Taking out the fakes

Cheap counterfeit consumables are flooding the region to the alarm of manufacturers. And retailers are getting away with it because of end user ignorance of the problem

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By  Peter Branton Published  August 28, 2005

|~|Getty-bulldozerbody.jpg|~|Manufacturers, with the help of local government agencies are making great strides in stamping out the sale of counterfeit consumables and destroying the fakes.|~|Consumable manufacturers aren’t just fighting against other competitors for market share, but also against an alarming number of dodgy dealers supplying counterfeit products, industry figures claim. Counterfeiting in the Middle East is booming and the IT industry worldwide is losing up to US$100 billion per year from counterfeit products, estimates audit firm KPMG. Most counterfeit consumable products to an untrained eye can look to be the genuine article. Counterfeiting expertise — predominantly from China, Asia and India — has created sophisticated fake consumables which have invaded markets in the Middle East. The lower price tags of the fakes in comparison to the original equipment manufacturer (OEM) and third-party supplier (compatible) products, often attracts the unassuming end user. This market is of great concern to legitimate consumable manufacturers, as they stand to lose considerable revenues to these sub-standard counterfeits. Of even more concern is that it appears that these copycat merchants have some luck on their side. In general, most end users are un-educated to the fact that the product they are buying is counterfeit. The price of fakes is obviously much lower than OEM consumables or even compatible consumables, so naive customers buy for the savings, and pass on genuine consumables because of the higher price. These counterfeits are increasingly being sold in retail outlets, since these outlets are being lured by the temptation of making easy money by selling the cheap imitations at the price of originals, claims Michel Sabbagh, marketing manager for Canon Middle East. This causes big problems for OEM’s like Canon, but even more so for compatible manufacturers, according to Sassan Khatib-Shahidi, managing director at German Imaging Technologies (GIT), a manufacturer of compatible toner cartridges. Compatible manufacturers normally sell consumables for a lower price than the OEM does. However, the counterfeiters also sell at a lower price. According to Khatib-Shahidi, these fraudsters target the market with rates that compatible companies usually target the market with. “It is a very big problem for us, maybe even bigger than for brand name makers. We believe that at least 30%, up to 50%, of all HP and Canon products in the market are either counterfeit or gray import products,” says Khatib-Shahidi. “They target the markets with rates that we usually target the market with. The unaware consumer will compare our price with the lower counterfeit price offered,” he adds. It affects compatible sales because the unaware consumer will compare the compatible price with the lower counterfeit price offered, which they perceive to be a brand name product and ultimately give the sale to the counterfeit product, thinking they have got a bargain. “The end user is typically paying the same price and doesn’t know what exactly he is buying,” says Khatib-Shahidi. “It is the retailer, of which we have hundreds in Dubai, who are not interested in our product. We have visited about 250 of these retailers and have asked ourselves why are they not interested in our product. They don’t even want to talk to us,” he states. “Why? Because the very same product they would buy from brand name makers for US$50 and sell for US$55, they are buying from the channel for US$20 or US$30,” he claims. “They are not interested in compatible products in the markets because there is such a huge availability of counterfeit products. The retailer knows outright he is buying a counterfeit product,” he adds. The vast majority of end-users, nearly 95% , are clueless to what they buy, claims Khatib-Shahidi. “They simply approach the vendor and see a good price, but they don’t see a price difference of US$8 or US410, that’s where the vendor is making his margin. They get maybe a saving US$1.50 and decide to go with that, he explains further,” he says. “The end-user rarely knows he is buying counterfeit. If he knows savings are marginal, maybe less than US$4 on an average toner cartridge compared to the price of the printer, it is not really worth the savings.The benefit lies with the vendors, the resellers brand name products,” he reveals. “They make the largest portion of the profit. Just walk for 30 minutes in Bur Dubai, Khalid bin Walid Rd, and you will know who are the black sheep in the market,” he adds. ||**||Genuine boxes |~|Dieter-Khatibbody.jpg|~|Sassan Khatib-Shahidi of GIT claims the compatible cartridge market has also suffered because of the flood of fakes.|~|A further problem for end users is the quality of packaging of counterfeit products. Consumables are often packaged in genuine boxes, however the product inside is often swapped for a fake. The packaging can be of excellent quality, blinding the customer to the fact that it is counterfeit. “Today counterfeiters are becoming smarter and more intelligent,” said Khalil El-Dalu, general manager, Epson Middle East. “Previously packaging on fake products was flimsy and of bad quality, whereas some counterfeiters today are producing products with packaging that looks very similar to the genuine article,” he says. “It is not easy for end customers to always know a product is genuine,” he adds. When the resellers sell in bulk they will not give 100% fake products, says Khatib-Shahidi. The normal practice is that the vendor will buy a certain percentage of official consumables at full price, a certain percentage of Chinese made consumables at slashed prices, and then mix them up for the customer’s orders. “If the customer orders 20, at least four or five are fake and that is how the resellers make their money,” says Khatib-Shahidi. Also in