Counterfeit showdown

A special ECN investigation has discovered that the trade of counterfeit mobile phone accessories is rife in Dubai, with distributors and government authorities at loggerheads to stop it.

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By  Aaron Greenwood Published  October 5, 2006

|~|fake-phones200.gif|~|Chinese authorities destroy another batch of fake Nokia accessories destined for foreign shores. Regional trade in counterfeit accessories is costing vendors and distributors miilions of dollars in lost revenue annually.|~|Beyond the glitzy mega-malls and hypermarkets that have come to characterise the Dubai retail landscape lies a reminder of the Emirate’s more humble origins. Dubai’s economy was founded on independent wholesale trading, a sector that thrives to this day on the Deira docks, despite being literally overshadowed by the skyscrapers that have come to define the city’s skyline and its economic prosperity. Dubai’s rapid transition from Bedouin trading post to regional economic powerhouse has undoubtedly not been without its teething problems. In addition to the multinational corporations, the immense commercial opportunities provided by Dubai’s economic boom has attracted opportunists keen to make their fortunes whatever the risk or ultimate cost. These budding capitalists lie at the heart of counterfeit goods trade that is flourishing in ‘old’ Dubai’s trading heartland around Baniyas Square, Deira. A recent ECN investigation uncovered literally hundreds of counterfeit mobile phone accessories on sale in dozens of stores. The accessories, which included vendor branded batteries, chargers, headsets and handset cases, were generously stocked on shelves, and were quite often co-located with original products, despite outnumbering them at times by 10 to one. Retail staff in these stores were happy to identify fake goods from originals, and offered huge discounts for bulk wholesale orders. While most of the products were purportedly manufactured in China, some staff owners claimed to have sourced certain products from suppliers based in the UAE. However, they could not confirm whether these products had been manufactured in the country or elsewhere. ECN did purchase a counterfeit Motorola C300 battery (pictured left) from one store for safety testing, which was co-branded ‘Motorola’ and ‘Vodafone’, despite the fact that the UK-headquartered cellular network operator has no presence in the region, nor does it supply batteries in conjunction with Motorola to international markets. The packaging claimed the battery was manufactured in England, while the battery itself was branded ‘Made in Japan’. When ECN requested clarification, a representative of the local supplier, vodafone Trading, confirmed the company had no connection with the global cellular network giant, but did however source its batteries “from Dubai”, adding to the confusion. Despite a recent worldwide crackdown on counterfeit mobile phone batteries following numerous cases of fake Nokia-branded products exploding spontaneously, batteries accounted for the vast bulk of fake goods on sale in Deira. Counterfeit goods retailers were oblivious to the issue when questioned by ECN, despite our best efforts to stress the related safety issues of non-original batteries and the danger they can pose to users. Some fake Nokia batteries were even branded with a warranty logo and holographic stamp “guaranteeing authenticity”, similar to those employed by Dubai-based Nokia accessories distributor Techmart on genuine Nokia products. Techmart president M. P. Sharma claims that counterfeit mobile phone accessories, particularly batteries, pose a major threat to the safety of consumers. “Mobile phone batteries that are not manufactured to certain standards can be very dangerous,” he says. “It is a major safety issue that consumers need to be made aware of.” Sharma confirms that the distribution of these goods, not only in Dubai but throughout the region, is rife, and presents one of the greatest commercial challenges to legitimate accessories distributors such as Techmart. He believes that in the UAE, sales of fake mobile accessories equal those of genuine products. While this may seem astonishing, his estimation that 90% of all mobile accessories sold in Saudi Arabia are non-genuine is truly alarming. “Counterfeiting is rampant in this part of the world despite laws protecting proprietary products,” he says. “In terms of policing in the region, the situation is far from satisfactory, which means counterfeit traders are able to make money. In Saudi, the business is huge. “Fake goods are often produced to such high standards in terms of packaging and branding even Nokia struggles to identify them from genuine items. However, once you put the products to the test, it becomes clearly obvious how poorly they are manufactured and what risks they present.” Sharma claims that the UAE’s liberalised trading environment has been exploited to the benefit of counterfeit goods manufacturers and traders, who have established operations in the country. “Assembly and customisation of mobile accessories is occurring in Ajman,” he claims. “Sub-standard accessories are being imported from China and then modified here, with a particular focus on features such as labels. “This process effectively circumvents Customs, because there is no law against importing unbranded accessories into the country. However, once the goods have landed it’s very difficult for the authorities to monitor their route-to-market or any modifications that may take place in the interim.”||**||Strategy under fire|~|Sharma200-.gif|~|M.P. Sharma, the president of Nokia mobile accessories distributor, Techmart, says fake goods trade is severely impacting his business.