Electronic Retailer - July 2011 - 36

Choose Your Team Wisely to Avoid Partners in Crime
Counterfeiting and piracy are real risks that you can lessen if you have the right manufacturing partners
and piracy is estimated to reach $1.7 trillion by 2015 and put 2.5 million legitimate jobs at risk each year. To bring it closer to home, here are just a few anecdotal tales of alleged bootlegs, knock-offs, fakes and forgeries that have emerged from the direct marketing industry: • A leading marketer of educational products discovers that its manufacturing source is producing extra copies of its program at a separate manufacturing facility – using the marketer’s master – and then selling them online to reap the margin between wholesale and retail and siphon off its own client’s sales. • The “back-dooring” of products in China is an especially acute problem. In this case, it isn’t another plant doing the dirty work, it’s the actual authorized manufacturer who is producing extra inventory and then sneaking it out the back door for sale on the global gray market. Such product can end up anywhere – from the local flea market to the most reputable mainline retail discounter. • Marketers have licensed their products and freely given their DRTV ads to regional distributors only to discover that the very same distributors they thought were their partners are ripping them off. How? They submit a purchase order for a fraction of the actual sales realized by the ads while the distributors produce and sell their own counterfeit products to reap greater profits. • A marketer of a fitness device walks down the aisle of his Southeast Asian manufacturing plant and sees his product stacked on one side of the warehouse. On the other side is a pile of knock-offs of his very unit. • Bogus product is regularly sold online with deep discounts off the manufacturer’s minimum advertised price on websites that originate from countries with little to no regulation. Throw in sellers on eBay and Craigslist and the World Wide Web looks like a worldwide swap meet of endless deceit that is virtually impossible to stop.

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BY STEVEN FEINBERG

Going On Offense First
The mess these stories surround can be overwhelming, so how do marketers stem this tsunami of fraudulence? The first step is to do everything you can to protect yourself on the front end, by ensuring that you choose your manufacturing partners wisely. Since most marketers are busy attending to an endless multitude of moving parts, it may make sense to engage a productsourcing expert that is versed in the culture and regulatory environments in which the manufacturers operate. Here are some critical characteristics you should look for when choosing a sourcing partner: 1. Maintains strong relationships. There is a profound difference between a relationship and a transaction. It stands to reason that if a manufacturer is getting repeat business from the same source, that it is not in their self-interest to rob that representative blind. Minimize your risk by seeking out a sourcing partner that has built long-term equity and trust with its supplier network. 2. Appreciates the value of that trust – without overspending. In today’s hyper-competitive world, it is often easy to go with the lowest price provider. Certainly, every marketer wants to get a solid value, but don’t

Global manufacturing has afforded marketers tremendous benefits by giving them access to more economical manufacturing and labor costs. One of the unfortunate byproducts of taking advantage of emerging markets with little or essentially unenforced regulations, however, has been an epidemic of counterfeiting, a situation exacerbated by the worldwide recession. For example, since many direct-marketed products rely on intellectual property that is distributed on optical discs, it is especially easy for unscrupulous producers to pass off forgeries as the real thing. But it’s no longer a sketchy guy with a weather beaten card table covered with bootlegs set up on the sidewalk in lower Manhattan. The problem has spread like an insidious virus over the internet, and it is perpetuated by a gamut that runs from the lowliest individual interloper to organized crime. And this mercenary practice isn’t just reserved for DVDs and the like – virtually anything can be reverse engineered nowadays. And, regrettably, it is.

In the Company of Thieves
How bad is this problem? In a February 2011 report, the International Chamber of Commerce indicated that the global economic and social impact of counterfeiting

electronicRETAILER | July 2011

Electronic Retailer - July 2011

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