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Alibaba Dominants The Counterfeit Market

Updated on June 19, 2017

Jack Ma, founder and executive chairman of Alibaba Group Inc., recently stated that he wants to incarcerate individuals and penalize companies who produce counterfeit or knock-off products.

On Weibo, Jack Ma stated, “If, for example, we imposed a seven-day prison sentence for every fake product sold, the world would look very different both in terms of intellectual property enforcement and food and drug safety, as well as our ability to foster innovation.”

Considering that I’m in the hockey and sporting goods industry, I frequent the Alibaba website to check out if there are any buying deals available. It’s intriguing to note that what keeps popping up are brand-name hockey products like CCM, Reebok, Bauer, and Mission.

One particular ad displayed Reebok goalie pads. The ad highlighted the production facility which certainly looked capable of producing counterfeit products along with branded products that are sold to North American manufacturers. If one has to learn about counterfeit products in China, then one has to come to terms with the speed in producing the product and getting the product into the marketplace.

Chinese companies are accustomed to making goods for the developed world regardless of whether or not it’s illegal. A perfect counterfeit is able to cross global trade barriers through intermediaries, notably Alibaba. The majority of consumers purchase knock-offs knowing very well that they’re not real. Of course, there are social aspects involved in purchasing knock-offs, especially as the cost of living has heavily outpaced wage and income growth over the past 10 years.

The Chinese people have established a high degree of technological advancements with their production distribution. They have the biggest resources of rare metals in the world. With their vast volume of supply, it’s not feasible to simply make Apple phones for Apple Inc. What’s feasible is diminishing their rare metals inventory similar to their overcapacity of steel that is stored in containers and huge warehouses.

China is also the biggest producer of silicon, the primary component in the production of semiconductors. If one produces semiconductors legitimately for foreign companies, then what difference does it make if you produce a few million behind the counter? Who’s to know?

According to the Wall Street Journal, Jack Ma had previously indicated that counterfeits are often better quality than genuine products. This has to do with the fact that Chinese living standards are substantially better today than they were 10 years ago. Better technology, a better workforce, and better quality control are the trending subjects of Chinese business today and will foster the development of the nation for decades to come.

Alibaba has legitimate businesses listed as suppliers. They assure the buyer with their “Gold-Standard” assurance that promises that if suppliers are late upon delivery, then Alibaba will foot the bill and refund the money. However more often than not, Alibaba does not refund the money, they only refund the commission.

Scandals have also swept the company. Recently in a filing with the Hong Kong Stock Exchange, two senior representative of Alibaba, the COO and the chief executive, resigned to accept the responsibility for the company granting “golden status” integrity to 2,236 dealers who subsequently defrauded buyers. An internal investigation concluded that over 100 sales staff and “a number of supervisors and sales managers” were “directly responsible in either intentionally or negligently allowing the fraudsters to evade” various control measures.

It’s the buyers that are responsible though. As consumers we are frequently alienated from corporate brands that sell to us. We are also usually given an option of giving up on something we want and buying a counterfeit, with the counterfeit usually coming out on top.

The real dilemma for Alibaba is China’s overcapacity and the proliferation of shadow banks that loan out money at a high interest rate that force even legitimate companies to manufacture counterfeit brands based on demand. However that demand has to do with China’s own domestic demand. As the nation becomes more prosperous, they have more money integrating brand names and knock-offs as a conceptualized way of doing business and acquiring status.

Who knows why Jack Ma suddenly feels that counterfeit products are not a viable business. Perhaps it has to do with competition from companies like Amazon, or perhaps it has to do with repairing Alibaba’s integrity and reputation amidst growing concerns from buyers.

When Alibaba purchased Youku Tudou, a company similar to YouTube, Jack may have had a change of heart. It could be because of the fact that content costs money, which is why they’re paying for Hollywood films. Even though Youku Tudou produces their own content, they can bleed and lose money because of other competitors pirating and streaming this content.

Jack knows fully well that China’s central command will not totally enforce piracy in its cultural domain. The reason for this is because China’s military intellectual property was stolen from foreign countries. With these technologies, China can now move forward to establish their own intellectual knowledge to fuel their desired military expansion and dominance in the Asia Pacific region.

China loves to hoard money. The nation enjoys free movies and loves knock-offs providing they meet the standards of what Jack Ma once stated, “Counterfeit products are often higher quality than genuine products.” If Alibaba’s shareholders are to take Jack Ma seriously, then he should be the first one to be incarcerated.

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