The Economic Impact of Counterfeiting in Hong Kong

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The Economic Impact of Counterfeiting in Hong Kong

Executive Summary

The nemesis of piracy or counterfeiting is a major product of criminal activities in todays world.

With criminal activities on the rise, it is seen that counterfeiting has made deep forays in the world and is a fully-fledged industry in itself.

Counterfeiting harms the original products as well as the health and safety of genuine economic activists. It also endangers the lives and safety of the people who use them.

This essay is intended to take up the matter of counterfeiting with its many connotations and implications and also suggest ways and means by which countermeasures could be adopted to tackle it on a war footing.

Although the specter of nemesis cannot be fully eliminated, it could be controlled effectively to make our world a safer and congenial place to live in.

Introduction

Counterfeiting is the unauthorized duplication of a product protected by one or more intellectual property rights. It may also involve the unauthorized distribution of the counterfeit product, possibly with the intention to deceive the consumer as to the products authenticity. (Consumers Encouraged to Check the Pirates to Avoid Disappointment this Christmas, 2003).

Counterfeiting has been a major problem for most of the companies that own well-known international brands. It is not restricted to any particular category, and major areas include, electronics, music, fashion apparel, computer software, etc. Counterfeit products are also sold as cheap imitations. Customers who buy them know that it is not genuine and just want to dupe others into showing off that he or she owns an expensive brand. This is a proposal to survey the extent of counterfeiting in Hong Kong. An overview of the current situation is also given.

Overview: Counterfeiting has assumed alarming proportions in recent years and it is believed by optimists to be one of the chief propellers for economic growth worldwide. It is believed to account for 7-10% of the global trade by the study conducted by OECD. It is believed that the global economy for counterfeit products runs to around the US $ 492 annually. China is the main source of counterfeit business with its burgeoning population and exponential growth. Global market review of counterfeit apparel  forecasts to 2014 (Global Market Review of Counterfeit Apparel  Forecasts to 2014, 2008). Counterfeit goods are available in plenty in Hong Kong. Proximity to China and the fact that it is governed by that country might be one of the main reasons for such a situation. Things have gone bad to such an extent that counterfeiters are even forming fake which bear the name of well-known corporations. They manufacture and market counterfeit products using the brand name of the original company. A company in Hong Kong called the Hong Kong Panasonic Company used to sell TV sets having the Panasonic brand across the city through as many as 20 outlets. It turned out that this company had no relationship whatsoever with the well-known electronics manufacturing company from Japan. Two fake good producers registered a company in Hong Kong under the name of Hong Kong Panasonic Co., Ltd, and trusted an enterprise in Shunde for manufacture, then labeling its products with Panasonic trademark and dispatched to markets nationwide. (Huge Losses, Double Standards for Chinese and Foreign Big Brands? Most Popular).

The OECD report has been a pointer to the fact that criminal activities and networks thrive on earnings from counterfeit activities, thus seriously undermining the existence of legitimate and ethical organizations. Besides the savings which consumers have by buying cheaper, substandard goods in the grey markets could be at the risk of compromising their health and safety considerations. Thus, counterfeiting business nourishes crime and criminal activists and endangers the peaceful co-existence of upright people. Further, innovation and growth areas are stifled by counterfeiting, which leaves an indelible mark on public life and organized society.

1. Moreover, more than the people who buy counterfeit goods knowingly, there is a large segment who are gullible victims of Connery, who offer substandard goods passing them off as originals. Thus, the damages caused by counterfeiting to Hong Kong or for any other country could be seen in terms of the following:
2. Effecting the health and safety of the users due to substandard and cheap products
3. The Dues to the Government out of genuine products are lost in that tax is lost
4. Money has to be spent by the Government towards fighting counterfeiting, thereby adding to budget costs, which could have been used for more productive uses
5. The coffers of the criminals are enhanced at the cost and expense of honest and hardworking citizens who are constrained to buy duplicated goods.
6. A lot of money is spent in illegal activities like bribes, hush money and secret deals that do not enter the mainstream of the countrys economy, and thus, it could be seen that to a certain extent, the criminal nexus is providing a parallel economy for counterfeit goods. (The Economic Impact of Counterfeiting and Piracy: Executive Summary. Part IV, 2007).

The existence of counterfeits and facilities to manufacture them in Hong Kong affects other countries also. For example, the US trade surplus with Hong Kong stood at $13 billion. Software piracy stood at a whopping 57% in Hong Kong and estimated losses to copyright holders are estimated to be USD 180 million, of which a large percentage would accrue to the US. Hong Kongs IPR enforcement efforts have helped reduce losses by some U.S. companies, but the rapid growth of peer-to-peer downloading from the Internet, end-use piracy, and the illicit importation and transshipment of pirated and counterfeit goodsincluding optical media and name brand apparel from mainland Chinacontinue to be problematic. (Intellectual Property Rights (IPR) Protection, HONG KONG SAR).

