Combating Different Risks with an Effective ERM Solution Part I

This is a two-part article that looks at the different risks faced by enterprises today and the need of effective solutions to mitigate these risks.

Globalization, technological advancements and outsourcing have benefitted enterprises in many ways. On one hand, they have been able to reduce the mounting costs by transferring the costly core business functions to low cost regions and on the other hand, they have been able to improve performance and operational efficiency by accessing the myriad of global talent available around the world. However, it has increased enterprise risks many folds. For instance, for enterprises outsourcing to low cost regions, there is a greater risk of counterfeits, gray market sales and lower than MAP sales.

Product Counterfeiting

The Federal Bureau of Investigation (FBI) has named product counterfeiting as the crime of the new decade in view of its considerable growth and sales. It is estimated that the annual counterfeit sales amount to a whopping $300-600 billion. Counterfeit products ranging from breakfast cereals to medicines have caused injuries and sometimes even death for some unsuspecting customers. From pharmaceutical, high tech to retail luxury goods companies, there is not a single industry that has not experienced the outcomes of counterfeiting.

According to the United Nations Office on Drugs and Crime (UNODC), drug counterfeiting is one of the most harmful forms of counterfeit goods with sales from Asia to South-East Asia and Africa alone amounting to some $1.6 billion per year. The reasons for this are the easy profits and relatively low risk of prosecution and penalties. Statistics show that the counterfeit drugs cause 100,000 deaths worldwide each year and provide approximately $75 billion in revenue, for illegal operators. Counterfeiting is a disease that easily corrodes the real brand’s image and reputation, derails global business, counterfeiting ensures loss of brand, revenues and jobs.

Gray Marketing

“When authentic branded products reach the consumer through marketing channels other than that of the authorized distributor” it is referred to as gray marketing. Though gray market products are authentic products unlike counterfeit goods, which are fakes, it can be as damaging and costly as counterfeits to the manufacturer. This is because the sales of these grey market products have a negative impact on customers who are expecting the original manufacturer’s warranty. Besides, the entire grey market sales process takes sales away from new products and affects distributor loyalty. This results in loss of revenue and legitimate channels as well.

In the second and concluding part of this article, we will look at some other enterprise risks and how to combat these risks with an effective Enterprise Risk Management (ERM) solution.

Anti-Counterfeiting Solutions To Combat Brand Dissolution

In the past fake branded products were sold at the back-street market stalls or by vendors carrying suitcases on the streets. Today this phenomena has become even more pervasive with the advent of internet technologies and eCommerce and are attracting purchasers from various sections. Thus, brand counterfeiting has been on the rise over the past few years and is considered as an acute concern across all industries. However, in case of consumer goods, electronic products, medical drugs and devices, automotive and the high-tech industry, brand counterfeiting is risky as it affects the consumer’s health and safety apart from the company’s profits and brand equity.

Brand counterfeiting has been gaining prominence globally with third party traders and counterfeiters making use of sophisticated methods online to trick consumers by selling fake and duplicate goods. According to the International Chamber of Commerce and World Customs Organization, the overall value of counterfeit goods was estimated to be $1 trillion globally in the year 2010. With online trading and eCommerce flourishing it is only expected to rise if adequate measures are not implemented.

At times it becomes very difficult for legitimate manufacturers to combat brand counterfeiting considering the techniques that counterfeiters use. Therefore, it is essential for manufacturing to invest in anti-counterfeiting and online brand protection solutions. This will protect them from revenue loss, increased liability risks and brand erosion. Keeping this in mind, eminent service providers specializing in online brand protection solutions have introduced efficient brand anti-counterfeiting solutions to put an end to brand counterfeiting.

Features of Brand Anti-Counterfeiting Solutions

Brand anti-counterfeiting solution concentrates on resolving issues related to product counterfeiting with its innovative search method to manage activities for any number of goods globally. The search engine tracks details on product pricing, product quantities and the discount percentages that are being offered by the counterfeiters. The end users can view all this information through a user-configurable chart on their dashboards. Moreover, the solution provides a company risk index that prioritizes the suspects as per their risk quotient and displays them on the dashboard.  The visibility and analysis you get from anti counterfeit solution enables a proactive response to online anti fraud detection.

Advanced brand anti-counterfeiting solutions also provide a comprehensive end-to-end brand management protection solution that comprises of investigation and innovative enforcement services that can efficiently curb down the operations of brand violators without investing in expensive and time consuming trials.

