Theft. Piracy. Counterfeits. Gray market activity.

These words and their implied threat to any company’s bottom line intimidate even the most intrepid executive. While some executives chalk up gray market activity as “the cost of doing business,” New Momentum, www.newmo.com, believes that companies can proactively recapture lost revenues, market share, and brand reputation through tightening their value chains. They can accomplish this by creating a brand protection process for analysis and utilizing SaaS-based Enterprise Risk Management (ERM) solutions ‐‐ and subsequently shut down illegal activity. 

 

 

Think this activity is irrelevant to you? Think again. These serious concerns affect almost every department within an enterprise: the office of the Chief Financial Officer, the Chief Marketing Officer, the Vice President of Sales, the Vice President of Supply Chain, the Vice President of Channel Management, the Vice President of Customer Service, and, of course, the Brand Protection Officer. The reward for attacking gray market and counterfeit activity is substantial – on the order of more than $10.5 billion in annual recovered revenue for one customer – a serious return on investment (ROI).

 

 

Do You Know What Gray Market and Counterfeit Activity is Costing Your Company?

 

 

According to the Alliance for Gray Market and Counterfeit Abatement (AGMA) and KPMG, the value of gray market information technology (IT) products alone averaged $58 billion in 2007. Counterfeiting has been conservatively estimated as a $650‐billion problem annually. Of all goods sold worldwide in 2007, 7‐10% is believed to have been counterfeit. The cost of these activities is not just lower revenues, but lost jobs. Especially painful in today’s economy, counterfeits are believed to have cost 750,000 jobs in the US alone.

 

 

 

The Center for Medicine in the Public Interest estimates that worldwide counterfeit pharmaceutical sales are increasing at about 13% annually—nearly twice the pace of legitimate pharmaceuticals—and could become a $75‐billion industry by 2010. A shortage of financial resources, a lack of coordination between countries, and weak anti‐counterfeiting laws in some regions are hurting law enforcement agencies’ ability to detect and prosecute counterfeiters.

 

 

What an End‐to‐End Solution Means to a Line of Business Executive

 

 

Conservatively, AGMA and KPMG estimate that 10% of all goods are gray market/counterfeit. Of that amount, at least 25% can be recovered through implementing an end‐to‐end process and software solution like the one that New Momentum offers. For one client, in one year, that revenue recovery amount translated into more than $10.5 billion. That’s a pretty big number to add back onto a revenue line.

 

 

 

We’d like to know your experiences or comments about counterfeit and gray market piracy risks.  For more information about New Momentum, please visit our website or contact Chris Jensen, VP of Marketing at 949-276-5988

Why is now the time for high tech companies to take action against counterfeits and gray market sales?

High tech companies are losing billions every year to counterfeits and the gray market. In 2006 U.S. Customs recorded over 15 billion IC imports‐‐about 500 every second. Results of a study conducted by AGMA (Association for Abatement of Gray Market and Counterfeits) and KPMG, showed that one out of every ten IT products contains counterfeit semiconductors. That means 1.5 billion of those imported ICs are likely counterfeit…about 50 counterfeits every second flooding into the US. Do you know how many of those 1.5 billion (and the number is growing all the time) are yours or are in your finished products? Most manufacturers don’t realize the extent of their revenue loss to counterfeits and unauthorized sales.  And, revenues are not all you are losing. Company and product reputations are being eroded and legitimate channel partners lost.

 

Once thought to be too complex and sophisticated for counterfeiters, semiconductors, electronics and IT (information technology) products are now hot ticket items in counterfeit manufacturing. Lost sales, however, only account for a fraction of what companies sacrifice when their intellectual property (IP) is stolen and their products illegally produced. Counterfeiters steal IP backed by million‐dollar investments in research and development, marketing, and manufacturing. Moreover, illegitimate or substandard chips present the company with additional costs to repair or replace defective products carrying their brand name.

