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Counterfeiting is the illegal manufacturing and sale of products in the name of someone else without their consent. Counterfeit goods are typically designed to seem more authentic than they are. The maker of such items imitates similar items manufactured by well-known and trusted companies. Furthermore, since the materials used to produce them are of poor quality, they market them at a cheaper price. Leather goods, cosmetics, clothing and jewelry, and even equipment or spare parts are among the items that are counterfeited. Faking is a crime under the U.S Federal Law that is punishable by a maximum penalty of $2 million and 10 years of imprisonment. However, consumers are not prohibited from buying counterfeit products for personal use, and it gives them the freedom to purchase fake goods knowingly for being reasonably priced and looking similar to famous brands. Counterfeit products have various impacts on the consumer, companies, and the economy. This paper explores the reasons why people buy fake goods and the effects of such products on the economy.
Counterfeiting may entail copying the labeling, packaging, and other features that are significant to a product. The presentation of fake goods is usually done in a way that closely imitates favorite authentic products by appearance to mislead the unsuspecting consumer. The counterfeiting industry has expanded significantly in the recent years, leading to an increase in the range of goods counterfeited (IACC). Some of the everyday consumer products that are prone to faking include clothes, shoes, and handbags. One of the reasons that promote it includes the tough economic times, which increase the demand for counterfeit goods which are cheap. Some consumers do not care whether a product is genuine or not, while others do not want to know (OECD 9). The ignorance and attitude of the consumers are among the factors that promote the trade in counterfeit goods.
Counterfeit shoes, clothes, and handbags are made in qualities that vary to confuse a buyer who is only interested in the labels and may not know how the original product looks like. Most of these fake goods tend to look like the innovative product, and some even bear the designer signature symbols (OECD 11). They imitate the overall look of the designer originals, but fail to use the logo and the brand of the creator. Most of the goods that are counterfeited include well-known high-profile manufacturers that are reputable and have a large customer base. The imitated appearance is meant to appeal to the clients to think that they are buying the original product. Most of the fake products get produced illegally, and thus, they fail to comply with the safety standards required during the manufacturing process.
Why People Buy Counterfeit Clothes
Wearing good clothing is identified as a symbol of status, and it makes people desire to own such items. Most individuals would want to have a luxurious handbag, designer clothes, or top of the line shoes in their wardrobes. However, not all people have access to designer products due to their limited production (OECD 20). Owning luxury items usually gives people some sense of self-esteem due to the recognition that one receives in the society. Therefore, consumers tend to demand designer merchandise, which, in turn, provides the street vendors with the opportunity to sell fake fashion items that look like authentic ones. It makes counterfeiting of clothes to be among the most prevalent cases all over the world (Inovaccess 3). Moreover, most of the customers are fashion enthusiasts, who are only concerned with determining the branding of the product and do not have time to assess the authenticity of an item as long as it bears the brand name or logo of their favorite goods.
The discounting of the fake items is because producers of counterfeit goods fail to observe the required standard of manufacturing processes that ensure the use of quality materials. The failure to follow the fundamental requirements during manufacturing makes it possible to price the counterfeit goods cheaply. It is this low cost that attracts customers who want to own a designer product which is perceived to be of high quality at a discount (OECD 20). The desire to save money, especially when it comes to shopping, makes it easier for them to be lured into buying fake products. Some consumers will know that they are purchasing a counterfeit, but still go ahead, because all they want is just a product that meets their needs. However, others believe that they are having a bargain and an opportunity to own a luxury product from the reputable brand.
