Analysing counterfeit production in Malaysia

Malaysia has a counterfeit market value of $378 million, with software dominating $289 million of that market value. (Havocscope Global Market Indexes, 2008). Most often the news broadcast on counterfeiting in Malaysia are usually associated with branded goods, and now, these items are circulating in the form of essential products and used on a daily basis.

The Domestic Trade and Consumer Affairs Ministry’s enforcement division, through their ruthless raids in pursuit of these types of goods, have identified imitation products such as garments, electrical items, pharmaceuticals, shoes, bags, leather goods, watches, cigarettes, batteries, sauces, engine oils, toothpastes, detergents and canned food, to name a few.

It is clear that anything that has a demand and potential to be copied would consistently attract infringers to resort to reaping profits through producing similar counterfeit items which would then be sold to ‘blind’ and ignorant consumers.

WHAT IS COUNTERFEITING?

I) Counterfeiting can be defined as any manufacturing of a product which so closely imitates the appearance of the product of another to mislead a consumer that it is the product of another.

II) Counterfeiting is ultimately an infringement of the legal rights of an owner of intellectual property.

ARTICLE SUMMARY REGARDING CURRENT ISSUE

Malaysia is not excluded in becoming the region of dumping ground for a wide range of sub-standard and counterfeit products such as cosmetic products, medical goods, clothing and electrical items.

Government have structured framework and protection mechanism for Asean consumers.

More than million inspections were done and nearly 13000 with products valued RM 137.5million were sealed.

ARTICLE REVIEW FOR COUNTERFEITING

Counterfeit goods flooding Asean region

New Straits Times, Jan 19, 2007

PUTRAJAYA: The new television set in your living room might not be what you think it is. And that bottle of perfume could have come from a back lane.

This region has become a dumping ground for a wide range of sub- standard and counterfeit cosmetic products, medical goods, clothing and electrical items, and Malaysia has not been spared either.

The Domestic Trade and Consumer Affairs Ministry launched a discussion on “consumer protection initiatives” at the Association of Southeast Asian Nations level to stop this illegal practice.

Minister Datuk Mohd Shafie Apdal said yesterday a central body, based in Kuala Lumpur, would be set up this year to co-ordinate regional action against the dumping of sub-standard goods and protect consumers.

“We have structured the framework and protection mechanism for Asean consumers. It is just a matter of implementing it,” he said.

He said the feedback he received during visits to Myanmar and the Philippines had been good, and the Asean Secretariat was also receptive to the idea. He plans to visit Vietnam, Laos and Singapore soon to discuss the idea with his counterparts.

And it will be highlighted during the Asean senior economic officials meeting to be held soon. At the ministry’s monthly gathering, Shafie said that more than 7,500 complaints were filed with the Malaysian Consumers Claims Tribunal last year.

The tribunal had set up a database on the standard operating procedure for tribunal kiosks to be set up soon.

Shafie said that more than a million inspections were done on business premises last year and nearly 13,000, with products valued at RM137.5 million, were sealed.

PRODUCTS THAT ARE MOST LIKELY TO BE COUNTERFEIT

1. SOFTWARE

The counterfeit software trade in Malaysia, and especially Kuala Lumpur, is thriving so much that it is practically considered the norm and to such an extent that it is harder to get hold of genuine software than counterfeit. Crackdowns and raids have mainly proved ineffective and counterfeit software is brazenly sold in shopping malls and plaza.

2. LUXURY AND FASHION GOODS

The counterfeits range from poor imitations to quite good copies retailing at higher prices. When it comes to, for example, sunglasses the quality can be poor, the logo can be smudged and the workmanship can be shoddy but, from a distance it look like you are sporting a Chanel or Prada sunglasses. The fake sunglasses can damage our eyes as they almost just made of coloured plastics which are not ideal for a country bathed in tropical sunshine.

3. CDs AND DVDs

In 2007 sniffer dogs, Lucky and Flo uncovered more than one million counterfeit discs or more known as pirate`s discs worth more than 3 million USD, hidden in boxes at a shopping centre.

4. PHARMACEUTICALS

Counterfeiting of drugs is being taken seriously by Ministry of Health. Things to look out for are : over-the-counter drugs such as Panadol pills and Eye-Mo drops. Mainly affected are the developing countries with weak drug regulatory control and enforcement. The problem is further exacerbated by a number of other factors: scarcity and/or erratic supply of basic medicines, uncontrolled distribution chains, large price differentials between genuine and counterfeit medicines, lack of effective intellectual property right protection, lack of regard for quality assurance and corruption in the health-care system.

