Fake watching

The counterfeit industry is booming and costing the business world billions in lost profits, manpower and legal fees, the problem is, things are getting worse. CEO Middle East examines how a select group of companies and their senior executives are fighting back against a rising tide of illicit goods

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By  James Bennett Published  July 6, 2006

|~||~||~|If we had to deal with one entity and knock on only one door it would be a dream for us,” says Brand Protection Group chairman Omar Shteiwi, also regional intellectual property advisor for Nestle Middle East. Whenever counterfeiting is mentioned in any boardroom or top-level meeting, Shteiwi’s dream is also one shared by thousands of chief executives, governments, customs authorities and companies across the world. Counterfeiting, illicit trade, the infringement and violation of exclusive rights and trademarks as well as unauthorised reproduction of intellectual property rights, also called copycatting, are some of the most damaging array of criminal activities a business can face during its history – and the battle in the Middle East is currently being lost. At a global level companies were cheated out of an estimated grand total of more than US $500 billion (AED1.8 trillion) in 2005, according to the BPG, while on a regional level the Middle East saw US $3.3 billion (AED12 billion) slip down the drain faster than you can say ‘fake Prada handbags’. But does the region have itself to blame? The Middle East and a number of its countries including Jordan and Yemen, as well as its coastal nations including the UAE, is one of the world’s biggest transit hubs for counterfeit goods with a vast number of cheap, imitation products produced in Asia (between 80% to 95% in China) floating into the region’s ports and through many of its free zones. Unfortunately many of the free zones we contacted refused to comment. Regionally speaking, however, software piracy, for example, declined last year. According to the Business Software Alliance (BSA) and market researchers IDC, Middle East software piracy rates dropped from 58% to 57% in 2005, while global piracy levels remained flat at 35%. The study showed that the UAE posted the lowest piracy rate (34%) in the region for the tenth consecutive year. In the pharmaceutical sector around 41% of counterfeit drugs seized in 2005 came from the Far East, while 35% came from North Asia. The Middle East, Africa and Europe accounted for 8% each. Nick Hart, brand protection director at Unilever and one of the founding members of the BPG says that over the past six years the pharmaceutical giant has seized an enormous US $70 million in counterfeit Unilever products in the GCC, with close to US $7 million this year alone. On average Unilever additionally spends roughly between US $3 to $4 million each year on manpower and legal fees in trying to stop counterfeiters in their tracks. The most recent example, an illegal shampoo factory in the Kingdom of Saudi Arabia (KSA). “Of course it is a loss of income and profits are hit hard, but it is also brand equity that takes a severe hit. The counterfeit doesn’t deliver the benefit of the original and can really harm the brand and the customer,” Hart says. “You can tell with toothpaste, example, but imagine when children use counterfeit skincare or sun lotion, they can be badly burnt and the health and safety risks can be very high, while the damage can also be very long-term.” Health and safety is a huge issue for companies in the Middle East with pharmaceutical counterfeits high on the agenda for criminals. A review by the World Health Organisation (WHO) entitled ‘global trade in counterfeit drugs’, found that 60% of fake medicine had no active ingredients, 16% had incorrect ingredients, while 17% had the incorrect amount. According to statistics released by Dubai Customs, injected medicines, including beauty products such as Botox and steroids, accounted for the bulk (38%) of counterfeit medicines seized in 2005, assorted medicines 23%, followed by Viagra tablets, herbal medicines, and medicines for the treatment of AIDS. According to WHO, the most frequently counterfeited medicines in wealthier countries are cholesterol-lowering medicines and drugs used for the treatment of growth hormone deficiency and for cancer. In developing countries the most counterfeited medicines are those used to treat life-threatening conditions such as malaria, tuberculosis and HIV/AIDS. Counterfeiters are not concerned with what or who they damage. Hart says that one variant of Unilever’s skincare brands was spread across the Middle East and Asia with such speed and quantity, and that the quality of the packaging was so effective, that it flooded the market and Unilever’s own product had to be removed from high street shelves. “Their speed to market is phenomenal, turning round products in days,” says Hart. “In one instance the counterfeiters copied one of our launch packs from a complex mould in less than five weeks. In general, from the time we launch we fall into a window of three months before fakes start to appear.” Counterfeiters are able to move