such outlets, vendors purchase and sell on expired products that they buy for a fraction of the real price. Many end-users can be fooled this way, because customers rarely check the expiry date on a product, Khatib-Shahidi says. Customers are also being warned to look out for illegitimate telesales outfits that are in operation, and are fooling customers into buying counterfeit products. These telesales set-ups work under the pretence that they are official distributors selling on behalf of HP, says a HP spokesperson. The customer is led to believe they are buying a genuine HP product, when in fact it is a counterfeit. Then there are what is often referred to as ‘drill and fill’ resellers flooding the market. This is the business of taking old empty consumables and simply filling them up. “We have many black sheep in our industry too,” says Khatib-Shahidi. “Compatible is one thing and refilling is another thing. We have many black sheep, who just take a product and simply refill it. They put a hole in the old product, fill it with ink, tape it up and give it back to the consumer,” he adds. In the MEA region, the vast majority of companies are still engaged in drill and fill activity, says Ryan Templar, product manager, German Imaging Technologies (GIT). Consumers mainly in the very small business sector opt to work with them due to their price advantage, according to Templar, as they are not well informed enough about the product they are buying. Consequently, buying such products causes widespread end-user dissatisfaction, according to Epson’s El-Dalu. “Users are subject to a drop on quality of print, a drop in the number of pages that the cartridge can produce. An original Epson cartridge can produce 600 pages at 5% consumption, when you buy a counterfeit product it might only produce 50,” he claims. Not only does the use of counterfeit cartridges result in poor quality prints and poor longevity of the print, but they can also end up damaging the printers. Counterfeit cartridges are usually made of sub-standard material and this affects the performance of the machine, says Sabbagh. For instance, counterfeit ink cartridges damage the print head, which is the heart of an inkjet printer and are also known to leak inks, he explains. In addition, Canon warns that counterfeit products do not contain the safety measures and quality standards that a genuine product contains. ||**||New strategies|~|Canon-Michel-3body.jpg|~|Michel Sabbah with some counterfeit Cannon products.|~|In a bid to curb counterfeiting, different consumable companies have implemented various strategies to help safeguard the interests of everyone who purchases their consumables. Canon has a two-pronged approach to tackling this issue, education and enforcement, says Sabbagh. The company recently launched its “Be sure, be safe” campaign in the Middle East, which is aimed at educating end-user and channel partners by way of media campaigns, reseller training and point-of -sale (POS) material. Under the programme Canon has made a new unique hologram for its inkjet cartridges, toners and batteries, which acts as proof that the consumable is a genuine Canon product. The new unique holograms show the word ‘Canon’ running horizontally in a number of bands, and in between the ‘ribbons’ users should see a helix design, also running horizontally, overprinted with the word ‘genuine’. The hologram has a colour-changing feature also. Upright, it should appear as an iridescent gold, but when tipped into a horizontal position, a bright, iridescent green. If this transition does not colour, Canon advises that the hologram is fake. Epson, HP and Canon say they have also been enforcing the anti-counterfeit drive by conducting raids on suspect counterfeit dealers with the help of local government bodies. El-Dalu says there are third-party investigative agencies that look for counterfeit goods on Epson’s behalf. Such anti-counterfeit agencies also work in co-operation with other vendors like HP, Canon and Lexmark, and El-Dalu claims they are a great success. “This legal action has helped reduce counterfeiting,” El-Dalu explains. “People have been taken for trial and put in jail, shops have been closed and press releases have been sent out. It has been very successful in countries where the local authorities are co-operative. Regionally this has mainly been in the UAE, but it also becoming better in Saudi Arabia,” he adds. While Khatib-Shahidi is in agreement that the authorities here are serious about the matter and willing to destroy counterfeit goods and reprimand the people in question, in the same breathe he believes that more could be done at the point of entry for counterfeits, the ports. According to Khatib-Shahidi, it is estimated that around US$38 million worth of toner cartridges are sold overall in the UAE per annum. He claims you could assume that about half of that is fake. So, US$19 million worth of toner cartridges, which translates roughly to about 300,000 cartridges per year get into the country every month. “Here in the UAE the government and the authorities are of great support, but only once the product is in town and you as a company have found the counterfeiter, located him and have evidence in hand,” says Khatib-Shahidi. “It would be much more helpful if custom controls would be of stronger nature. How else could ten thousands of counterfeit products get into the country every month?” he questions. Khatib-Shahidi on a positive note urges customs to implement stricter controls to stop counterfeiting entering the country, because once they are in it is very difficult to control them. The key message to end-users from all official consumable companies is simply chose your vendor properly. “I would say there are very few good reliable resellers with good services where you can be sure the product is reliable,” says Khatib-Shahidi. “So don’t go with a retailer because of US$2-3 worth of savings when you are not sure. You may be guaranteed a couple of dollars of savings, but you endanger your expensive equipment,” he warns. ||**||

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