Page 2 of 2 Why all fakes lead to
China By Bright B Simons
presence in the latter. In 2006 the
company began to backtrack amid massive recalls of
some of its Spartan 3 brands, most of which by
this time contained Chinese components after a
switch by Xilinx from IBM suppliers.
To
repeat: the study cited above was unscientific. As
any amateur sociologist worth his or her salt will
concede, establishing a causative link is a task
equivalent to cleaning the Aegean stables, and
often one just as mucky. However, the study did
take into
account the company histories
of the actors mentioned above with regards to
product recalls before and after substantial
transfers of productive capacity to China, and did
discover a troubling upsurge in recall activity
after transfer of major processes to China.
But what has all this to do with
counterfeiting? A lot, but by implication rather
than connection. At the time of the study cited
above, the chief insight was that insufficient due
diligence had often preceded the transfers of
those levels of industrial capacity to China, and
the product recalls were hence a result of an
inability of the firms involved, most of them
global players, to readjust their command and
control structures to handle the emerging shape of
their sprawling global supply lines.
China, in this view, had become a
millstone around the neck of these webby knots of
supply lines, its enormous weight distending their
frame and weakening their elasticity. Too much had
gone to China too fast is the pithiest way to put
the point.
With hindsight it is clear that
that analysis was a tad too simplistic. Too much
has indeed gone to China too fast. But the
implications of that development in global
economics are plainly multifold, and definitely
not limited to the strains on global supply-chain
integration for major manufacturing actors as
indicated in the perspective above.
First,
the minor points. One, it does not take much
imagination to see that the advantages of the
cheap skilled labor that draws Western firms into
China, and allows them to produce nearly half the
world's manufacturing output within an economy
that yields a gross domestic product (GDP) per
capita equivalent to that of some developing Latin
American country, will also be available to
organized criminal networks based anywhere on the
globe.
Two, as more of the technical
aspects of production shift to China and technical
capital thus accumulates in the country, it is
natural to expect that returns to that technical
capital will fall. This is happening even as
allied processes such as marketing, legal,
financial, risk management and design continue to
stay put in the West, or at any rate are not being
transferred anywhere as rapidly as technical
processes are. Meanwhile these allied processes
are recording continued increasing returns to
investment. It is to be expected that, given these
circumstances, the Chinese entrepreneur will seek
to diversify away from technical investments.
The major points thus are: first,
organized criminal networks, unencumbered by the
costs of brand protection and
intellectual-property development, are likely to
be able to pay more for skilled labor and thus
attract the technical resources to enable them to
compete with Western manufacturers - hence the
sophistication of counterfeits. Second, the low
returns to technical investment, evident in the
shrinking margins of contract manufacturing for
Western multinationals, mean that the Chinese
entrepreneur will diversify toward finished goods
embodying both technical and allied processes.
The continued domination of foreign
technical capital in the Chinese economy, however,
means that it is only the most naive - or
conversely the most brilliant or endowed - Chinese
entrepreneurs who can risk the travails of
building indigenous brands to compete as
aforesaid. Faced with this classic entrepreneurial
challenge, Chinese entrepreneurs are simply
allying with criminal elements to fake established
brands or piggyback their generics on these brands
as a way of cutting risk. The same paucity of
other forms of capital beside the technical will
be equally detrimental to the quality of genuine
brands as it will be to counterfeit brands, but
that is peripheral to the main issue, which is
that there is a higher demand in China for
entrepreneurial opportunities beyond making to
order. And in the intervening period between now
and when high-value processes, along with the
better-paying jobs, such as aforementioned, follow
the technical shift out of the West to China,
Chinese entrepreneurs and their criminal allies
will be content to make do.
Rather than
seeing the proliferation of counterfeit goods in
China as owing to some peculiar cultural
phenomenon, observers simply need to pay attention
to the differential rates of return to various
forms of capital in an economy that has become a
giant microcosm of the entire global productive
economy.
Bright B Simons is a
research fellow at the Ghanaian think-tank IMANI,
the Center for Humane Education, Accra.
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