October HBR Case Review

So, much like last month I am giving my case analysis with blind eyes to the expert opinions provided after the case. My format will be a brief outline of the case, the case question, and then my input on the case.

Can Knockoffs Knock Out Your Business?

Brief description:

The case starts with an outside consultant locating and seizing roughly 100 tons of fake products from a warehouse in Hong Kong. The consultant then calls the CEO of Ruffin, Bill Bronson to let him know that the seizure occured. We then find out that Bill has a vested interest in tracking down knockoff products from a nearly fatal accident involving a knockoff watch representing his watch company.

Bill is currently in Dubai and working with Kamil Zafir and Nels Volgren. Kamil and Nels were discussing the upcoming protocols being built into their products that will make reproduction nearly impossible in 12 months. The new product security protocols are partly relying on a laser-etching device purchased from China. They've also been doing some simple things like evaluating the contractor's raw material orders to "red-flag" when they order too much product.

Two weeks later, Bill was in Beijing and noticed an abundance of knockoff products. Lily Wang, Ruffin's east asian director, told Bill that the knockoffs were "free billboards" and they weren't "lost sales"

Bill has added additional lawyers to the staff, employee time is now having to be allocated to testify at the nearly 20 different civil and criminal lawsuits. Essentially, profits were being eaten away by legal costs.

Case Question:

How far should Bill take his campaing against counterfeiting?

Personal Analysis:

Well, I think that some of the efforts that Bill has initiated are excellent countermeasures to the knockoffs. The laser etching and other special markings are an excellent way to help customers verify authenticity. However, knockoffs are an inevitable byproduct of a high-end brand. A clear solution to this problem is to eliminate the outsource production process. Bring the production of the watches and other products back into company hands. This method will help to reduce the leak of confidential manufacturing techniques. Now, you may say that corporate espionage will still happen. While this is possible, it is much less likely than putting corporate products in the hands of external outsourcers in a foreign country.

If the company chooses to stay involved with a foreign outsourcer (which is legitimate from a profit margin perspective) I think that they need to dictate the production facility policies to punish those involved with corporate espionage with jailtime in their local country. Put forth some counter-intelligence efforts...push some fake product designs to each facility and see what is sold on the black market. This could be a method to find the "bad eggs" and get rid of them.

Just some thoughts....as I'm not entirely familiar with these issues on a practical basis. So, my thoughts are entire theory-based. Don't get me wrong...I want to have some experience in those situations. I just don't have any yet.