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Today, online purchases are no more a symbol of luxury. They are a norm, courtesy of the extensive reach of the internet and the growth of e-commerce. Also, brands are leveraging the internet to sell their products and services to a wider audience. As the
internet is turning into a fulcrum for businesses to revolve around, there is one critical hurdle — counterfeiting.
And this hurdle is spelling doom for brands who are losing their most valuable asset — their reputation. Strangled by the influx of counterfeit goods in the market, brands lose their hard-earned loyalty amongst their customers. This is not only direct adversity
for the brand’s sales but also their goodwill.
The outbreak of counterfeit goods
The onset of globalization remarkably impacted the way trade and commerce operated. It enabled trade markets across the globe to interact and associate to carry forward their business at a broader scale. The fostering of multilateral business activities
rose to unimaginable levels with the advent of the internet. E-commerce is now an integral part of the global economy.
An ill-fated consequence of globalization and e-commerce is the advent of counterfeit goods. From being a loophole of negligent impact to a trillion-dollar stumbling block, the outbreak of counterfeiting has handicapped the global trade. To add perspective,
the clothing sector alone is touted to lose
€26.3 billion annually.
In 2015, the International Anti Counterfeiting Coalition (IACC) estimated the total value of counterfeit and pirated goods at a mind-boggling figure of
$1.7 trillion. Extrapolating this estimate, while factoring in the growth of e-commerce leaves us astounded. This is a hindrance of gargantuan proportions for the growth of the global economy.
The overall impact of counterfeited goods
Numbers provide a fair overview of this infestation, yet there are other impacts that cannot be described using numbers. Understanding these impacts shall provide realistic insights into the gravity of this issue.
1. Damage of brand reputation
The growing need to use branded products is contributing to the growth of this counterfeit market. Since the majority of the counterfeited goods are cheap and obvious copies of recognized brands, these brands’ reputations are at stake.
Customers are deceived into buying counterfeit goods of a certain brand. Hence, when a fake product doesn’t live up to their expectations or fail, the brand loses its goodwill. Also, given the fact that most counterfeited goods are consumer goods — the word-of-mouth
factor further damages a brand’s reputation.
2. Social costs
Since counterfeiting is a clandestine activity, it impacts society in multiple ways. Consumers pay for products of inferior quality, giving rise to potential health and/or safety hazards. Nations in which counterfeiting is prevalent lose out on external
investments which in turn cause job losses, decreased sales, and lost tax revenues.
3. Health hazards
In a study by WHO, $30.5 billion is the estimated cost related to the acquisition of falsified drugs across the globe. Counterfeiting in the pharmaceutical
industry has an overreaching impact that supersedes any financial loss. Deaths due to counterfeit drugs too are on the rise signifying the importance of finding a solution to this menace.
4. Loss to the government
Governments lose out on tax revenue as counterfeiting happens through illicit channels. Also, when certain countries gain the reputation of being a haven for counterfeited goods, it discourages foreign investments. This implies a direct loss of foreign exchange.
Governments also need to spend resources and money to enforce and protect the intellectual rights of the true owners.
Ali Beikverdi the CEO from HollaEx a blockchain software provider says that, “Governments and large scale enterprises all have the same problem being they commit a substantial amount of resources to admin. These are as simple
as checks and balances and verification that could otherwise be automated away with recent advancements in blockchain and DeFi protocols. ”
Since the practice of counterfeiting flows deep in
the global supply chain, the counteraction needs to be comprehensive and scalable. The geopolitical limitations and other regulatory constraints rule out the plausibility of centralized authorities to counter this menace.
Is blockchain and decentralized finance the solution?
The use of distributed ledger technology to verify and manage the supply chain is a potential solution to counter counterfeiting. Since the
tokens and blockchain is innately decentralized, it can facilitate large-scale authentication of goods and prices. Also, the immutable nature of blockchain assists in creating verifiable records
of the supply chain.
Leveraging blockchain technology, DeFi solutions like
tokenization and pricing of the digital assets and real-time tracking of products are possible. The manifestation of these solutions and their integration into mainstream trade and commerce is a plausible way of eliminating counterfeits.
In a step towards a counterfeit-free market,
Trace Network — NFT based DeFi protocol is working on real-time traceability of products. Using Trace, brands can generate NFTs for their goods and validate their originality. This saves the brands from loss of reputation due to counterfeits. With DeFi
based financing options and trade settlement services, Trace Network can be the much-needed antidote to the counterfeiting virus.