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Friend or faux? Inside China’s counterfeit trade

News story

Counterfeiting is illegal worldwide but a commonplace occurrence, particularly among makers of shoes, watches, perfumes, handbags, cosmetics and jewellery. Counterfeit goods can put consumers at risk through the use of poor-quality components and have even been linked to child labour and organised crime.

Outdoor table laden with counterfeit handbags.

According to a report by the OECD in 2016, the economic impact of imported fake goods worldwide is more than US$460 billion, higher than the drug trafficking trade.

Between 2007 and 2016, Professor Ian Phau and Dr Min Teah from Curtin University undertook research on consumers’ attitudes to counterfeit luxury brands in China, a country acknowledged as the world’s most notorious for counterfeiting.

With little governance or enforcement to prevent counterfeiting in the populous nation, the pair aimed to provide a clearer understanding of how consumers felt about knockoffs, with outcomes intended to inform the country’s policy makers and help them formulate effective strategies to reduce the problem.

Phau and Dr Teah flew to Shanghai in 2008 to obtain direct insight into the attitudes of Chinese consumers toward counterfeit luxury brands. They interviewed people in the street and the shopping malls using stratified sampling, where they approached every fifth person to ensure their sample was random.

Almost three-quarters of the 202 people surveyed admitted to buying fakes, with many citing the public perception of luxury brands as their main reason for buying – a practice Phau and Dr Teah describe as status consumption.

Phau and Dr Teah’s resulting research paper, Devil Wears (Counterfeit) Prada: a study of antecedents and outcomes of attitudes towards counterfeits of luxury brands [iv], identified status consumption as the main driver for purchase of counterfeit brands among their sample group, and integrity – adherence to the law and ethics – as the main driver not to purchase. In contrast to previous studies, collectivism – fitting in with the crowd – was found not to be an influencing factor on this group.

Based on these findings, the paper discusses a number of implications – some regarding measures that luxury brands can take to make their products harder to imitate, and some regarding social policy measures, such as consumer education and punitive measures for buyers and sellers.

To western consumers familiar with IP protection laws, the findings and their implications may not be unexpected, but to many Chinese consumers, they were radical.

“It informed the public and government about people’s behaviour and opened eyes into how things are done. It was not something that people had studied before and China was an emerging market. It changed the way people perceived businesses and how they were being run in China,” says Dr Teah.

Perhaps ironically, it was the western media – The Economist – that first mentioned the research in 2012. At the time, it had a reach of 75 million readers per month.

The story, ‘Fakes and Status in China’, provoked some reactionary behaviour. After the article was published, Phau received telephone calls from multiple Chinese newspaper agencies as well as correspondence from a number of citizens, some of which he categorises as hate mail.

The Economist picked up our paper and that was the start of a spiral. I got hate mail! I got phone calls coming from China from the newspaper agencies, and then private citizens. I did not project a good impression on Chinese citizens at that point,” explains Phau.

The story gained momentum, also running in Chinese state media and generating wider discussion around counterfeiting issues within China’s economy and continued to raise public awareness of its inherent risks, as well as spurring similar studies.

In 2014, the Chinese Government clamped down on the illegal practice. A new trademark law came into force in China in May 2014, introducing severe punishments for repeated infringements and raising the amount of statutory damages six-fold.

It is difficult to identify the direct drivers behind these policy changes as Chinese Government information is not freely available, however the growing public awareness of buyer behaviour and the change in attitude towards counterfeiting is likely to have had an influence.

“They became more rampant in their search of places where counterfeits are sold, and there has been a slow down. We highlighted the problem and how we can actually stop this,” explains Phau.

In 2015, Phau and Dr Teah repeated their research in Shanghai and Taipei to gain comparisons between two geographical areas for their second research paper, Devil Continues to Wear Counterfeit Prada: a Tale of Two Cities.

The second paper’s insights provided deeper understanding into the differences between Chinese consumers and the implications of counterfeiting, for both practitioners and policy makers. The paper also had impact internationally, particularly for businesses looking to operate in China.

The Western media picked up on it, with interviews in world politics and business news outlets, The Globe and Mail, SBS World News, Science Newsline Technology, Fairfield City Champion and InderScience- EurekAlert!, and in Australian newspapers, The Sun Herald Sydney, The West Australian and The Sydney Morning Herald.

Later in 2015, the Chinese Government pledged to crack down on selling fake goods online, and released public service announcements in Chinese media warning the public about counterfeits and their impact.

Their work has gained traction with a three-year funding commitment from Curtin Business School to build a specialist research laboratory. The pair has supported more than ten PhD students, several of whom have gone on to work for luxury brands as consultants. In 2016, a master degree in luxury branding at Curtin began development, with Phau and Dr Teah’s research used to inform the curriculum.

This story is from A Decade of Impact

A Decade of Impact is a series that showcases some of Curtin’s most impactful research projects in recent years. The chosen research projects are examples of how Curtin translates its research into economic, environmental and social impact.

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