Why Is Alibaba Failing To Block Counterfeiters?

Updated on

It’s already not such a good year for Alibaba. Just before Christmas, the U.S. Trade Representative added Alibaba’s Taobao to the list of “notorious markets.” This is not a place any public company wants to be in, but the e-commerce giant is helpless. Despite making rigorous efforts to end sales of fake products, the Chinese company has achieved little success so far.

Counterfeiting is  a parallel economy

Alibaba and other e-commerce websites dependent on Chinese manufacturers are struggling to maintain their integrity due to the counterfeiters. Without the support of China’s government, these marketplaces will continue to be in trouble, notes Bloomberg.

The counterfeiting industry is flourishing in China. According to a study by the United States Chamber of Commerce, about $396 billion in revenue is contributed by the counterfeiting market. That amounts to 12% of China’s total exports and 1.5% of its gross domestic product. Last year, about 417 manufacturing and sales locations with over $200 million in inventory were shut down in just one province in China, notes Bloomberg

In the 1980s with the advent of the global outsourcing, foreign factories and expertise flourished in China. Workers in these factories are not only experts in making iPhones and other consumer goods, but they also learned how to quickly make knock-offs of these products.

It has become quite typical to see counterfeits of almost any product in China within a few days of the release. Fake iPhone 6s handsets were available days before the release, says Bloomberg. It is not a secret that there is a parallel economy in China.

What can Alibaba do?

Last year, Alibaba co-founder Jack Ma said without hesitation that counterfeiters are using the same factories and raw materials as legitimate manufacturers. However, local governments have a different take, which is not good for legit companies.

In 2009, diplomatic cable releases by WikiLeaks indicated that China’s economic downturn was due to weakening efforts to enforce intellectual property protections. The passage described how Apple’s effort to scrap a MacBook counterfeiting line was rejected because it would threaten 100 local jobs.

Alibaba faces a greater threat compared to other companies such as Amazon because Chinese consumers are price-sensitive and do not mind fake products. What Alibaba can do is make its procedures simple enough for brand owners to report instances of counterfeiting. It can also leverage its global profile and political clout to “push the government to prosecute more counterfeiters,” says Bloomberg.

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!