Smooth functioning of the supply chain depends on a number of factors, including reducing vulnerability and risk. In the world of electronics, the supply chain is susceptible to a particular type of vulnerability: counterfeiting.
According to the Global Intellectual Property Center (GIPC), a division of the U.S. Chamber of Commerce, counterfeiting throughout industry is an ever-increasing, multi-faceted threat. There are risks to health and safety: counterfeit automotive parts, for instance, may lead to failure; counterfeit batteries and chargers may explode or catch fire; counterfeit toys may contain hazardous chemicals. There are also economic effects, including loss of revenue and taxation, decreased innovation and overall slower economic growth. The GIPC even notes that counterfeiting can represent a relatively easy and fast funding method for organized crime and terrorist organizations.
The proliferation of internet and social media channels as a supply chain route expands the reach of counterfeit products, which are made all over the world. There is, however, a strong consensus that the vast majority of counterfeit products are produced in China and Hong Kong. The U.S. international broadcaster Voice of America (VOA) recently forecasted that counterfeiting will increase during this decade, with China at the “heart of production.”
What constitutes electronics counterfeiting is wide and varied. There are “blanks”—empty bodies of components with no wiring or internal circuitry, made to look superficially authentic. There are parts that an authorized manufacturer may mark for disposal for failing to meet manufacturing standards, which are later recovered and illicitly repurposed. Older or refurbished parts can also be relabeled as new or even entirely different products, and excess manufacturer stock can be sold to independent distributors via “backdoor” channels. And that's just the tip of the iceberg.
One of the factors that makes counterfeiting so pervasive in the electronics market is the inherent need for unofficial supply routes, also known as the “gray market.” Unlike other types of products that manufacturers can continue to supply throughout their lifecycle, electronics components are especially prone to premature obsolescence. Aircraft systems, for instance, represent a high-investment, slow-ROI industry with a need for continued supply long after components have disappeared from standard channels. While some of the parts one can find on the gray market may be legitimate, their availability there also presents an opportunity for counterfeiters to acquire and reverse-engineer their own convincing versions—and sell them for much less.
The Electronic Resellers Association International (ERAI), established in 1995, has developed a counterfeit awareness knowledge center for the electronics industry to raise awareness of the risks, maintain information on applicable standards, and recommend best practices for parts screening and material control.
Another resource, the International AntiCounterfeiting Coalition (IACC), is a Washington, D.C.-based nonprofit formed in 1979. As the longest-standing organization of its kind, it supports policy initiatives along with practical enforcement, and hosts annual spring and fall conferences. One of its top recommendations to avoid purchasing fakes is what it calls the “3 P's”:
- Price: If it looks too good to be true, it probably is.
- Packaging: If the packaging is missing, appears to be of low quality, contains printing errors, etc., it is probably counterfeit.
- Place: If the product is being sold in a store, consumers should ask whether they would normally expect to find it in this environment. If it’s being sold online, check the fine print in the product descriptions, business contact pages, etc. Incomplete information or typos are a giveaway that the site is probably fake.
Counterfeiting is pervasive, but staying aware of trends and maintaining policies to verify authenticity can greatly diminish its impact. For more information on protecting yourself or your business from counterfeiting, have a look at this detailed analysis.