5. PERFUMES

Counterfeiting is a well-advertised problem in this industry. The distribution of perfumes is normally restricted to exclusive retailers and cause price stability. Channels of distribution on the grey market include street traders and small shops. Most consumers buying these fakes are aware that it is not the genuine item and that the product is of a lower quality. It is very common, however, for the trader to pretend that the goods are stolen in order to deceive the consumer about the quality.

THE IMPACT OF COUNTERFEITING ACTIVITIES

1. IMPACT TO OUR COUNTRY ECONOMIC ( WHERE COUNTERFEITS ARE SOLD)

Job Losses

Counterfeiting affect employment because job shift from the manufacturers to counterfeiters. It is because of the goods produces by manufacturers are unsaleable because consumer switch their preference in choosing goods to counterfeit foods due to lower price than the genuine goods without knowing they are purchasing counterfeit goods. As a result, manufacturers has to shut down their business causing many employees loss their job and become unemployed.

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Reduce Potential Foreign Investment

For some industries, the level of countereiting may be relatively important, whereas in others it may be minor consideration. Countries with lower rates of counterfeiting and relatively higher in economies has higher foreign investment. Counterfeiting also can affect the commercial trade sector and as a result can affect potential foreign investment.

Tarnish Malaysia`s reputation in the eyes of tourists

Malaysia`s goal to increase the tourism sector cannot be accomplish if counterfeiting is still exist. Tourist from every corner of the world who come to Malaysia can relatively easy to avoid buying fake handbags and sunglasses but another matter when it comes to consumables and pharmaceuticals. Fake pharmaceutical products can endanger tourists and affect Malaysia`s reputation as a chosen destination to visit.

Discourage investment in product development

High levels of counterfeiting could reduce the incentive of some firms to invest in the development of new products and processes. It is happen because company know that they cannot get return as high as they expect from the investment.

Government has to spend large amount of money in disposing counterfeit products

Malaysia`s government have to spend large amount of money in funding police and other investigation and enforcement operations as a way to dispose and reduce the counterfeit activities in Malaysia.

2. IMPACT TO COUNTRIES WHERE COUNTERFEITING TAKES PLACE

Foreign producer of reputable products refuse to manufacture their products to the countries. For example, China, India, Hong Kong

Such countries will suffer both tangible and intangible losses. First, foreign producers of reputable products become reluctant to manufacture their product s in countries where counterfeiting is widespread as fast as infection disease because it seems like they cannot rely on the enforcement of their intellectual property rights. Hence, such countries not only lose direct foreign investment but also miss-out on foreign know-how.

Cause export losses

If many products from such countries, including genuine ones, gain a reputation of being poor quality, this will cause export losses which in turn implies both losses and loss of foreign exchange. It could be argued that the counterfeiting industry creates jobs but these jobs are often poorly paid, often involve substandard working conditions and sometimes use child labour.

Discourages new invention from manufacturers

The widespread of counterfeiters in a market discourages inventiveness in that country since it prevent honest producers from investing resources in new products and market development because they know the risk that counterfeiters will counterfeit their products.

Tax losses

A further direct loss for the government of countries that become the main centre for counterfeiters, are tax losses, since the counterfeits are normally sold through secret channels and counterfeiters are not generally eager to pay tax on their ill-gotten gains. Financial losses are increasingly shown to justify action by enforcement officials.

3. IMPACT TO RIGHT HOLDER (PRODUCER)

Suffer direct loss in number of sales

First of all, industries which find themselves in direct competition with counterfeiters suffer a direct loss in sales. Indeed, some markets are even dominated by counterfeiters, creating barriers of entry for the producers of the genuine product. Some would argue that the buyers of the fakes would not have bought the genuine item but that is a very narrow argument and can only apply to a small segment of luxury goods. Many counterfeit products today are of higher quality and compete directly with the genuine items.

Damage brand value and firm reputation

Counterfeit or pirated products may damage the brand image and reputation of firms over time. For instance, those consumers who believed they were buying a genuine item when in fact it was a fake, will be likely to blame the manufacturer of the genuine product if the fake does not fulfil expectations, thus resulting in a loss of goodwill. If

consumers never discover that they were deceived, they may be reluctant to buy another product from that manufacturer and may communicate dissatisfaction to other potential buyers.

Spend large amount of money in protecting and enforcing property right

Beside direct losses of sales and goodwill, one should not forget the expenditure involved in protecting and enforcing intellectual property rights. The right owner becomes involved in costly investigations and legal action when dealing with counterfeiters and may also have to spend further sums on product protection.

4. IMPACT TO CONSUMER

Paying an excessive price for inferior products

Ultimately, it is the consumer who pays the cost of unfair competition between counterfeiters and producers. Although many consumers believe they are getting a bargain when they buy counterfeits, the actual value of the product is normally much lower. Hence, they end up paying an excessive price for an inferior product.