Suggested Steps to bring down counterfeiting and piracy:

1. Consumer survey: by interviewing consumers with questionnaires and face-to-face interviews these consumer surveys could help to glean knowledge about the experiences that the consumers have had with such goods. It could be both in terms of whether they deliberately wanted to buy the substandard spurious goods or they were duped into buying them from the shops or through internet purchases of dubious reputation.
2. Again it is also necessary to survey rights holders to develop information about Surveys of rights holders which could throw light on various product markets and the repercussions these would have on sales and investments, the value of the brand, etc. It is also necessary though interviewing the right holders to seek preventive measures to combat and reduce the instances and volume of counterfeit trading and piracy.
3. The third part of the survey would be in terms of checking with government agencies and departments, including Customs and Excise officials about the plans and policies that are effective in dealing with counterfeiting and how the Government has been dealing with these instances. It could also see the reasons due to which the government plans are not effective and ways and means by which these could be further improved.

The sample questionnaire is being provided at the end of this research study.

This particular approach has been taken up because since counterfeiting is in the contraband sector it could not be seen to get such information that would be necessary for a longitudinal study on this subject. Further, since most of the counterfeiting transactions are in the grey areas of trade and commerce, the determination of their exact volume could not be determinable and only estimate able.

It is reckoned that international trade in counterfeit and pirated products could have been in the region of US $ 200 billion in 2005. However, this figure is exclusive of internet selling and also the case of local production and distribution of pirated products and goods. If these figures were also taken into account, the figures would be in the region of around a few billion. (The Economic Impact of Counterfeiting and Piracy: Executive Summary. Part IV, 2007, P 2).

Steps initiated by the Hong Kong Government: The government has begun to take action mainly against illegal manufacturing facilities in the country. It uses the Organized and Serious Crimes Ordinance (OSCO) to deter and punish wrongdoers. Till 2007 about USD 13.7 million in assets belonging to counterfeiters have been frozen. But trade in counterfeits continues strongly, mainly through imports from China. The internet is also being used to download illegal software and the government has been unable to do anything worthwhile about these two problem areas. However, stakeholders report that large quantities of counterfeit pharmaceuticals, luxury goods, and other infringing products continue to enter Hong Kong destined for both the local market and transshipment to third countries. (Intellectual Property Rights (IPR) Protection, Trade Summary, Hong Kong Sar).

Research Design

The survey respondents will be selected through random sampling. About shop owners, only such shops that sell genuine (or counterfeit) products of well-known international brands need to be interviewed. The interviewers will be selected from willing college students with a background in statistics. The time frame of the survey is expected to be two weeks. Interviewing of consumers will be done on or near the premises where he/she has made purchases. This means that only those who have packages with them will be interviewed. This is done to avoid wasting time interviewing casual tourists who do not intend to purchase anything worthwhile. All primary data will be collected through questionnaires. The budget for the project is estimated to be $10,000. This will have to be allocated for training the interviewers, transportation to relevant locations, and back to our office. It will also include a small payment and free food for the interviewers.

Data Analysis: Interviews will be conducted on all seven days of the week except for government agencies. Importance will be given for weekends because maximum purchases are bound to happen during this period. The survey will start during the first day of the selected month itself because of salaries being paid. The sample size to be surveyed is approximately fixed as 1000 consumers (10 interviewers x 7 consumers/day x 12 days), 200 shop owners (10 interviewers x 2 shops/day x 10 days). Two days will be allotted to analyzing the data. The collected data will be analyzed and presented in tabular form. Since the data is not complicated it can be first tabulated using software like Microsoft Excel Data Analysis Tool. The tabulated data will not be in a numerical format and hence have to be converted. For example, a yes-no answer can be given numerical values yes = 1 and no=0.

A sample table is given below.

This table will be given numerical values

Microsoft Excel can calculate a lot of statistical values like mean, median, mode, standard deviation, sample variance, skewness, etc.

For questions that have more than two choices, appropriate numbers can be used. Three numbers 1,2 and three can be assigned to answers like, cooperative, hostile, and indifferent which by the way is the answer to question number 10 asked by government officials. What is the attitude of the establishments where you conduct your inspection?

An explanation of the questionnaires: This explanation will be given during the training of the interviewers. Three classes of respondents will be interviewed. They are the shop owners, relevant government agencies, and genuine consumers. Concerning government agencies and shop owners, questions 1 to 6 are common. The question of whether shop owners sell counterfeit products may not get a truthful response. This was the reason why the question of offering warranties was specifically included. All shop owners who sell genuine products do not have any problem extending the guarantee offered by the manufacturers. About consumers, the interviewer may stop the questioning if the shopper is a first-time purchaser in Hong Kong and did not have the time to test the product. The sample questionnaires are given at the end of the paper. Some of the questions asked were based on the survey done by the Intellectual Property Department, The Government of the Hong Kong Special Administrative Region. (Summary of Findings. 2006).