Effects of Buying Counterfeits on the Economy
The industries affected by counterfeits tend to lose billions of dollars every year as a result of this practice. Companies incur costs in various ways which include direct competition for customers between counterfeiters and legit businesses resulting to direct forfeit of sales. The latter means that a firm has lost the opportunity to generate revenues (FindLaw). The reduced earnings by companies lead to diminished tax revenues for the government. Moreover, markets that are dominated by counterfeits are hard to survive for new entrants who produce original items due to the stiff competition that they have to cope with. In some cases, the fake goods produced are of higher quality, and it allows them to compete directly with original items in the markets (Frontier Economics 46-47). Therefore, the manufacturers of genuine items are at a disadvantage, given that they incur higher costs during the production process which reduces their profits, since they also pay taxes. It is possible to win customers with original items, especially those who are concerned with the quality of the product, but it is hard to convince consumers to switch from counterfeits that are of relatively high quality.
Consumers who buy fake goods believe they are purchasing genuine pieces which are on discount. When they realize the products are not authentic, the blame falls on the manufacturer of the original items which leads to loss of goodwill. Customers risk exposure to dangerous goods which are substandard (Inovaccess 4). Moreover, the firm may be involved in litigation processes that are costly, especially when trying to enforce the intellectual property rights. Therefore, rightful owners end up engaging in investigations and measures to combat the counterfeits, thus leading to higher spending on product protection (OECD 18). Firms incur huge expenses, given that it is not easy to define the budget for a counterfeit, as it spans across various departments, including human resource, legal department, product development, and even marketing.
Countries, where counterfeiting occurs, tend to suffer both intangible and tangible losses such as forfeit of reputation to foreign producers. Such producers become reluctant to manufacture in such states, given that they cannot rely on the intellectual property rights to protect their activities. There is the loss of direct foreign investments, and the nation also misses out on the know-how of international firms (Frontier Economics 50). Counterfeits lead to deprival of reputation even to the genuine products, given that they are branded to be of poor quality. It results in the downside of foreign exchange and jobs due to export losses. Moreover, counterfeit goods promote substandard working conditions for employees and even child labor, which is contrary to the belief that it leads to the creation of jobs. The existence of counterfeits ends up preventing innovation in a nation, as honest manufacturers are discouraged from making investments on developing new products and markets.
The trade in counterfeit goods results in social costs such as promoting organized crimes in a country. When the products are sold, the revenues used to finance terrorist and other criminal activities (FindLaw). It also leads to loss of jobs, whereby the reduced incomes of firms dealing with genuine products mean that they cannot employ additional staff. Moreover, consumers end up paying for the costs of unfair competition, as they are charged an excessive price for inferior goods (Frontier Economics 46). The value of such products is usually lower and thus deceives the customers that they are having a bargain. Employees of factories that produce counterfeit goods work in poor conditions with reduced pay and exploitation.
Counterfeiting is a problem that affects all types of goods ranging from consumer items to software and spare parts. Luxury products are the most counterfeited kinds of goods due to their appeal to customers who want to buy such things but at a discount. Various reasons for purchasing fake goods exist, with one of them being cost-saving. However, the trade in counterfeits has many economic implications such as promoting crime, child labor, and reduced tax revenues among others.
FindLaw. Buying Counterfeit Goods: Laws and Resources. 2017. http://consumer.findlaw.com/consumer-transactions/buying-counterfeit-goods-laws-and-resources.html. Accessed 05 Dec. 2017.
Frontier Economics. The Economic Impacts of Counterfeiting and Piracy. 2017. https://cms.iccwbo.org/content/uploads/sites/3/2017/02/ICC-BASCAP-Frontier-report-2016-Executive-Summary.pdf. Accessed 05 Dec. 2017.
IACC. “What Is Counterfeiting?” IACC - International AntiCounterfeiting Coalition, 2017, www.iacc.org/resources/about/what-is-counterfeiting. Accessed 05 Dec. 2017.
Inovaccess. The Counterfeiting of Clothing and Accessories. N.d. http://www.innovaccess.eu/sites/default/files/201404291035220_48_no_to_fake_clothing.pdf.pdf. Accessed 05 Dec. 2017.
OECD. The Economic Impact of Counterfeiting and Piracy. 2008. https://www.oecd.org/sti/38707619.pdf. Accessed 05 Dec. 2017.
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