Knocked out by knock-offs: Counterfeit products, mostly from China, are hurting Indian brands

Knockoff brands have been the bane of the Indian branded market for decades now, with the country being fifth in the list of trading fake goods. It’s an estimated half a trillion-dollar global knockoffs market, with China taking the lion’s share at around 60% according to a report by Organisation for Economic Co-operation and Development (OECD) and the European Union’s Intellectual Property Office.

“Up to 5% of goods imported into the European Union are fakes. Most originate in middle income or emerging countries, with China the top producer,” said an analyst from the study.

Many of the headlines last year were about why “Make in India” is facing heat from “Fake in India” with many brands coming from the West complaining about IP protection and laws around copyright.

This concern isn’t new, as Gary Locke, US commerce secretary knew of the impact of entering India over eight years ago.

“US businesses need assurances that when they come to India, they’ll be operating in a secure and reliable environment for intellectual property.”, Locke told a group of Indian executives.

The concerns were right from a business stand-point, as India had a growing economy with multiple opportunities back then.

But the advantage could also play in the favour of Indian brands who find that the entrants of foreign players could add immense value.

Although counterfeit goods may seem harmless at first, their overarching reach in the brand market are determinantal to brand equity. Counterfeiting in the cosmetics and pharmaceuticals space is both dangerous for brands and customers. Early last year, the Food and Drug Administration agency (FDA) busted a long standing fake cosmetics racket where local shops in Mumbai were creating spurious knockoffs of L'Oreal, Lakme, Revlon, Olay, Elle 18, Nivea, etc.

A 2015, FICCI CASCADE (Committee Against Smuggling and Counterfeiting Activities) study also demonstrated that the loss to government was near Rs 6,000 crore due to the knockoffs market in the FMCG space alone. What’s stunning, is that almost 22% of the packaged foods industry was lost to the grey market that year. This means that more than one in five packaged foods you’re consuming in India may be counterfeit.

According to R K Jain, group president of Uflex, one of India’s largest packaging companies, the problem lies in the trust we place in packaging. When we falsely assume that no brand can copy another’s packaging and quality, is when customers are misled, he said. Brands need to ensure that their product’s packaging is superlative and has all the right checks and balances to detract imitators.

“Imagine your favourite coffee brand being sold loose in a polyethylene or paper pack. Would you vouch for the authenticity of such a product? It is only through packaging that the brand custodians can include special brand protection features for the consumers to be cautious and mindful.”

While this is the situation offline, online can be adding to the problem of fake goods. With massive sales events launched by online marketplaces, fakers can easily hide their imitations and sell it at margin even after giving 60-70% discounts. Dinesh Anand, partner and leader of forensic services at PwC India, states that around 25% of online products sold would be counterfeit according to his personal assessment. Everyday 100 websites start off and 100 others shut down. The cycle continues.

What brands can do is learn from what industry leaders are doing to defeat imitation products. Hindustan Unilever (HUL) launched a programme called the Combating Unfair Competition (CUC) programme, in which they built a three-pillar strategy to fighting counterfeiters. They aimed to A) Build a dedicated team with resources allocated, B) Educate consumers about IP and liaising with government officials, and C) Work with government on regulation and enforcement.

The brunt of the problem is borne by the rural and semi-rural communities that have poor consumer education about national brands. KPMG partner Rajat Wahi believes that it’s a huge issue that brands need to tackle before losing trust and reputation in these key markets.

"Counterfeit goods is a huge issue that needs to be addressed. Counterfeiting is more prevalent in rural and semi-urban areas compared to urban areas.”

Brands across India are trying their best to address the counterfeit market head on, with consumer education and government advocacy programs.

However, the race is long, and the challenges are multifold and brands may need to chalk it off as a “cost of business”.

ADDRESSING WHAT’S FAKE IN INDIA

• Counterfeiting in the cosmetics and pharmaceuticals space is both dangerous for brands and customers
   
• Brands need to ensure that their product’s packaging is superlative