 

During the past decade, billions of dollars in foreign direct investment (FDI) have flowed into a number of developing countries, such as China, leading to the proliferation of sophisticated manufacturing processes and capabilities to produce high‐tech products. Counterfeit components have long been a problem in the electronics industry, but as of late, companies are finding themselves increasingly challenged with having to deal with counterfeit components. A second contributing factor is the popularity of e‐commerce. Many counterfeiters are using the Internet to reach potential buyers, and without regulatory bodies able to police and govern all product‐listing sites or advertisements sent out over email, the Web has become a bastion for illegal sales of counterfeit products.

 

Why is the problem becoming more serious?

In a study by the Semiconductor Industry Association (SIA), remarking was the most common method of counterfeiting. Remarking involves scraping a label off a chip package and printing on a new label. This can involve a different and higher priced brand, or a faster chip speed, or a military grade lot number on a commercial chip. Most of the problem is coming from Shenzhen China, located on the border with Hong Kong. You can find anything in Shenzhen—original, fake, new, and old components. It’s common to find shops making fake “Samsung, Motorola,” etc. labels. The Chinese vendors say that making the labels is easy—they simply select the specific component maker’s label from the program library, then modify the data. The label quality is excellent. Other counterfeiting tricks include incorrect die, inferior packaging materials, reproduction of chip designs, packages without die, different labels on packages, false RoHS (Restriction on Hazardous Substances) notifications.

 

Inaccurate notifications of whether a chip has lead can impact a high tech manufacturer in two different, yet significant ways. First, if the chip contains lead but has a false RoHS notification, the manufacturer may have products restricted from sale in some countries, face a lawsuit and experience significant amounts of bad publicity. Of greater concern, however, is when a part does not contain lead and the counterfeiter asserts that it does. Parts without lead have reliability problems when used in applications in outer space such as satellites or NASA flights.

 

How can you solve this problem?

There are several key areas you can focus on to reduce your company’s revenue erosion from counterfeits and unauthorized sales: legal, operational and technology such as New Momentum’s Enterprise Brand Protection as well as encryption and lock & key. 

 

Do you know if your company has a serious counterfeiting or gray market problem?  Do you know how to find out if and how this problem is impacting your company?

The Cost of Counterfeits

Today’s lifestyle is very different from the one of our parents. People have become accustomed to cell phones, laptop computers, HD TV and car navigation systems. Any of these mentioned products are frequently referred to as “life lines”. Technology simply makes life a little easier. The very thought of not having those conveniences will send some people into a panic.

We are continuously looking for the latest upgrades and systems that will help save time. With all of this knowledge there is power and money. Counterfeit problems are on the rise and have created a very lucrative industry. We face challenges when talking about counterfeit products in three main areas.

The Financial Issue -
The high tech electronics industry is a multi-million dollar business and big name technology companies are finding that they are dealing with lost revenue from grey markets and counterfeit products. New counterfeit divisions are being created and companies are trying to find the sources and how to shut the counterfeiters down.

The Brand Issue –
With the right marketing it can make or break a company’s image. Well so can a counterfeit product. Counterfeiters are finding more ways to make a profit, and it is at the company’s expense. There are reports of counterfeiters purchasing new computers, taking out the chipsets, replacing them with counterfeit ones and then turning around and selling both products for a profit. When that laptop overheats or causes problems, it is sent back to the manufacturer. That leaves the manufacturer with the additional cost of a warranty repair and erosion to the quality image of their brand. After all, the consumer is left frustrated and blames the manufacturer.

The Moral issue -
To find out more about counterfeits and the real issues, I searched through the sea of articles that are available on the Internet. One of them really stood out and makes the counterfeit issue more personal.

Here is what it says:

When U.S. customs agents recently seized a shipment of counterfeit extension cords they saw knock-offs in a whole new light.

“There are very real safety risks involved,” says Mike Garcia of the U.S. Immigration and Customs Enforcement.

Injuries from overheating counterfeit cell phone batteries purchased right on Verizon store shelves sparked a recall this week by the consumer product safety commission.