quickly, taking the original packaging, scanning the product and sending it off to the printers for mass distribution. Robert Taylor-Hughes, general manager at cosmetics company Beiersdorf Middle East, that produces Nivea, says that if customers use a fake product that is similar to the original and they are not satisfied, “99% won’t check whether it’s genuine or not, they’ll put it down to experience and say, ‘well I’m not using that again, it’s rubbish’. You’ve lost that customer for a lifetime.” Hart adds that Unilever and other brands in the Middle East are becoming more responsive to the problem but that because counterfeiting has become so profitable to those involved, there are also an increasing number of counterfeit products on the market. “All they have to do is pick up the pack and reproduce it. We, on the other hand, have to pay tax, make sure we are environmentally friendly and follow strict guidelines. They don’t bother with any of that.” The BPG, however, does bother and thanks to executives such as Hart, Taylor-Hughes and co-founder Warren Hayday, general manager of General Motors in the Middle East, regional and international businesses based in the region have come together and are starting to fight back. The group now comprises 15 companies including Nestle, BMW and British American Tobacco, with a further five on the cards to join by the end of the year. Hart says that it took him two years of “hard slog” to get the body off the ground due to bureaucratic registration issues in Dubai. He adds that the difficulty now will be to convince companies that it takes persistence and a great deal of effort before they begin to reap the rewards of fighting back against global counterfeiters. “Instant benefits are rare,” says Hart. One of the issues CEOs and their businesses face in the Middle East is the enormous differences in rules in each country. The UAE’s seven emirates, for example, each deal with counterfeiting on a different scale of importance, applying a hybrid of punishments and penalties with varying degrees of severity, but as many companies will frustratingly know, often leniency. The BPG says it would like to see a united federal Intellectual Property Rights (IPR) body as well as a common law introduced with stricter penalties and more resources dedicated to cracking down on criminals. It seems, in part, that the UAE authorities have listened. The Dubai Tourism and Commerce Marketing department in conjunction with the Dubai Department of Economic Development (DED) and the Ministry of Labour, Dubai police and the Dubai Naturalisation and Residency Department, recently said it would initiate action against, and even deport, vendors who sell counterfeit brands and products. The DED also has the power to cancel business licences of those found selling fake goods. The entire region, however, needs to react in a similar way if positive results are to be achieved. Scott Butler, CEO of the Arabian Anti-Piracy Association highlights Bahrain’s IT piracy as an issue and says that despite the Bahraini authorities’ efforts to protect intellectual property rights, more could be done. “Drastic steps are necessary to limit this practice, failing which, the Kingdom may lose the trust of software developers and hinder their investing in the country.” Chief executives are also often forced to confront the varying degrees in attitudes to counterfeiting shown by countries and their relevant authorities in the Middle East. Hart says that it is “very rare” for judges and police in the region to give maximum sentences, and that it is often still seen by many governments as a ‘soft crime’. One company that has stepped up its efforts in the fight against lost profits and potential negative brand image due to counterfeiting is automobile spare parts manufacturer Bosch. It estimates that the spare parts market is worth around US $11 billion worldwide. In conjunction with the Saudi authorities, its Middle East division has conducted over 40 raids in the Kingdom and has also recently met several officials from the Dubai Ports, Customs and Free Zone Corporation to assist them in differentiating between genuine and counterfeit spare parts. Bosch is also currently developing a public awareness plan designed to educate the public and the corporate world on how the use of genuine spare parts can increase the longevity of a vehicle and lead to trouble-free performance. Oleg Riabtsev, general manager at Bosch Automotive aftermarket in the Middle East is spearheading the group’s campaign to beat the counterfeiters and says that combating the criminals in the region requires “long and sustained efforts from companies, governments and law enforcement officials”. The road to preventing counterfeiters from dominating and, in some cases, overtaking the genuine article will be a long and arduous journey, however, it has begun and awareness at boardroom level is rapidly spreading. And with organisations such as the BPG encouraging more CEOs in the Middle East to sign on the dotted line and to join the fight against lost profits, the fake watchers are gaining strength day by day.||**||

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