Industry calls for teamwork to root out counterfeits

A skirmish over counterfeit goods between online giant Alibaba and Chinese officials has ignited discussions about how to keep bogus goods out of e-commerce markets

The recent tiff between Alibaba Group and Chinese regulators over unlicensed merchants and counterfeit goods on Alibaba's hugely popular shopping websites has cast a new spotlight on the challenging issue of fake goods plaguing the country's e-commerce industry.

The dispute began with China's State Administration for Industry and Commerce releasing a report at the end of January, summarizing their findings of alleged wrongdoing on both Alibaba's Taobao Marketplace and Taobao Mall, or Tmall.

However, the skirmish dissipated shortly after the leader of the Chinese regulator met Alibaba Executive Chairman Jack Ma. The two parties agreed to work together to fight counterfeit goods and protect consumer interests.

Industry experts say these responsibilities lie with both Chinese regulators and companies such as Alibaba, the country's biggest e-commerce company. All concerned need to make an effort to combat the fraud online, they say.

"I think both the Chinese government and Alibaba need to do a better job of policing the situation," says Max Goldberg, president of Max Goldberg & Associates, a prominent consultancy based in California, adding that it is difficult for Alibaba to solve the problem on its own since there are more than 8 million online stores. Policing every store every day would be a monumental task.

Alibaba runs online retail platforms, trading $370 billion a year in a recent 12-month period, which reflects a very significant part of the retail economy in China, according to Joseph Tsai, co-founder and vice-chairman of Alibaba Group Holding Ltd, speaking on Bloomberg Television's "In the Loop".

"As soon as you close down one of these stores, they can open it up again under a different name. Therefore, it is very difficult to move against them and effectively shut them down." Goldberg says.

"I do not think it is right to expect that Alibaba on its own is going to be able to completely police the site and make sure 100 percent of the goods on the site are not counterfeit, when they exist in a country where the government sends mixed signals on counterfeiting," Goldberg says.

Kai Clarke, CEO of American Retail Consultants, says the lack of enforcement is rather a manufacturing and governmental oversight issue than a marketplace or sales channel issue. "You can purchase copies of branded products at many traditional brick-and-mortar stores, as well as online. It is not the channel, but the lack of robust standards and enforcing these."

But, according to e-commerce experts, industry giants like Amazon and eBay also face the same challenge posed by counterfeits and gray market products, yet they have managed to control the damage.

"Amazon and eBay both have software that automatically flag for investigation, when prices seem to be either too low on a particular product or on products that people know are subject to high levels of counterfeiting, like Burberry or Chanel, for example," Goldberg says.

"They also look for anything that would trigger an examination and they vigorously go after and delist companies that are selling this type of goods."

Clarke says Alibaba could adopt the same approach that has been implemented on both Amazon and eBay.

"If their online manufacturers are found to have used fake or copied products, or misrepresented a product as part of their listing, they must give the consumer a full refund. This way Alibaba establishes a standard that mandates that each of their listing companies embrace the policy. Alibaba can offer insurance to their listing manufacturing and distribution companies, to ensure that these monies are paid out as well," Clarke adds.

According to Tsai, Alibaba has spent more than 1 billion yuan ($160 million, 142 million euros) over the past two years to fight fakes. And in the case of Burberry, Alibaba was successful in closing 48 out of 50 unauthorized vendors to attract more international brands names to open stores on Tmall, The Wall Street Journal reported in August.

Xie Zhuoqun, a regular Taobao shopper in her 20s from Hangzhou, where Alibaba is based, spends no less than 5,000 yuan a month on the e-commerce website. She says the ubiquity of counterfeits online does impact her shopping behavior.

Her purchases online are rather selective, including clothes, snacks and daily necessities. In terms of certain goods, such as baby milk powder and luxury products, she would choose daigou, which roughly means overseas shopping representatives, to shop on her behalf by paying a premium.

"I believe the joint effort in fighting fake goods made by Alibaba Group and Chinese regulators would enhance the credibility of the Tmall platform. However, it is difficult to oversee sellers who are selling fake goods on the Taobao Marketplace platform," adds Xie.

Taobao Marketplace is an online platform acting as a sales intermediary between private parties, based on a consumer-to-consumer model, while Tmall provides sales of goods and services between a legal entity and individual consumer, a business-to-consumer model. Both Taobao and TMall are affiliated with Alibaba.

Zhou Lili, an active Alibaba patron in Hangzhou who says she spends an average of 150,000 yuan a year on their sites, says the problem of fake goods on e-commerce websites hasn't changed much of her online shopping behavior.

"I purchase products online only when the quality of the goods, whether they are real or fake, does not have an impact on their use. I'm never eager to search for a cheap bargain because you get what you pay for, after all. I do not mind that there are scores of replicas on Taobao because some people perhaps can only afford the replicas and enjoy buying them. What concerns me is when counterfeits are set out to deceive," Zhou says.

Zhou says online manufacturers should be required to provide their real identities when registering. Licenses should be revoked if illegal practices are found. Reregistrations should not be permitted for those who have sold counterfeits and are using the same registration information again.

In light of the recent e-commerce boom, the Chinese government is set to strengthen its anti-counterfeit effort. It is a positive step but the effort needs to be sustained and long-term, experts say.

"Things are not going to turn around immediately, and I believe if the Chinese government and Alibaba take a stance that they are not going to tolerate counterfeiting and aggressively pursue it, the situation will be reduced over a time," Goldberg says.

He also believes that Chinese regulators, by staking out a position enforcing those regulations consistently, will bring up the confidence level of investors in the Chinese marketplace.

Clarke says in the effort of combating counterfeits, the Chinese government should not only enforce the laws, but also enact new, stronger and more buyer-friendly legislation.

As for Alibaba, Tsai says, "Combating fraud on our online marketplaces is an issue that we take very seriously. We take a very draconian approach to counterfeits. The issue of fake products is really a matter for all the participants in the economy to solve and it should involve both online efforts and offline efforts."

Carlotta Clivio contributed to this story.

wangmingjie@mail.chinadailyuk.com

(China Daily European Weekly 02/13/2015 page19)