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Trading fake goods is bad for any industry, but it’s particularly dangerous in the industrial electronics sector, where counterfeit components pose threats like short circuits, electrical shocks, fires, explosions and equipment failures.
“Counterfeiters work hard to mimic not only the product packaging but the actual product as well. Distinguishing fakes from real parts becomes very hard for consumers when making a purchase,” Broadline Components explains. “The problem, however, arises during the production process as the counterfeit parts don’t meet the performance expectations.”
Solving these problems isn’t getting any easier as the volume of counterfeit goods that find their way into the world’s supply chains continues to increase. The semiconductor chip shortage, for example, brought out a high number of opportunistic criminals looking to take advantage of buyers hungry for chips to build into their companies’ products.
“Electronics makers grappling with an unprecedented global chip crunch are increasingly turning to unconventional supply channels to meet their needs, and many are getting stuck with knock-off, substandard or reused semiconductors,” Nikkei Asia reports.
Some of the strategies that criminals are using include passing off as new chips that were removed from discarded electronic equipment; selling chips that failed to meet quality standards (and that should have been disposed of); and falsifying a manufacturer's name or model number on the product packaging.
$464 Billion in Counterfeit Goods
The electronics sector isn’t alone in its mission to suppress the amount of counterfeit goods currently funneling into the supply chain. According to a 2021 study from the Organisation for Economic Co-operation and Development (OECD) and the EU Intellectual Office (EUIPO), illicit trade in fake goods is a significant and growing threat across most globalized and innovation-driven economies. The study is part of the two groups’ continuous monitoring effort to support policy and enforcement solutions.
Looking specifically at counterfeiting activity that happened in 2019, the groups says that the results are a “cause for concern.” That’s because trade in counterfeit and pirated goods that year amounted to up to 2.5% of world trade, or roughly $464 million). Measuring only imports into the EU, the agencies say fake goods amounted to up to 5.8% of those total imports. “These amounts are similar to those of previous years,” the reports notes.
Today, counterfeiters misuse modern logistical solutions and legitimate trade facilitation mechanisms, and thrive in economies lacking good governance standards. The COVID-19 pandemic intensified the problem, they say, with criminal networks reacting “very quickly” to the crisis and adapting strategies in order to leverage the shifting landscape.
Other key findings from the study include:
- The total volume of trade in fakes has remained significant, representing amounts close to the GDPs of economies like Austria and Belgium.
- In 2019, imports of counterfeit and pirated products into the EU amounted to as much as $134 billion. The agencies say the results rely on customs seizure observations and do not include domestically produced and consumed counterfeit and pirated products (nor do they include pirated digital content on the Internet).
- Fakes can be found among many types of goods, including common consumer products (clothing, footwear); business-to-business products (spare parts, pesticides); and luxury items (fashion apparel, deluxe watches).
- Many fake goods can pose serious health, safety and environmental risks. These include fake pharmaceuticals in particular, but also food, cosmetics, toys, medical equipment and chemicals.
- While counterfeit and pirated goods originate from virtually all economies in all continents, China remains the primary economy of origin.
A New Law Targeting Counterfeiters
In “Marketplaces Mull How to Combat $464B of Counterfeit Goods,” PYMNTS.com outlines some of the steps being taken to address the high volume of fake goods flooding the market. The company’s own research finds that with 94% of consumers using online marketplaces and 52% making a retail purchase via an aggregator in the last year, the safety and security of these platforms should be paramount as ecommerce adoption accelerates. It points to the Integrity, Notification and Fairness in Online Retail Marketplaces for Consumers (INFORM Consumers) Act as one possible step being made in that direction.
According to the Committee on the Judiciary, the INFORM Consumers Act would direct online retail marketplaces that include third-party sellers of consumer products to authenticate the identity of “high-volume third-party sellers” (i.e., those with 200 sales worth a total of $5,000 or more within a one-year period, according to PYMTS.com) which will help deter the online sale of counterfeit goods by anonymous sellers and prevent organized retail crime rings from stealing items from stores to resell those items in bulk online.
The bill will also ensure that consumers can see basic identification and contact information for high-volume third party sellers of consumer products on online marketplaces. Finally, the platforms would have to provide customers with a way to contact sellers who have more than $20,000 in annual gross revenue after making a purchase, PYMNTS.com adds. The bill was read twice by the Senate earlier this year and referred to the Committee on Commerce, Science and Transportation.