|~|Sharma says the Dubai government’s decision earlier this year to shift responsibility for policing intellectual property right (IPR) infringements from the Dubai Department of Economic Development (DDED) to Dubai Customs has had a slight but positive impact on nullifying the distribution and trade of counterfeit goods. “The new strategy adopted by the Dubai authorities is designed to target counterfeit goods trade at the point of entry,” he says. “It is a more efficient way of targeting illegal trade. Previously, we had to file a complaint with DDED which often proved a very laborious process.” The president of Samsung Gulf Electronics, Jehyoung Park, agrees with Sharma’s sentiments, adding that Sharjah and Jebel Ali Free Zone have become major hubs for the importation of counterfeit mobile phone accessories. “Dubai authorities has not taken serious action [to stop counterfeit trade],” he says. “This trade is impacting every company involved in the accessories business. “Counterfeit goods should not be allowed to land at the ports. Our authorised distributors are suffering commercially while so many other companies are making money from this business importing fake goods from China, Hong Kong and even Europe. “We commit significant resources to trying to raise consumer awareness of the dangers of counterfeit goods. Fake mobile accessories, and batteries in particular, can cause serious harm to consumers. However, Sharma claims that the current measures do not go far enough to dealing with what he claims is an escalating situation. “Nokia spends a lot of money raiding counterfeit traders and pursuing prosecution through the proper channels but here [in the UAE] the process is very complicated and the penalties so minor that there is little incentive for these businesses to cease trading,” he says. “The government keeps saying it is serious about tackling the issue but this has to show in practiceCounterfeit accessories traders do not need to make any investment in this respect. Instead, they benefit from the huge sums we invest in brand-marketing, which allows them to leverage our brand recognition in the market to sell goods at even cheaper prices.” Sharma believes the key to counteracting this situation is ensuring wholesale prices for genuine accessories remain as low as possible while ensuring widespread availability of stock and comprehensive warranties on all products. “We are placing warranties on all peripheral products for a minimum of one year to attract consumers to our range of accessories,” he says. “It is a costly exercise, but it breeds customer loyalty and goes someway to counteracting the threat of counterfeit goods.” ||**||Government fight back|~|P1moto200.gif|~|The fake Motorola C300 purchased by ECN in Deira.|~|Mohammed Hilal Al Murooshdi, director of Compliance Division, DDED, not surprisingly takes exception to many of the criticisms levelled at his department’s approach to dealing with counterfeit goods trade in Dubai. He believes that despite evidence to the contrary on the streets of Deira, “the counterfeit goods situation is under control” in the Emirate. “We find that the majority of counterfeit products sold in Dubai are manufactured in China. We haven’t come across any cases to date where products have been manufactured in Sharjah or Jebel Ali Free Zone, as some critics would suggest,” he says. Al Murooshdi says the DDED typically pursues counterfeit cases after being tipped off by vendors or distributors. “We also conduct random searches three to four times per year and if we locate counterfeit goods we remove them from the store and destroy them,” he explains. Al Murooshdi argues that mobile accessories vendors and distributors have failed to provide adequate support to the DDED’s efforts to tackle counterfeit goods trade in Dubai. “We are quite often caught ‘running behind’ the counterfeiters,” he says. “But unfortunately, we find the legitimate distributors are not interested in cooperating with us. They expect us to pursue every complaint but are not always willing to help us to do our job. “We try our best and over the past two years we have enjoyed some success in tackling counterfeit trade. But the local agents representing mobile accessories vendors often don’t bother to follow up on certain cases with us. “Given the progress that has been made in terms of mobile technology and the influx of new accessories on the market, we have put in numerous requests to these companies to provide training services to our inspectors, so they can readily identify fake products. “However these companies prefer to contact the media about these issues rather than us. They are talking more than working. We cannot deal with them in this manner.” Al Murooshdi claims his department has submitted “numerous requests” to high profile accessories vendors and their distribution partners in the Middle East in a bid to encourage greater cooperation but to no avail. “We have told them repeatedly that we need help,” he says. “Nokia, for example, releases dozens of handsets each year and each one of these handsets has its own set of accessories. How are we meant to identify the fake products from the genuine items in the marketplace if Nokia or its distributors don’t provide us with this information?” Al Murooshdi also denies claims that the financial penalties for counterfeit traders, which range from Dh5000 (US$1360) to Dh15,000 (US$4000), are insufficient. “If we identify fake goods in a store, the retailer is automatically fined Dh5000 (US$1360) and we destroy the goods,” he explains. “Repeat violators are very heavily penalised. Typically, we will shutdown their business and fine them Dh15,000, and sometimes refer the case to legal authorities for prosecution.” Ultimately, Al Murooshdi’s comments confirm that greater cooperation is required on the part of authorities and genuine mobile accessories suppliers in a bid to tackle the spread of counterfeit goods not only in the UAE, but across the entire Middle East region. These efforts should be supported by marketing campaigns targeting consumers and stressing the dangers posed by fake accessories. As Al Murooshdi says, reaching consumers is key to tackling counterfeit trade. “Compared to the overall economic development of Dubai and the amount of business generated here, counterfeit goods only represent a small percentage of overall trade,” argues Al Murooshdi. “Consumers know that they aren’t going to be able to purchase a genuine accessory for Dh3.00, and counterfeit goods traders aren’t going to be able to pass off products as genuine accessories for that price. There is a genuine understanding there.”||**||

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