We at EBN have been exploring the issue of social responsibility for a while in some of Barbara Jorgensen’s columns, but I would like to take the conversation further by looking at the issue of counterfeiting and substandard goods as an offshoot of this topic. (See: Continental Divides, Don’t Dictate – Collaborate, and Profitability Needn't Be Sacrificed for Social Responsibility.)
Counterfeiting is an outright crime that allows a manufacturer to take advantage of and piggyback on the goodwill already created by another company’s brand and identity. But how should we classify substandard goods? Should this be merely a crime, or is it also a moral problem for the entire society?
Interestingly, both counterfeiting and the incidence of substandard goods in global commerce have increased exponentially with the rise of China as the world's production center. It is tempting to say there is a negative side to the high level of outsourcing to China, as the country ranks among the world’s greatest exporter of counterfeit goods, even as it is a supplier of quality goods as well. Apparently, 64 per cent of seized articles within the EU came from China, which includes 81 per cent of counterfeit electronics. (See China tops the list of counterfeit goods in Europe and A serious problem for everyone.)
The problem is worse in developing economies. More than 80 percent of electronics, mobile phones, equipment, and manufacturing tools that flow into most developing countries are made in China, and a good percentage of them are either counterfeit products or duplicates of dubious quality. As a matter of fact, the term “Made in China” in certain parts of the developing world has become synonymous with substandard products.
Apart from the impact of counterfeit goods, there are also close imitations of brand-name products, including tags like "SONNY," instead of Sony Corp. (NYSE: SNE), or "LG," with a logo different from that of LG Electronics Inc. (London: LGLD; Korea: 6657.KS) , which are usually lower-quality goods with packaging similar to the original.
The issue of substandard products is to me a greater problem for the electronics industry, corporations, and consumers. It is true that original equipment can be expensive, sometimes too expensive for young companies, so it is quite tempting to look for cheaper alternatives, which, most of the time, turn out to be either counterfeited or substandard products. The equipment or component purchased for about 20 to 50 percent less in many cases has a shorter lifespan or performs poorly.
The performance of some of these substandard goods in the long run actually make them more expensive to the small organization trying to save costs by using them, while also limiting its chances of competitiveness on the market, damaging its reputation, and reducing its efficiency. George Karalias of Rochester Electronics is planning to handle these issues, as he mentioned in his column here, but I plan to probe more into the substandard goods problem in future articles.
Is this as huge a problem as I think it is? And what measures or regulations are in place to control the flow of substandard goods?