Counterfeit and gray market parts or products are a problem for any company attempting to protect their Brand and the consumer.  Protecting a company’s Brand is even more challenging when a disaster or event occurs which interrupts the manufacturing and supply chain operation of a large area.  Counterfeit manufacturers and gray market distributors are always willing to fill demands from consumers or suppliers when these events happen.  The parts or products supplied may or may not meet the manufacturers’ specifications or quality.

The recent tragic earthquake and Tsunami continues to affect the people of Japan and Japanese manufacturers of consumer electronics, automotive, Integrated Components and other parts or products.  Though only a week has passed, at the time this is being written, shortages are already occurring in markets which depend on readily available spare parts such as the automotive industry.  This situation places purchasers and purchasing managers in a position where they may consider alternative sources for the parts or products.

Many companies use the “Just in Time” model for manufacturing and inventory.  This model ensures that inventories are kept to a minimum and items are only ordered or produced when actually needed.  The danger of a “Just in Time Supply” chain is that it is susceptible to disruption unless there are multiple sources for all the parts.  Many companies have only one source for some of their items or products.  As long as everything works, it’s very advantageous and cost effective.  When it fails due to a disruption in the delivery of parts or products because of a disaster or other event, the company may be forced to seek the items from another, possibly unauthorized source.  The business decision to purchase from an alternate or unauthorized source is potentially risky; especially if the products produced using those parts will be used in aerospace, defense, pharmaceutical, automotive or critical infrastructure.

When there are situations such as those occurring in Japan that affect manufacturing or the supply chain, it is important to counsel purchasing staff regarding purchasing from suppliers who may have counterfeit or inferior quality goods.  The risks of allowing these products into the normal supply chain could potentially affect any efforts to legally protect a company’s Brand in the future.  If there is a business requirement to consider alternate sources for a part or product, we recommend consulting with your Corporate Counsel or other competent outside counsel before making this business decision and conducting due diligence checks on suppliers.  This is also the time to increase efforts to combat counterfeiting and gray market activities.   The counterfeiters and gray market distributors are always looking for a business opportunity.  Take steps to keep your company from being their opportunity.

As always, comments are welcome:  info at bdcon.net

Modified from the original post based on input from others.

Thomas Quilty

Hello and welcome to our site. As part of our website revision and at the request of our clients, we have added this Blog section to provide information from our staff or associates about issues we believe are relevant. We will be posting the information as it becomes available and will post selected responses to the information. The selected responses, either positive or negative, will be relevant to the topic being presented. Any posts off topic, inappropriate language or inappropriate comments will not be considered for posting. Now for our first Topic!

Market Entry Planning for IP and Intangibles.
Recently, my friend Michael Moberly hosted the ASIS Seminar, “Safeguarding Information Assets,” in Denver, Colorado and asked that I participate as a presenter on the topic of Market Entry Planning. When I asked specifically what he wanted, he told me that there was a lot of interest in how a company could protect their Intellectual Property (IP) and Intangibles when moving into a new market. I considered his request and realized that many companies don’t make plans to protect their IP and especially, their intangibles (knowledge, people, etc.) when moving into a new market.

At about the same time we were having our discussions, I had a new client wanting to move their Research & Development Center to the United States (US). I made a point to ask them why they wanted to move to the US and the answer was to protect their IP and any new developments. They saw the US as a new market and wanted to also be seen as a US Company. Their market entry plan took into consideration how they were going to protect their IP (US Laws and assistance from my company) and also their people by ensuring they were prepared, could speak English and wanted to live/work in the US.

In August, I was interviewed regarding outsourcing R&D to China and other countries for CIOZone. I gave my opinion that not enough companies are doing market entry planning with one of the goals being protection of their IP. Outsourcing R&D should be considered as a new market because of the risks involved. Outsourcing can provide a company with a competitive advantage as long as in the process of competing, the company doesn’t lose its IP or even worse, its intangibles (people or knowledge). If you have an opinion on this subject, please send me an email.

Thomas Quilty