“We know of at least one apartment fire that’s occurred,” says Hal Stratton, with the Consumer Product Safety Commission. “We know of at least one burn situation on someone’s face that’s occurred.”

Article courtesy of Hazardous Counterfeit Products – Once It Was Handbags, Now, All Kinds Of Products Being Knocked Off from ABC News. View the article in it’s entirely here: http://www.cbsnews.com/stories/2004/06/25/eveningnews/consumer/main626211.shtml

This epidemic is now affecting people‘s personal safety. It is one thing to have your computer stop running, but a bodily injury or electrical fires are putting us and our families in harm’s way.
There are many ways to act against counterfeiting and some big name companies are starting to see that something needs to be done about this problem. Our company, New Momentum has been working with a few of these companies and they are seeing tremendous results using our technology.

It is time to send a clear message to counterfeiters that people will not sacrifice quality. Next time when you are online shopping and looking for a “good deal,” make sure you check it out before you buy; find out if the company is an authorized dealer.

If you have any stories about how counterfeit products have affected you, please post them. If you are a company and would like to know how our company, New Momentum, can help you crack down on counterfeit companies contact us at www.newmo.com.

This article was written and posted by Jessica Lea

Four Steps to Revenue Recovery

 

It is no secret that billions of revenue dollars each year are lost due to counterfeiting. Companies have identified it as a significant problem but in many cases they don’t have the data they need to determine the extent of how counterfeiting is affecting their business.

 

The cases are growing at an alarming rate and so are the losses. Surprisingly, the common recovery methods used by high technology companies are publicly available free search tools like Google and Yahoo. This method provides millions of rows of unstructured data that companies need to cleanse, organize, and prioritize.  This common method is also the least productive for revenue recovery.

 

Today, companies are discovering new technologies that allow users to search broader and more applicable set of servers and at the same time, cleanse, organize, and prioritize the data.  In this month’s issue, we will focus on the key parts of a successful revenue recovery program.

 

Your company’s team will manage and own the program but they no longer need to limit themselves to the technology and resources available in-house. In fact, many organizations with successful revenue recovery programs use the latest in technology to gain visibility and outsource parts of the process to experts that specialize in corporate risk.

 

Step One: Visibility

 

The first step is to identify where and with whom your products are being sold. The accuracy and speed of this information is critical. You will need to incorporate specific technology solutions that will allow you to load your products and prices, allow for data analysis, identify the scope of the violations and be able to report the return on investment (ROI) to management.

 

The technology needs to find the comprehensive and unstructured market data from websites, email, file transfers as it incorporates the information from your ERP data, PLM data, transactions history and run it though data filtering and cleansing.  The right market intelligence will help your team focus on where you will get the highest return on your efforts.

 

Step Two: Planning

 

Many organizations underestimate the significance of the proper plan development. The more time and effort you place in creating a comprehensive plan – the better the implementation and results. Like any strong plan, you will need to set goals and measure frequently. Your goals need to be realistic and cover a one to two year timeframe.

 

You will want to plan every aspect of your program including test purchases and due diligence.

After reviewing the data, you will decide exactly how you will go about approaching the seller.  Initial questions that need to be answered include:

 

• Is this a massive problem?
• Is it long-term?
• How much do you want to buy it for?
• What quantity will allow it to become evidence if you decide to take civil/criminal action?
• Do you need to purchase at a certain price? 
• Is there a price that will strengthen its role as evidence in future civil/criminal action?
• Can you get customs, FBI, CBP,  and ICE involved?
• How should you maintain the evidence and for what time period?

You need to set your goals for each seller. The goal does not always need to be civil or criminal action. One company’s goal was to make life so difficult for their counterfeiters that they drop their product and move onto something else. 

 

Step Three: Implementation

           

With the right information helping create a comprehensive plan, the implementation is ready to begin. In this phase, you will need to prioritize targets, follow-through on plan, and incorporate the ability to consistently add new data that could alter the actions taken. Don’t be afraid to outsource certain parts of your implementation to corporate risk specialists.

