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Counterfeiting: Faked in China

The world's biggest factory is also a fake goods hotbed. Here are 13 ways to protect your company. The second in a CSO series on counterfeiting.

Yang and other security experts don't buy into the belief that copying is somehow inherent in Chinese culture. The simple fact is that counterfeit goods are cheaper than the genuine ones, and in developing nations like China, wages are low.

"The concept of copying things from the Internet or a CD, people just don't think there's anything wrong with that. It's not because of culture. In China, people don't make enough money to buy a [legitimate] CD," Simone says. "Why spend $600 on a box of software that they could buy for $5? They can't afford $600; that could be a month's pay for someone in China. It's an economic issue," says Unger.

Three Kinds of Counterfeit Operations

According to Yang, there are three major types of counterfeit operations in China. The first is legitimate factories that have licenses to produce goods on behalf of brand-name companies. Some of those, particularly in remote areas, will produce fakes as well. It might be a handbag or battery or footwear factory that cranks out the genuine products for one or more labels, then runs a shift that turns sneakers into a counterfeit brand by slapping, say, a Nike logo on products that aren't really Nike sneakers. "The workers have no idea; they may not even know what a Nike logo is," says Yang.

The second involves joint ventures between a multinational and a Chinese partner. The multinational may contract with the joint venture partner to make 100 widgets; instead, the manufacturer makes 200 and illegally sells the extras.

The third kind of operation is the underground facilities that make items such as cigarettesâ¬and in some cases, investigators find they are literally underground facilities. Authorities can raid a building, squeeze their way through a 3-by-3-foot opening and come upon a large piece of equipment used to manufacture cigarettes located in the basement. How could that machine possibly have been moved into the building? "Sometimes they build a house around the equipment," says Simone. Dig a hole, pour some concrete, install the machine, then build the wallsâ¬it's a David Copperfieldâ¬worthy illusion. Simone also mentions fake doors, access points through cabinets and even times when authorities have had to follow electric wires in order to find a hidden factory.

Counterfeiters working underground also can make their fakes on the road. Yang says that some criminals put a 40-foot container on a truck to house a small piece of manufacturing equipment. "If you're mobile, who can track you down?" he asks.