There have been many reports, discussions, and analysis about the root of counterfeiting problems in China. Some reports indicated that the current legal system is too weak to deter counterfeiters. Some argued the weakest links are regional governments, unable or unwilling to stop counterfeiters as long as they generate revenues to the local economy. Others even suggested that the Chinese culture condones counterfeiting.
Looking through the history of economic development and the path of each developed country, one can easily find counterfeiting being part of every developing economy. The motivation of counterfeiting is driven by pure economics. The need to get rich from nothing, the lack of know-how and the financial constraints forced many entrepreneurs to look for the shortest pathway to "success". Coping established products with known reliability and brand recognition seems to be a "no brainer".
Even in developed nations such as the United States, Japan, and many in Europe, counterfeiting is still a game of cat and mouse between counterfeiters, law enforcement and companies. When China first opened its market to the west, its strategy was to attract foreign technologies. "Technology transfer" in the early 1990s was one of the few ways to get into China. Many companies openly copied products from the west for sales to its close networks of customers in China. Consumer industries such as clothing, consumer electronics and entertainment products were extensively explored due to their low-tech barriers and high consumer demands.
On the medical front, fake drugs have been problematic for the China State Food & Drug Administration, which is the top regulatory agency for the pharmaceutical, health foods and medical device industries. Despite its efforts to tighten controls, inadequate regulations, coupled with bureaucratic systems and the greed of certain regulators allowed illegal operations of counterfeiters and their products to flow into the market. The arrests of a few top-level officials at SFDA last year signaled the seriousness of the internal problems at this regulatory body. With new leadership in place, SFDA is poised and determined to regain its control in the market and win back public confidence.
Conclusions
It's not hard to see that counterfeiting is driven by economic needs and personal desire. The notion that the Chinese culture encourages counterfeiting is unfounded. Chinese are taught at young age to respect and comply with the rules of the law, to adhere to honesty and basic ethical value. Those who commit to counterfeiting are often less educated, with no idea of the legal and regulatory requirements to operate their businesses. Mostly, their desire for money is the root of their pursuit to short cuts.
It is true that the counterfeiting industry has mixed into the Chinese economy. It is also true that the country's legal and regulatory systems need major reform to be suitable for the current market demand. However, China will need time to work though its problems. The exposure of such problems on the global stage puts pressure on officials to take action. Compared to when the SFDA initiated operations in 1998, it has made noticeable progress in managing the healthcare industries.
As Chinese companies grow and expand into international markets, they will learn the importance of their own brands and the reputation of those brands. With the help of the healthcare and medical communities around the world, one can expect that China will strengthen its efforts in battling the counterfeiting culture.
Counterfeiting factors in China
• A weak legal system and lack of enforcement mechanism keep the culture of counterfeiting thriving. Although SFDA has the regulatory authority over medical and pharmaceutical companies, it has to rely on regional agencies and local law enforcement and the legal system to prosecute offenders. Regional government is often reluctant to deliver harsh punishment on companies that generate good tax revenue and provide employment for the region. The personal ties between government officials and company owners add another dimension to the problem, weakening enforcement efforts.
• Supply and demand. Patients are demanding better healthcare, but often cannot afford brand-name drugs or advanced medical treatment. Strong demand contributed to annual double-digit growth over two decades for the medical industry, but also left room for some illegal manufacturers to make fake products to fulfill the needs of the poor. The social problem that it's "expensive to treat a disease" prompted the State Council to formulate a policy to reduce healthcare reimbursement rates and drug prices, which put manufacturers in a tight financial condition, reducing funding for new product development, and for defending against counterfeiters.
--By Chang-Hong Whitney, contributing editor and president of Whitney Consulting Ltd., a business consultancy focused on China's medical market, providing services in regulatory affairs and compliance, market research, and general China business consulting. Whitney has degrees in Electrical Engineering, International Business and an MBA from Babson College, Wellesley, M). She can be reached at [email protected].
Looking through the history of economic development and the path of each developed country, one can easily find counterfeiting being part of every developing economy. The motivation of counterfeiting is driven by pure economics. The need to get rich from nothing, the lack of know-how and the financial constraints forced many entrepreneurs to look for the shortest pathway to "success". Coping established products with known reliability and brand recognition seems to be a "no brainer".
Even in developed nations such as the United States, Japan, and many in Europe, counterfeiting is still a game of cat and mouse between counterfeiters, law enforcement and companies. When China first opened its market to the west, its strategy was to attract foreign technologies. "Technology transfer" in the early 1990s was one of the few ways to get into China. Many companies openly copied products from the west for sales to its close networks of customers in China. Consumer industries such as clothing, consumer electronics and entertainment products were extensively explored due to their low-tech barriers and high consumer demands.
On the medical front, fake drugs have been problematic for the China State Food & Drug Administration, which is the top regulatory agency for the pharmaceutical, health foods and medical device industries. Despite its efforts to tighten controls, inadequate regulations, coupled with bureaucratic systems and the greed of certain regulators allowed illegal operations of counterfeiters and their products to flow into the market. The arrests of a few top-level officials at SFDA last year signaled the seriousness of the internal problems at this regulatory body. With new leadership in place, SFDA is poised and determined to regain its control in the market and win back public confidence.
Conclusions
It's not hard to see that counterfeiting is driven by economic needs and personal desire. The notion that the Chinese culture encourages counterfeiting is unfounded. Chinese are taught at young age to respect and comply with the rules of the law, to adhere to honesty and basic ethical value. Those who commit to counterfeiting are often less educated, with no idea of the legal and regulatory requirements to operate their businesses. Mostly, their desire for money is the root of their pursuit to short cuts.
It is true that the counterfeiting industry has mixed into the Chinese economy. It is also true that the country's legal and regulatory systems need major reform to be suitable for the current market demand. However, China will need time to work though its problems. The exposure of such problems on the global stage puts pressure on officials to take action. Compared to when the SFDA initiated operations in 1998, it has made noticeable progress in managing the healthcare industries.
As Chinese companies grow and expand into international markets, they will learn the importance of their own brands and the reputation of those brands. With the help of the healthcare and medical communities around the world, one can expect that China will strengthen its efforts in battling the counterfeiting culture.
Counterfeiting factors in China
• A weak legal system and lack of enforcement mechanism keep the culture of counterfeiting thriving. Although SFDA has the regulatory authority over medical and pharmaceutical companies, it has to rely on regional agencies and local law enforcement and the legal system to prosecute offenders. Regional government is often reluctant to deliver harsh punishment on companies that generate good tax revenue and provide employment for the region. The personal ties between government officials and company owners add another dimension to the problem, weakening enforcement efforts.
• Supply and demand. Patients are demanding better healthcare, but often cannot afford brand-name drugs or advanced medical treatment. Strong demand contributed to annual double-digit growth over two decades for the medical industry, but also left room for some illegal manufacturers to make fake products to fulfill the needs of the poor. The social problem that it's "expensive to treat a disease" prompted the State Council to formulate a policy to reduce healthcare reimbursement rates and drug prices, which put manufacturers in a tight financial condition, reducing funding for new product development, and for defending against counterfeiters.
--By Chang-Hong Whitney, contributing editor and president of Whitney Consulting Ltd., a business consultancy focused on China's medical market, providing services in regulatory affairs and compliance, market research, and general China business consulting. Whitney has degrees in Electrical Engineering, International Business and an MBA from Babson College, Wellesley, M). She can be reached at [email protected].
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