Read More About: gray market

Avoid Counterfeit Products from Reaching Consumers

Every organization is sensitive and cautious about its brand, as brand is much more than a mere name or trademark. It is an organization’s identity and reflects its core traits and intrinsic values. Therefore, any brand image or reputation violation results in losses, both finite and infinite. The internet and its latest advancements have benefited brand development in multiple ways. Similarly, it has also given rise to a set of perils that includes brand and product duplication, counterfeiting, gray market sales to name a few.

Most generic brand protection solutions available today are not equipped with inbuilt product anti-counterfeiting features. They merely scan the internet for any kind of brand and trademark abuse. Product counterfeiting leads to revenue losses followed by brand erosion. For example, in the luxury retail, pharmaceutical and high-tech companies, where loss margins are high, the visibility to detect the products that are being counterfeited along with price discounts, becomes crucial in order to halt brand erosion and ongoing monetary losses. In order to aid this situation companies specializing in online brand monitoring have introduced anti-counterfeiting solutions providing 24x7 instant monitoring to detect the brand violators.

Advanced anti-counterfeiting solutions are equipped with innovative search capacities and are appropriately designed for a detecting counterfeits across industry verticals. It helps to track brand violators and respond accordingly. The suspect criteria are however not same for every industry. For example, in case of high-tech industry where products are sold at a high discount, more than 50 percent are suspects. Contrarily, in the pharmaceutical industry price is not as much critical as the product volumes that are sold through counterfeit channels. Innovative anti-counterfeiting and anti-fraud solutions enable to detect these suspects and high-volume counterfeiters and help shut them down. Anti-counterfeiting solutions works in the following manner:

The solutions proactively search the internet for counterfeits and applied human intelligence to ensure complete data integrity

The solution enables companies to bring down the percentage of duplicate products in the market to a great extent by identifying network and syndicates high volume counterfeits

Today most organizations are realizing the importance of online brand protection from counterfeiting, product duplication and gray market sales. Apart from counterfeit detection, anti-counterfeiting solutions also help to shut down illegal operations. It automatically sends, ceases, desist DCMA letters and provides automatic auction shutdowns. Furthermore, its network of legal partners and authorized investigators, help to streamline the enforcement process.

Ways to End Gray Market Sales & Its Effect

In today’s fast evolving global economy, gray market diversion is gradually becoming an acute concern that most brands encounter. Unlike black market practices, were refurbished, counterfeit or stolen products are sold as authentic brand products, gray market activities involve unauthorized movement of commerce across multiple territories by fake distributors and channel partners.

More commonly termed as “parallel importing” or “product diversion” gray market activities can be considered as a fraudulent medium of inflating profits for participating distributors, simultaneously bringing down the brand owner’s revenue. It has been observed that gray marketers tend to capitalize on lower manufacturing expenses, surplus inventory, economic conditions, fluctuating distribution expenses and currency exchange rates by exporting products without the approval of the original brand owners.

The gray marketers undercut the prices of authentic domestic distributors by selling the products at reduced prices. This results in them attaining higher or similar profits that results from the lower procuring cost from the originating countries. Gray market product diversion can occur through multiple resellers and brokers, who look for lesser product prices round the globe. The ultimate impact of gray market sales is twofold.

• The local distributors are compelled to compete with the price reductions those results from the gray market activities, resulting in critical conflict and supply chain demand concerns within the approved sales channels.
• The product revenue streams for brand owners gradually become unbalanced, resulting in inflated sales metrics in certain regions, simultaneously incurring minimized revenues in other regions

However, today there are innovative solutions to combat gray market sales and the product counterfeiting that takes place in these markets. Solution providers have introduced advanced anti-counterfeiting solutions that offer brand protection and helps in counterfeit detection. It operates in the following way:

Apart from proactively searching the internet on an everyday basis for counterfeits, the solution also applies human intelligence to ensure complete data integrity

• The solutions help companies to significantly reduce the amount of fake goods circulated in the market by recognizing the networks and syndicates high volume counterfeits

Going by its very nature, gray market practices disturbs the invisible competition present in a particular sales territory by attracting the consumers and purchasers away from the authentic channels. It also sets up a false but increased demand for products that are imported by unauthentic means and offered at discounted price. With high-end brand protection and anti-counterfeiting solutions today companies can implement enforcement efforts in the apt places and minimize the percentage of counterfeits prevalent in the market.