 

With your comprehensive plan in place, you can start assigning due diligence investigations and conduct strategic test purchases.  This step also includes engineering analysis, civil action, and criminal action.  When doing a test purchase, we recommend a wire transfer because it allows the company to have access to valuable data on the counterfeiter’s financial institution.  This information may be helpful when taking civil and criminal action.

 

Step Four: Measuring Results

 

Part of any revenue recovery program needs to include a method to consistently measure results. On a weekly basis, determine the value of the product on and off the market. You will want to record the amount recovered through test purchases and document progress.  Note the criminal and civil actions taken and their results. Your management team needs to take an active role in the revenue recovery process – continually reviewing results data and determining changes when needed.

 

New Momentum’s solution builds specific search agents that empower organizations to search hundreds of thousands of pages per night including open market web servers, franchise web servers, gray market sites and even trade board email blasts. The advanced web mining and reporting technology quickly provide global visibility via a user defined dashboard view – allowing your team to manage the entire operation from one powerful screen. New Momentum’s web based solution is helping companies get the visibility they need to start an aggressive revenue recovery program and take back control of their business.

 

What’s the real cost of endless cost cutting in the high tech industry?

Think your lean manufacturing techniques and outsourcing to low cost regions are the answer to increasing profitability?  Think again…it may be costing you more than you realize. Faster…better…cheaper. This has been the way enterprises create greater profits and competitive advantage is gained.  But these practices made companies more vulnerable and created more risks to profitability such as: a rise in counterfeits from products being outsourced to low cost regions, supply disruptions due to natural disasters or supplier breakdowns, longer and more variable lead times, questionable product quality and  internet crime.   Unfortunately, the more efficient and global your business is, the more your business is at risk. So how can a company balance the competing needs to reduce risk while deploying efficiency initiatives?

A few forward-looking companies such as Cisco are setting up entire brand protection departments to stop counterfeits as well as supply chain risk management teams to minimize disruptions.  Yet, most executives aren’t even moderately aware that their companies could be teetering on the edge.

What’s needed? 
You need to focus in two areas.  First, every company that makes or uses electronic components in their products needs C-level executives leading the charge and playing an active role in managing risk.  It’s hard to measure risk and, as a result, often top executives don’t get involved.  Well, they don’t get involved until they are clearly shown that counterfeits are costing them millions or billions a year or until there’s a major supplier failure that causes them to miss peak season sales. 

Next, if you take a good look at your supply chain planning solution, you’ll see the next big problem–you don’t have everything you need to neutralize today’s supply chain and business risks.  Typically the systems most companies have in place (ERP, PLM, SCM) rely predominantly on internal data that summarizes only a historical view, and provide little or no information on what is currently happening in the market.  The only way to gain visibility into counterfeiting worldwide, deal with a fire at a supplier’s facility or a critical component in a new product introduction that’s in short supply is with information.  But not just information that’s within your enterprise or supply chain walls, but unstructured transactional data—a current snapshot of global buying and selling activity.  And you need real-time information matters such as natural disasters, geopolitical events or business issues that could restrict a vendor from meeting a critical delivery or cause your most valued customer to cancel a major order.

A new genre of software solutions, such as New Momentum, www.newmo.com, that compliment your current enterprise software investment can help you with an important part of dealing with your risk exposure.  These solutions solve the problem of getting unstructured information and business intelligence from the “open market,” and they present you with risk assessment analysis through a suite of real-time, portal based SaaS application modules.  

 Supply chain risk management needs to be elevated to get C-level attention much like SOX initiatives have been in the last decade.  You need to look carefully at the horror stories and not stick your head in the sand, thinking it won’t happen to us.  Take action now to reduce the possibility of supply risk.

We are interested in hearing about your supply chain risk management experiences and concerns.  And we’d like to hear if you agree with or have a different point of view.