In Depth

Unwelcome (Product) Diversions

Product diversion costs manufacturers millions, but often isn't technically illegal. CSOs say combating diversion involves equal parts investigation and corporate politicking.

By Todd Datz

Brenton: Right, we have antitheft devices on the inside of our boxes. And the biggest issue is, people don't really notice this. With a counterfeit product or a foreign product that is repackaged in U.S. packaging, they do not [carry the antitheft devices]. So that's one indicator to us that the product was not manufactured in the United States.

CSO: What are the complications in working with law enforcement abroad?

Arnt: China, a few years ago, before they got into the World Trade Organization, was a huge problem for all consumer product companies. We were able to get very little enforcement until a few years ago. The problem now has significantly diminished because the Chinese authorities have taken much more interest in terms of going after this. China has really emerged as both a consumer and a manufacturing dynamo, and a lot of that is because they're taking intellectual property and trademarks, at least from our experience, much more seriously than they did.

We did find some other countries in Southeast Asia where diversion would show up. But Southeast Asia in general had counterfeiting problems—for instance, Vietnam. But you would see these little mom-and-pop shops. Sometimes they would go to your packaging manufacturer and purchase overruns on your packaging, and then put an inferior product in it, go out and sell it on the marketplace.

CSO: Do you use antidiversion software?

Arnt: We use services to help us identify diversion. I'm not sure what software programs they have. A lot of it is database programs where they've had experience with a diverter before. But we use a couple of services that assist us in getting a heads-up: "This particular diverter has this amount of product out there on the diverter's line. If you'd like us to see what we can find out about it, or make a purchase or whatever, we can do that." We do a number of investigative things that way. We have a couple of ex-diverters who provide some assistance to us in terms of actually being able to go out and speak the language, in some cases make a purchase if we need to, and help us identify some of those channels.

CSO: Explain the "diverter line."