Academic journal article Multinational Business Review

Evidence of Managerial Response to the Level of Consumer Complicity, Pirate Activity, and Host Country Enforcement of Counterfeit Goods: An Exploratory Study

Academic journal article Multinational Business Review

Evidence of Managerial Response to the Level of Consumer Complicity, Pirate Activity, and Host Country Enforcement of Counterfeit Goods: An Exploratory Study

Article excerpt

Abstract:

The major findings of this exploratory research are that a firm's level of market commitment through future investments will increase in strategically important markets, regardless of high consumer complicity to purchase fake goods; that companies will employ additional anti-counterfeiting tactics in markets with a high level of pirates and a high degree of enforcement of its intellectual property rights; and that companies employ a standardized approach of anti-counterfeiting tactics targeted at consumers.

INTRODUCTION

On March 16, 2006, President George W. Bush signed the "Stop Counterfeiting in Manufactured Goods Act," revising the federal criminal statute to allow prison terms of up to 20 years and subsequent fines of up to $15 million. In addition, this new legislation includes mandatory forfeiture, destruction, and restitution provisions, thereby setting a new world standard for anti-counterfeiting protection (Counterfeiters Beware, p. 2). In 2006, the U.S. government estimated the global market value of the counterfeit industry at $500 billion, with a growth rate of 1,700% over the past ten years ("Intellectual Property Rights," p. 1). The problem of counterfeiting, in a historical context, has evolved in the United States in terms of protecting intellectual property rights. For example, in the 1800s, printers in New York City actively pirated British novels to profit from foreign copyrights. At the time, the U.S. government did not recognize British foreign copyrights (Glaeser 2005).

Government policy makers are very alarmed about the production of counterfeits in non-traditional goods, such as foodstuffs, pharmaceuticals, and auto and airline parts. Thus, counterfeit anxiety goes beyond concerns regarding the brand dilution of designer handbags. Now, counterfeit production affecting health and safety has become a significant concern. The pharmaceutical industry uses an identification technology called near infrared (NIR) microscopy to provide a detailed picture of the ingrethents in a pharmaceutical tablet. For example, NIR spectroscopy can identify lactose as an ingrethent in the counterfeit production of Viagra (Viagra Bought Online Often Fake 2004).

Various definitions of product counterfeiting have been offered. For purposes of this paper, we use the definition given by Cordell et al. (1996): "Any unauthorized manufacturing of goods whose special characteristics are protected as intellectual property rights (trademarks, patents, and copyrights) constitutes product counterfeiting." The whole concept of attempting to "measure the effects" of counterfeiting is controversial. Green and Smith (2002, p. 91) describe measurement considerations in the following way:

Assessment of the losses associated with counterfeiting varies widely. Variation is understandable given the illegal nature of this activity, thereby necessitating the use of surrogate indicators such as the extrapolation of seizures by police or customs authorities. Further ambiguity arises from the lack of agreement on factors that should be considered when calculating the scale of counterfeiting. Should it be measured by the production costs of counterfeits, sales lost by associated brands, damages to brand equity, total sales of counterfeits, or some combination of measures?

Problems of measurement aside, it is clear that the dilemma of product counterfeiting is significant and growing. The U.S. Customs Service seized over $155 million in counterfeit products in fiscal year 2006 (U.S. Department of Homeland Security 2007). For fiscal year 2006, footwear (41%), wearing apparel (16%), handbags/wallets (9%), computers/hardware (9%), consumer electronics (5%), and headwear (4%) represented 85% of total seizures. Figure 1 illustrates the types of commodities seized by the U.S. Customs and Border Protection.

While the scope of enforcement of the intellectual property rights problem is worldwide, there are a few prominent countries to which most counterfeit products can be traced. …

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