Keeping up with the copycats

Thailand is on a drive to clamp down on counterfeit branded goods with its “Stop Fake Goods” campaign aimed at tourists during the end of last year.

The country wants to clean up its image on the world stage. Last year, the OECD (Organisation Economic Cooperation and Development) and the European Union’s Intellectual Property Office ranked Thailand fourth in the world’s top five countries where most fake goods originate. The ranking is dominated by Asian countries with China in the first spot, followed by Turkey, Singapore, Thailand and India.

So far the government’s efforts have been successful. The Thai Ministry of Commerce said this year that the number of counterfeit products has been reduced by more than 85 percent.

According to a report released by Global Financial Integrity, the international market for copycats is huge. In their March 2017 report, the value of global trade in counterfeit and pirated goods is estimated to be between US$923 billion to US$1.13 trillion annually.

Copycats are popular because they confer on consumers the social status associated with luxury goods without the high price. In our joint study on counterfeits at the National University of Singapore Business School and University of California Los Angeles, we had three observations as to why copycats are more likely to successfully enter the marketplace.

First, fakes are usually of high resemblance but low quality. In China, for instance, low-end ill-equipped factories producing imitation goods are mindful that by producing better quality copycats, they run the risk of encroaching on the profits of genuine brands. If they maintain a lower quality, the impact on genuine brands is low and genuine brands “tolerate” their presence. These factories also avoid attracting the type of attention that results in calls for enforcement of anti-counterfeit measures.

Second, regardless of actual entry of a copycat, the potential threat is sufficient to force luxury brands to lower the prices of their genuine goods.

There are some companies that have introduced second-liners at lower prices to beat the copycat competition. British Premier League’s Liverpool Football Club entered Asia thinking that merchandise sales will thrive given the popularity of soccer in Asia.

However, it found it had to compete with a rampant counterfeit market. It struggled as consumers can purchase similar shirts in sporting goods stores at a fraction of the cost.

Even tourists from Europe are known to purchase counterfeit jerseys in bulk from countries such as Thailand to bring back to their home countries to sell.

For Liverpool, the club’s solution is to cut the cost of its latest shirt from US$87 to US$30, in an attempt to convince Asian consumers to buy its official merchandise. While the low-cost shirt may look similar to the official jersey, it is redesigned with simpler materials and is not made by the club’s official sponsor, New Balance.

In an effort to fight back against the counterfeit market, luxury brands such as Burberry, Cartier, Chanel and Prada aligned their pricing models across Asia and Europe to have control over their brand.

Despite such discounts, it is still challenging to compete with fakes that look similar but cost much less. Moreover, price cuts like those undertaken by Liverpool risk a potential backlash from their home-based fans who already unhappy with the high price they have to pay now realize there are cheaper versions of the originals available outside their country.

That leads to our final observation on the impact of counterfeits on consumers’ social status. While counterfeits do not measure up to the real thing, consumers still buy them as it offers the opportunity to gain a higher “social status,” as long as they are not discovered. In the event that they are found out, they may be humiliated or shunned by their peers.

The ubiquitous counterfeit market has luxury brands to rethink its strategy for the region.  As a response to market demands, brands have either resorted to creating a genuine copycat, if you will, of its product and/or lowered the cost by more than half to break into the region’s markets.

While the data from the Thai Ministry of Commerce indicates the effort made so far has been successful, the challenge now is to ensure that the success is sustained.

The practice of counterfeiting is almost part of the local culture, with even housewives and students taking part in the manufacturing and distribution process. Thai businesses are also resourceful and innovative to reinvent themselves to stay ahead of the law.

In other regional markets, many firms continue to be able to produce and sell imitation products because of efficient supply networks, inconsistent law enforcement and large underserved markets. When there’s demand for counterfeits, manufacturers will find a way to provide the supply.

For Thailand to sustain its anti-counterfeiting efforts, there has to be a holistic long-term programme including public education efforts and stronger law enforcement to deter people from not only selling but also buying counterfeits.

Sarah Gao Yini, a PhD student in Analytics and Operations at NUS Business School, and Christopher Tang, a University Distinguished Professor and Edward Carter Professor of Business Administration at the UCLA Anderson School of Management contributed to this article.