Protecting Physical Products in Today’s Digital Global Economy
A 12-dollar purchase does not usually garner much attention, but one made it into The New York Times. On 12 August 1994, the newspaper reported the first online sales secured with freely available data encryption software. The article said standards to protect sensitive data would need to be in place for e-commerce to take off.
Witnessing the rise of the digital global marketplace
Since then, e-commerce has taken off but it has yet to reach cruising altitude. Consulting firm Forrester Research forecast business to-consumer (B2C) sales of USD 3.2 trillion by 2020. However, it also predicted an even higher volume of business- to-business (B2B) sales, estimated at USD 6.7 trillion by 2020.
Along with the rise of e-commerce, the last 20 years have also witnessed the growth of globalization. One key driver is the reduction of trade barriers between individual countries and between regional free-trade blocs. More than 400 regional trade agreements have been signed in the last 20 years, compared with slightly over 120 in the preceding 40 years.
E-commerce and globalization are two mutually reinforcing forces driving today’s economy. Their convergence has led to the growth of global value chains. Today’s companies are producing wherever they can find the skills and materials they need at competitive costs and quality.
The convergence of digitization and globalization has changed more than just industrial production and trade relations. It has led to the rise of the digital global marketplace. Customers, too, are buying goods and services wherever they are available at competitive prices and quality. Today, a business or a consumer in Canada can place an online order with a Czech supplier for a product containing raw materials from Chile and the Congo that were integrated into components in Cambodia before final assembly in China.
Counting the costs of counterfeiting in money and lives
In the digital marketplace of today’s global village, how will companies or consumers know if the products they buy online, or off the shelf, are genuine? This is a trillion-dollar question. In 2011, the International Chamber of Commerce estimated that, by 2015, counterfeit goods would cost the global economy USD 1.77 trillion. That is equivalent to the 2014 economic output of Canada, a G8 country.
Counterfeiting is literally also a matter of life and death. Over 25% of the illicit products seized in the European Union in 2013 posed a risk to human health and safety. Many fakes contain harmful chemicals or substandard parts that can cause injury or death.
Nowhere is the human impact clearer than with fake medicines. Some contain no active ingredients while others have a wrong dosage. In 2013, Interpol said that counterfeit drugs kill more than one million people each year. Imagine five full A380 jetliners crashing every day, each year.
No region of the world is spared. In 2015, an Interpol raid in 13 Asian countries seized nine million fake or illicit medicines worth USD 7 million. In 2014, French customs stopped 2.4 million fake aspirin, erectile dysfunction and diarrhea drugs. In 2012, the US Food and Drug Administration warned healthcare professionals that some of them might be unknowingly injecting patients with a fake version of a well-known cancer drug.
Nor are fake medicines the only source of counterfeit-related health risks. No category is immune. Fake consumer products include household care products, cosmetics and personal care, as well as food and drinks. Fake industrial goods range from pesticides to mechanical and electronic parts used in automobiles, aircraft and other vehicles.
Brand protection is about taking care of two vital company assets: its reputation and its customers.
Connecting the dots between e-commerce, globalization and counterfeiting
Today’s digital global economy benefits not just legitimate businesses: it also helps criminal organizations and terrorist groups who milk this giant marketplace for financial gains. While counterfeiting existed long before e-commerce and globalization, their convergence has made it easier to distribute and sell illicit goods. The cost of entry is low: setting up an online shopfront is cheaper than a physical one. In fact, some counterfeiters are setting up websites that are more sophisticated than those of the real brand owners.
With e-commerce and globalization, counterfeiters also find it easier to escape detection or, if detected to shift their production sites and distribution routes. A virtual shopfront takes less time to close down than a physical location and customer contacts are preserved in a database.
Protecting companies’ blind spots
Few companies today own every link of their value chains. With sourcing, production and distribution scattered across borders and a range of players, many companies find it hard to get a full view of their global value chains. Their fragmentation and complexity make such global networks the Achilles’ heel in the fight against counterfeiting and other forms of illicit trade.
In supply chain integrity: Protecting companies’ blind spots, a joint report published in 2015, Zurich Insurance and SICPA share their research and recommendations for identifying and mitigating the risks inherent in many global value chains. The report underlines the importance of designing a risk management strategy suited to each company’s unique supply chain structure.
With sourcing, production and distribution scattered across borders and a range of players, many companies find it hard to get a full view of their global value chains.
To be effective, that strategy must tackle three vital areas: dealing with the complexity of supply chain risks, beefing up supply chain security and engaging with external stakeholders. The most important recommendation is that “top management needs to take charge of a global strategic risk management approach”. The complexity of today’s value chains requires a helicopter view.
Once they have identified their risks, companies can use technology to reinforce their supply chain. For example, analyzing the data already in their systems can identify opportunities for simplifying their distribution networks. This can improve efficiency and traceability in good times and bad. Depending on the risks faced, companies may choose to apply marks visible to the naked eye, or features visible through simple or sophisticated devices. The choice of technology can be material, digital or both.
Protecting material things in a digital world
To help protect physical products in the digital global economy, SICPA is proposing new solutions. Combining its own high-tech security inks with proprietary digital technology, SICPA can embed – and later decode – digital data in products and packaging. That creates a multi-layer obstacle course for anyone seeking to imitate the security features. It also makes it easier for SICPA and its clients to spot attempts at infiltration. The added digital layer also enables companies to generate data that can help them trace their products through the distribution chain.
Digital technology also helps companies to inform and communicate with end-users and other stakeholders in the value chain. Today, brand names alone can no longer give consumers confidence that the products they use or give to their families are genuine and trustworthy. Widely available smartphone applications allow any consumer to check if a product is genuine.
Harnessing new technologies
Looking ahead, the development and convergence of technological innovations will offer new opportunities to companies, their customers and consumers. On the other hand, technologies such as 3D printing will make it easier for counterfeiters to copy products, imitate packaging and mimic brand assets.
However, companies can use the mass of data in their systems to improve the efficiency and integrity of their value chain. Low-cost, high-tech sensors can create early warning signals, spot irregularities or even stop unauthorized components or ingredients before they can cause any disruption.
Finally, new technologies can also empower end users. Smart tools and appliances in cars, homes, offices or factories give them the means to decide how and when to engage with a company or brand and take a more active role in checking and authenticating products. In return, the data gathered can help companies to pinpoint problems and focus the resources for tackling them.
Protecting a company’s vital assets
The rise and convergence of e-commerce and globalization in the last 20 years has created a digital and global marketplace for both legitimate businesses and criminal organizations. In this context, companies must innovate to stay ahead of both competitors and counterfeiters. Today’s digital global economy has made it more complex and challenging to protect a company’s brands, products, value chain and, ultimately, its customers and end-users.
With global value chains spanning countries and continents in a complex network of suppliers and distributors, meeting this challenge calls for much more than a technical quick fix. It requires a global strategy. Rather than treating the symptoms, an effective brand-protection strategy gives manufacturers a powerful vaccine against the disease of counterfeiting and other forms of illicit trade that seek to infect their brands.
Material and digital technologies play a pivotal role in protecting brands and products, as well as supply chain integrity. However, technology is only an enabler. Ultimately, brand protection and supply chain integrity are about senior management taking responsibility to protect two vital assets without which no company would exist: its reputation and its customers.
