Reality Check: Counterfeiting

There's a classic Pogo cartoon in which the main character concludes, “We have met the enemy and he is us.” This pretty much sums up the industry efforts to battle the influx of counterfeit components into the electronics supply chain.

“Companies attempting to manage the growing challenge of counterfeit electronic components face a range of government- and industry-related pitfalls that make it virtually impossible to eliminate all risk associated with the plague of fake parts,” IHS iSuppli said in a press release on the ERAI Executive Conference.

Anti-counterfeiting measures were one of the topics covered at last week’s conference, which IHS co-hosted.

The very people that regulations are designed to protect — consumers — are unwittingly a large part of the problem, Bob Braasch, senior director of supply chain for IHS, said at the conference.

“People don’t hold onto their old electronic devices,” Braasch told the event attendees. “A three-year-old cellphone is ancient, so people are constantly upgrading to the latest device. As the world economy improves and as technology continues to develop, people increasingly will be looking for the latest technology. All of this electronics consumerism translates into e-waste.”
Braasch noted that 58 percent of e-waste generated by the United States is shipped to developing countries. All too often, electronic components such as semiconductors are culled from this waste and then returned to the U.S. and other developed countries in the form of counterfeit parts.

As fake parts have proliferated, governments have tried to stem the tide by developing more stringent regulations. One of them is the National Defense Authorization Act (NDAA), which was signed into law on Dec. 31. The law is meant to protect the defense industry from fake electronic goods. However, the language of the law apparently makes it difficult to comply with its requirements.

Among other things, the NDAA mandates that DoD contractors and subcontractors obtain parts “from the original manufacturers of the parts or their authorized dealers, or from trusted suppliers who obtain such parts exclusively from the original manufacturers of the parts or their authorized dealers.” However, Kirsten M. Koepsel, director of legal affairs and tax at the Aerospace Industries Association (AIA), said at the conference that the definition of “trusted supplier” is unclear. The same goes for “suspect counterfeit part.” However, according to the IHS release:

Despite such ambiguities, the burden appears to fall on DoD contractors and subcontractors to report any cases of suspect counterfeit parts to the Government Industry Data Exchange Program (GIDEP).
The NDAA also places the onus for detecting counterfeit parts upon importers of devices, calling upon them to arrange for examination and release of the goods.

The experts concluded that, regardless of what steps companies take, it is virtually impossible to eliminate risk.

The industry cannot afford to do nothing. Too many electronics parts go into mission-critical applications such as defense and aerospace equipment. But I'm not sure that regulating the purchasing of parts is the correct approach. Once devices are in the supply chain, they are difficult to track and detect. A better step would be to regulate the collection and disposal of substandard components (from factories) and electronics equipment (from consumers). This would cut off a major source for counterfeiters. It's a lot easier to avoid counterfeits if they don't exist in the first place.

10 comments on “Reality Check: Counterfeiting

  1. Nemos
    May 21, 2012

    58 percent of e-waste generated by the United States is shipped to developing countries”

    As I have said before the only solution to the problem called counterfeit is to control the e waste. If we control the e waste, then we will eliminate the counterfeit parts.

  2. _hm
    May 21, 2012

    If punishment for selling or buying counterfeit parts is inclreased to next severe lelvel, both seller and buyers will be more detered and it will help reduce this proliferation.


  3. prabhakar_deosthali
    May 22, 2012

    Making regulations is one thing and implementing the processes to adhere to the regulations is another thing. The adherence is much more complicated and is more paper work than the actual technical control and that is where the seepage of the counterfeit parts occur.

  4. Barbara Jorgensen
    May 22, 2012

    @nemos: seems simple, doesn't it? Not only is the US exporting waste to developing nations, but we aren't even following up to make sure it is disposed of properly. Instead of throwing more regulations at the DoD, its contractors and suppliers (although some regs are essential), why not make sure the waste is actually gone? I have to think this is less expensive than following breadcrumbs back to the counterfieters, who won't be prosecuted anyway unless they are “caught” in the US.

    May 22, 2012

    It is normally best to address a problem by targeting the consumer of the components. ie the product manufacturer.  However like everything though, a multipronged approach can only be a good thing.

  6. chipmonk
    May 22, 2012

    “Free” trade with China has been a huge disaster for the US – a trade deficit of $ 350 billion per year for the last 20 years, xfer and theft of IP, higher cost of commodities, cost of unemployment & loss of tax base here in the US, having to compromise on our standards of human rights due to pressure from China directed through Wall st. and US MNCs who profit from China. It is a cancer that has seriously compromised US competitiveness,  economy, society and ultimately our politics, democracy and values.

    Contact / interaction with China has changed the US for the WORSE.

    So no surprise about the counterfeit parts be it in avionics or jet engines in the military. Contact with China with its still regimented society and population traditionally more concerned about material affluence over democracy has enabled our own shysters to bring in counterfeit components in the name of “free” market and then use a part of their profit / loot to buy lawyers, politicians and the 'free' media here.

  7. Barbara Jorgensen
    May 22, 2012

    I don't necessarily disagree that incidents of counterfieting can be linked to trade with China, but I would also point to the following that was mentioned in the above article:

    Braasch noted that 58 percent of e-waste generated by the United States is shipped to developing countries. All too often, electronic components such as semiconductors are culled from this waste and then returned to the U.S. and other developed countries in the form of counterfeit parts.

    The US could do better in its disposal practices.

  8. Barbara Jorgensen
    May 22, 2012

    FLYINGSCOT: Food for thought. There is an advantage to targeting that part of the supply chain as much of the product is funneled to a centralized site–whether it be an EMS or OEM, before manufacturing. It very well may be more efficient than chasing sources of supply.

  9. dalexander
    May 24, 2012

    Barbara, I found this statement on page VI of the Committee on Armed Sevices. “Inquiry into Counterfeit Electronic Parts in the Department of Defense Supply Chain” report rather interesting. Our government traced 100 separate counterfeit part incidences back to their source. “China was found to be the source country for suspect counterfeit parts in an overwhelming majority of those cases, with more than 70% of the suspect parts traced to that country. The next two largest source countries were the United Kingdom and Canada. The committee identified instances in which both countries served as resale points for suspect electronic counterfeit parts from China.” The same report says that eye witnesses have seen in China ten to fifteen thousand employee staffed factories dedicated to the production of counterfeit parts. So, the Chinese government is not intervening to help curtail this problem. It is, after all, in China's political intererst to trouble our military's effectiveness however passively-aggressive their approach may be. They know they are in the driver's seat and it isn't going to be easy to get the economic car keys back from them.

  10. Barbara Jorgensen
    May 25, 2012

    Douglas: Thanks for the information. I stand corrected. (I hope I am always willing to change my mind when presented with facts!) 🙂 Those are pretty compelling numbers. I'm also glad that due diligence was conducted before the legislation was developed. I'll temper my criticism of this particular measure. I also hope it is effective. Any time a human life is at stake there should be no question regarding equipment.

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