need to filter out fake warranty claims. An automated warranty management system goes a long way in improving after-sales efficiency.

With the advent of online marketing, the government has been working on redrawing regulations. The issue of responsibility and accountability regarding the sale of counterfeit is a long-standing debate. While the laws are still trying to comprehend the issue, brands can no longer defer. Protecting themselves and their customers have become an integral part of brand management.