Key reasons of counterfeiting growth

Various authors claim various reasons for growth and expansion in its magnitude and scope. There are few key players which are playing a significant role in the growth of counterfeiting which include the economy of the countries; legal authorities; consumers; and manufacturers of luxury brand goods and counterfeiters as well; both demand and supply side investigations need to be carried out (Exhibit 1). The main reasons of counterfeiting growth are summarized in Appendix 1 and 2.

COUNTRIES’ SITUATION AND LEGAL AUTHORITIES
Various reasons identified by Sridhar (2007) include high illiteracy rate level; low purchasing power; increasing unemployment rate; ineffective law enforcement; and nexus between counterfeiters and law enforcers The problem of counterfeiting emerged mainly due to emerging economies where there is little risk for large profits, low probability to get caught, low conviction rates and less penalty if convicted (Sridhar 2007; Frasca 2009; Bosworth and Yang 2002). It is also growing due to weak legal infrastructure and corruptible public officials (Green and Smith 2002); and countries which have low-cost producing facilities and poor IP enforcement, and are close to large markets play significant role in driving counterfeiting activity (Bosworth and Yang 2002). As suggested by Clark (2006), one of the examples is China where there are noted loopholes and flaws in its copyright and intellectual property legislation, and due to ineffective law enforcement and absence of serious penalties counterfeiters continue to sell illegal goods in the market. However, to date no serious actions have been taken to prevent this (Phau and Teah 2009).

CONSUMERS – THE DEMAND SIDE
The above mentioned reasons for growth of luxury goods counterfeiting might not be the core reasons but the certain aspects which provide the added advantage to the main players of the counterfeiting phenomenon – manufacturers and buyers of luxury goods counterfeits. The more the demand of counterfeits would be, the more counterfeits would be produced by the criminals who indulge in this tax-free business. “Since demand is always the key driver of a market, various researchers have argued that consumer demand for counterfeits is one of the leading causes of the existence and upsurge in growth of the counterfeiting phenomenon” (Bamossy and Scammon 1985). The driver for increasing demand is the aspiring attitude of consumers who wish to buy latest luxury branded products but cannot afford the original luxury goods (Phau and Teah 2009).

Counterfeits are purchased more when brand equity starts to signify an image instead of the actual tangible attributes of the product. When consumers start giving more value to the insignia of a brand on the product instead of the other product attributes, they tend to buy more low-price low-quality counterfeits instead of originals (Gentry et al 2001; Ang et al 2001). The more successful the brand name would be, the more likely it is to have counterfeits (Nia and Zaichkowsky 2000; Eisend and Schuchert-Guler 2006).

Moreover, high power distance in various cultures also leads to high demand for counterfeits of luxury goods; one prominent example is Mexico as it is rated very high on Hofstede‟s „Power Distance‟ Index. Mexican societies is one of those societies where wealth is concentrated in hands of few elites and consumption of counterfeits of luxury goods help remaining people to construct a fake identity which help them to become socially acceptable. Similarly, the results of a study of how social factors influence the Chinese consumers‟ purchase intentions of counterfeits, conducted by Phau and Teah (2009), reflect that status consumption is directly proportional to the purchase intentions of counterfeits of luxury brands. According to Hamm (2009), the collectivist desire to belong to a certain group presents reasons for growing counterfeit purchases, and only the three aspects of Chinese collectivist culture „Liwu‟, „Guanxi‟ and „Reciprocity‟ (Exhibit 2) negatively influence the purchase decisions of luxury goods counterfeits. Singapore is another example where people are judged solely in materialistic terms and as branded goods are very highly priced in Singapore, people tend to buy counterfeits of brands to be socially accepted.

MANUFACTURERS – LEGITIMATE AND COUNTERFEITERS
From the manufacturers‟ perspective, counterfeits of luxury brands do not require much effort to be sold, nor do they require much money to be manufactured. The amount of money and time original luxury brand owners spend in establishing brand equity is huge (Commuri 2009), which these counterfeit goods manufacturers do not have to incur. Secondly, the increase in goods that are worth counterfeiting with the ease of imitating brands due to advancements in technology (Phau and Teah 2009; Gentry et al 2001), and highly fragmented channels of distribution are some of the reasons for the catalytic growth of counterfeiting as is also suggested by Bamossy and Scammon (1985) and Hilton et al (2004). Bosworth and Yang (2002) also identified over production of goods under license as a source or reason of counterfeiting.

Furthermore, the premiums charged from the consumer by the legitimate manufacturers of luxury goods are generally very high from what manufacturers of counterfeits charge to their customers. These companies attract counterfeiters because they command purchase prices that vastly exceed their base manufacturing costs (Gordon 2002). Consumers, who buy products on the basis of functional attributes of the product, seem to value more on the price than rest of the factors. Ang et al (2001) in their study of counterfeits found out that consumers considered the prices of these luxury products to be too high despite the excellent production quality and other benefits associated with them. Also, the study conducted by Yoo and Lee (2005) showed that when price information about the brand was provided to the respondents, the preference for genuine item diminished. But from the luxury brands‟ perspective, price plays a crucial role in communicating and preserving exclusivity and prestige – as these are the important aspects of luxury brands – “as well as keeping the brand out of mass consumption” (Kwak and Sojka 2010; Commuri 2009). Gucci in 1980s expanded its output and made its products widely accessible in many stores which tarnished its image due to non-exclusivity of the products, and then came the counterfeits which damaged the brand even more. It had to withdraw its products from the markets in 1990s.