Taming the Counterfeiting Epidemic

Whether their leaders know it or not, many companies are losing significant revenue to counterfeiters and unscrupulous supply chain partners. Anyone perusing handbags at a street market knows how common it is to find fake products that look identical to the real thing but might not function the same way. In some cases, this can put consumers at risk: A pharmaceutical company, for instance, discovered counterfeit versions of its product on the black market that contained no active pharmaceutical ingredients. As well, a company’s legitimate product may be diverted for unauthorized sales, as when a global electronics company discovered that distributors in its network, who had ordered components supposedly for customer repairs, were selling them on the gray market.

High-demand products in every industry are lucrative targets for fraudulent criminal activity. Unfortunately, counterfeit products are a problem that many companies do not want to acknowledge or raise to their boards or shareholders. Senior executives often try to explain away the problem, rationalizing that counterfeiters will always find a way to copy products or that piracy represents only a small percentage of sales and is not worth going after. That plays right into the hands of what counterfeiters want businesses to do: ignore them.

When companies do begin to quantify the level to which counterfeiters are affecting their bottom lines, they may attack the problem with piecemeal approaches to try to prevent it from growing. But that’s not enough.

Our research suggests that successfully combating counterfeits requires the attention of a broad collection of organizational functions. It works best with a multilayered strategy encompassing diverse methods and engaging the entire organization and its partners.

We recommend that organizations tackle counterfeiting with a cohesive plan for identifying, containing, and preventing it.