You've got to hand it to any operation that can fake, not just a product, but an entire store. Five facilities in China purporting to be Apple Stores have been targeted by authorities as counterfeit. As it turns out, the stores weren't selling bogus products — the stores themselves were fake. They weren’t operating under any kind of license from Apple Inc.
Chinese authorities have moved to shut down the stores for not having the right business permits. While this sounds a bit like arresting Al Capone for tax evasion, it's the best they can do for the moment. Nobody's really clear on whether a store's “look and feel” can be copyrighted or patented in China. It's an interesting dilemma.
This idea of licensing is one of the key issues driving the counterfeiting debate in the supply chain. In the retail or restaurant business, franchises (or licenses) are granted to private owners that agree to resell the products associated with the brand, while maintaining the brand's standards. In electronics distribution, franchises are granted by suppliers to distributors and manufacturers' reps. Franchises allow distributors to resell components, pass on the manufacturer's warranty, and provide certain other rights such as returns or discounts. They are in many ways worth their weight in gold: In the days when certain suppliers wouldn't be sold alongside others, franchises could make or break a distribution company. Nowadays they are being used in an equally high-stakes battle: authorized versus non-authorized distribution.
The US Department of Defense has recently enacted a policy that its subcontractors cannot source from non-authorized distributors. This is understandable: Aside from the manufacturer, authorized distribution is the only way to guarantee you are buying factory-made product. But this is a tough situation for distributors that resell legitimate products but may not be franchised by suppliers. EBN will tackle that subject in a Live Chat Thursday, July 28, at noon with SolTec CEO Dawn Gluskin. Log in here to join us.
Authorized distribution has worked hard to distinguish itself from “brokers,” which in my mind differ from many non-authorized distributors. Brokers are opportunistic buyers and sellers that purchase inventory from anyone who is selling it. It doesn't take much to set up a broker firm: A little money upfront and a phone, fax, and URL, and you're pretty much in business. This kind of company deluged the electronics industry before the tech bubble burst in 2000/2001 and a lot of buyers got burned. Brokers sold product for less than market price; sold hard-to-find products at a massive profit; and then many disappeared off the face of the Earth. They deservedly earned the reputation for being less than reliable sources of product (and selling less than reliable products).
Authorized distributors can safely say they are the only source of supplier-guaranteed products. Like the Apple Stores, they are licensed by the brand owners to resell their wares. This doesn't necessarily mean other stores don't sell legitimate products — there is a lot of factory-made inventory floating around in the open market. As long as the product is authentic, does is matter which store you buy it from? I can't answer that question, but I'd like to hear from readers: What is that “franchised” label worth to you?