Limitations: The main limitation of the study is that no manufacturers are selected for the interview. The reason is that most manufacturers of counterfeit products if reports are to be believed operate from mainland China. Costs and other considerations prevent a trip to the mainland for interviews. It is also because a visit to such places for conducting interviews will not elicit any cooperation from them. Only incognito visits and collection of data will work and such a course of action is not possible at present. Certain questions are for academic interest and not of much relevance to the client. Questions like awareness of IPRs and what all are covered by IPRs are examples of such questions. Another limitation is that shop owners who sell counterfeits may not own up the fact and may affect the accuracy of the study.

Sample Questionnaires

Questionnaire 1  Shop Owners

1. Are you aware of the existence of Intellectual Property Rights (IPR) Regulations?

   • Yes
   • No
2. Which of the following do you think are covered by IPR Regulations?

   • Copyrights Trademarks Patents
   • Designs All of the options
3. How important do you think is the protection of IPRs in Hong Kong?

   • Moderately
   • Not important
   • Very
4. Do you think that IPRs are well protected in Hong Kong?

   • Yes
   • No
5. What do you think is/are effective ways to bring down counterfeiting?

   • Bring down prices of genuine prodcuts
   • Creating awareness
   • Other (Please Specify)
   • Stringent legal action

6. Are IPRs valuable for its holders?

   • Yes
   • No
7. What type of products do you deal in?

   • Fasion accessories
   • Clothing Electronic  Goods
   • Software Music/Movies
8. Do you offer guarantees/warranties for all your branded products?

   • Yes
   • No
9. Do you sell counterfeit products from your shop?

   • No
   • Yes
10. Do you sell them off as genuine products or cheap replicas?

    • Replicas Genuine

Questionnaire 2  Relevant Government Agencies

1. Are you aware of the existence of Intellectual Property Rights (IPR) Regulations?

   • Yes
   • No
2. Which of the following do you think are covered by IPR Regulations?

   • Copyrights Trademarks Patents
   • Designs All of the options
3. How important do you think is the protection of IPRs in Hong Kong?

   • Moderately
   • Not important
   • Very
4. Do you think that IPRs are well protected in Hong Kong?

   • Yes
   • No
5. What do you think is/are effective ways to bring down counterfeiting?

   • Bring down prices of genuine prodcuts
   • Creating awareness
   • Other (Please Specify)
   • Stringent legal action

6. Are IPRs valuable for its holders?

   • Yes
   • No
7. Are any steps being initiated to tackle the problem

   • Yes
   • No
8. If yes, which of the following are to be followed?

   • Legal action Increase penalties Awareness
   • Other Please Specify)
9. Do you get requests from aggrieved parties to be more vigilant about this issue?

   • Yes
   • No
10. What is the attitude of the establishments where you conduct your inspection?

    • Cooperative
    • Indifferent
    • Hostile

Thank you sir/madam for your cooperation and time.

Questionnaire 3  Consumers

1. Are you a resident of this city or a visitor?

   • Resident
   • Visitor
2. Have you made any purchases of well known international brands?

   • Yes
   • No
3. Did you have the time to try out that particular product?

   • Yes
   • No
4. Did you find the cost of the product to be ridiculously cheap?

   • No
   • Yes
   • Dont know
5. All branded companies offer a warranty/guarantee on their products. Have you been offered a guarantee/warranty on your purchases?

   • Yes
   • No
6. Are you aware that counterfeit products are available in the city?

   • Yes
   • No
7. Have you had any previous experience of buying counterfeit products from this city?

   • Yes
   • No
8. If yes, what have you done about it?

   • Nothing Money refund
   • Informed authorities
9. Would you purchase a product knowing that it is counterfeit, just to own a cheap imitation?

   • No
   • Yes
10. On the basis of the questions above do you feel that the product you purchased now is genuine or not?

    • Yes
    • No
    • Dont know

Thank you sir/madam for your cooperation and time.

Bibliography

Consumers Encouraged to Check the Pirates to Avoid Disappointment this Christmas. (2003). BSAA: Business software Association of Australia. Web.

Global Market Review of Counterfeit Apparel  Forecasts to 2014. (2008). Just-style. Web.

Pakize, Schuchert-Guler (2006). Explaining Counterfeit Purchases: A Review and Preview: Results. BNET. Web.

Summary of Findings. (2006). Survey on Business Attitudes to Intellectual Property. Web.

The Economic Impact of Counterfeiting and Piracy: Executive Summary. Part IV. (2007). Unclassified. Web.

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