Sources of Counterfeit Products

In the history of the world, counterfeiting in China is perceived to be the most serious IPR infringement problem, as shown by Chart 1. On the other hand, Figure 2, shows the evolution of counterfeiting in the People’s Republic of China. Based on the study pioneered by the PRC State Council Research and Development Center, an estimate of 19-24 billion dollars worth of counterfeit goods flooded the economy.

On the other hand, brand owners in China also said that about 15 to 20% of all the well-known brands in China are counterfeit and estimated their loss to be in the tens of billions of dollars, Chow (1) mentions. Chart 1. (OECD 61). The difference between counterfeit and genuine articles in China is no longer obvious but the price gap is very obvious. As a result, counterfeit products have created a huge market both inside and outside China, making it the largest producer of counterfeit goods.

The government then is facing a dilemma, on how to combat the counterfeiters yet at the same time, cope with the demands of the market. Even after its three year membership in the World Trade Organization, it is very obvious that the People’s Republic of China was not yet able to address the weaknesses of its IPR enforcement system and that the protection of these rights have not been met according to the standards clearly stipulated by the TRIPS agreement.

Because of this, China is being called to improve its efforts in making sure that these rights are addressed especially in the areas where rules should be laid out with regard to the investigation, prosecution and imposition of liability in criminal cases which involve the infringement of IPR. Foreign businesses in China are already losing huge amounts of money due to this ever growing problem. ? Figure 1. The Evolution of Counterfeiting in China (Kearney 2). ? Several factors are seen why counterfeiting and IPR infringement has started in China and helped in the progress it is experiencing now.

One of these factors is market demand. The study of Gentry et al. , (as cited by Yao 118), consumers reach for a specific brand and are willing to compromise on the product. This is generally the idea behind a counterfeit as these fake products offers consumers a chance to separate the brand from the product. This usually happens in the so-called transition economies where people are willing to spend a certain percentage from their income to buy symbolic Western products (Yao 218). It is because of this that counterfeiting becomes very popular in less developed countries such as China.

People patronize these products because of the following (Yao 118): (1) the counterfeits allow consumers to try a low-grade version with the intent of purchasing the authentic item if the trial is successful; (2) counterfeits generally have a lesser value for lesser cost, which is an acceptable compromise and at times, desirable, one given the initial outlay of expenditures required; and (3) Counterfeits have greatly improved due to the presence and popularity of cheap, high quality technology.

Figure summarizes the reasons why counterfeit products are very popular in the global setting. Figure 2. Conditions Favoring Counterfeiting and Piracy (OECD 40). Without a doubt, these kinds of goods generally provide its consumers with good brand names at a lower price although their quality, contents and package are not as good as the authentic ones.

Low-income individuals coming from developing countries such as China tend to purchase counterfeit goods as these can be good substitutes for brand-new authentic ones. The people have strong preferences for popular brand names, such as Nike and Polo, over cheaper, local names. However, without the ability to buy the authentic ones due to their low income, buying fakes may be a very good option for them at the expense of the manufacturers of the genuine goods, Yao (119) explains.