Exposed to many disastrous effects

The inferior qualities of many counterfeits, particularly those relating to health and safety, have had disastrous effects. It is no longer rare to find counterfeit parts in aircraft and other vehicles causing death and injuries, or counterfeit pharmaceuticals in hospitals. For example, pharmaceuticals, electrical appliances, parts in aircraft, foods and beverages.

CASES REGARDING THE COUNTERFEIT GOODS IN THE MARKET

Dozens of people died in Cambodia through taking ineffective, fake malaria medicines.

Law enforcement in Zambia seized fake shampoo containing acid.

Body-builders and others buying steroids on the black market in Australia were sold repackaged livestock steroids as human steroids.

Diseased pig meat was used in counterfeit cans of pork luncheon meat in China.

In India, counterfeits of drugs were used to fight antibodies in Rh-D negative mothers.

Fake crocs is being accused on insulting Muslim belief as the word Allah is print on the fake Crocs` logo.

FACTORS INFLUENCING COUNTERFEITING

i. Advances in technology

New technology has not only benefited manufacturers of genuine products, but also counterfeiters. The photocopying machine is, for example, considered to be one of the main tools in a counterfeiter’s tool box. New techniques have furthermore enabled counterfeiting of what were normally considered as “high-tech” products, too complicated to fake. Pharmaceuticals, electronic components and rescue equipment are some examples. The counterfeiter can demand a higher price for his low-cost products since these products have a high value-added element.

ii. Increased international trade

International trade, including trade in counterfeit products, has increased dramatically over the last few decades. Almost all regions are both production and consumption areas for counterfeit products. Although an expansion of boundary measures would enhance the means of conflicting international trade in counterfeit goods, it is not likely to produce most important results unless matched by a related increase in the resources available to customs authorities to devote to anti-counterfeiting work.

iii. Emerging markets

A number of economies that were previously controlled are now being transformed into free

market economies. Unfortunately, the speed of transformation has been somewhat too fast for the enforcement agencies. Markets are now emerging as both large producers and consumers of fakes. Although counterfeiting occurs more or less throughout the world, East Asia, including China, is still pinpointed as the main source of fakes. This region has increased its relative share in world trade, implying increased exports of counterfeits along with genuine products.

iv. Emerging products

Manufacturing now accounts for 75 per cent of total world exports. Processed, high value-added goods are naturally also more likely to be counterfeited. Electronic products, such as software and music recordings, are not included in world trade figures. These are rapidly becoming the products most affected by counterfeiting. It is difficult to predict whether counterfeiting will decrease or increase in the expected future. On the one hand, technological development is enabling counterfeiters to produce fakes relatively cheaply and easily.

Top suppliers of counterfeit goods in the world include:

China $ 221.7 million (81 %)

India 2 million (6 %)

Hong Kong $ 13.4 million (5 %)

Taiwan $ 2.6 million (1 %)

South Korea $1 million (<1%)

Top consumers of counterfeit goods include:

China

Russia

Latin America (esp. Brazil)

Greece

Italy

RECOMMENDATIONS

1. Educate and increase public awareness on counterfeit products

Raising awareness is an important aspect of combating counterfeiting and piracy and needs to be pursued vigorously. Consumers should be adequately informed about the growing threat that second-rate counterfeit and pirated products cause to their health and safety, and consumers and counterfeiters and pirates should be aware about the legal consequences of knowingly purchasing infringing products. Raising awareness could also have beneficial effects on consumer attitudes and behaviour towards counterfeiting and piracy.

2. Enhance and tighten the law to the counterfeiters

The legal and regulatory framework provides the limitations within which enforcement can be pursued. While the outlines used by economies resemble each other in key respects, there are some important differences. In some countries, the consumer of infringing products can be charged with a criminal offence; also, in one economy, the advance from crime can be recovered and used to finance additional enforcement activities.

3. Encourage producer and manufacturer to collaborate with government to fight this issue

Co-operation between industry and government needs to be re-enforced. Police and customs officers lack sufficient expertise to be able to identify goods that infringe a company’s intellectual property rights. Infringers employ various method and are very innovative. Government co-operation with industry is essential,as (i) right holders have the technical expertise to distinguish counterfeits from original products, and (ii) industry may have additional information regarding the functioning of distribution channels. Efforts to step up co-operation are underway, although they could benefit from being further increased.

4. Implement authenticated technologies

It has become easier for counterfeiters and pirates to deceive consumers through high quality packaging and/or through fake products that are virtually impossible to distinguish from authentic merchandise. In the case of trademark infringement, brand owners are constantly looking for cost-effective ways to provide retailers and end-users with a way to determine whether the products they have purchased are authentic.