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Posts Tagged ‘competition’

Anti-Counterfeiting as a Commercial Challenge : Five Forces of Competition

Counterfeiting and illegal diversion of drugs are criminal activities that should be pursued with the full force of the law. The rise in counterfeit drugs and fake food isn’t due to lots of canny entrepreneurs making a fast buck locally. It is often organised crime syndicates operating globally and risking people’s health and lives on a large scale. The need for strengthened legal sanctions against counterfeiters of ingestible products has been obvious for some time. In many countries, the punishment for peddling fake medicines is the same as for selling fake clothing. But if my t-shirt fades or falls to pieces there is a lot less danger to my health than if my painkiller contains lead, rat poison or leftovers from yesterday’s batch of penicillin. Strengthening enforcement by making these crimes a separate offence rather than an intellectual property infringement issue is a key step in the war against counterfeit ingestibles like food, drink, medicines etc. However, as business people we also need to play our part in fighting back. We need to stop procrastinating, choose the battlefield and use our weapons. To do that, we need to think of counterfeiters as commercial competitors and figure out ways to beat them as business rivals. There are a number of ways to look at competition, but I’m going to use the classic “Five Forces” approach as a framework for this discussion. If you haven’t read “Competitive Strategy” by Michael Porter I fully recommend it. Professor Porter argued that competition in any given industry can be characterised by the same five market forces. These five forces – which shape the competitive environment for steel, semi-conductors and soap powder – all have their parallels in anti-counterfeiting. Porter’s classic Five Forces┬ámodel is summarised in the diagram below, taken from the Harvard Business review.

Threat of New Entrants: How are you preventing counterfeiters entering your market? Are your procurement processes robust enough to prevent leakage of IP when outsourcing? Is your supply chain secure? This category is mostly an internal improvement challenge. Anti-counterfeiting is not just about fairy-dust taggants and serialization. Old fashioned business common sense and process control are also critical. Kaizen isn’t a Japanese beer. Bargaining Power of Buyers: This is a trickier force to deal with. Social healthcare systems or other large payors have significant negotiating muscle when dealing with drug companies. Supermarket chains have the same power over food and other FMCG suppliers. The key is defensible pricing and unique offerings. If your price is higher than an (apparently) equivalent competing product but your perceived value proposition is no different then you will be vulnerable to price pressure. On the other side, major purchasers who only chase cost reduction are in danger of attracting less scrupulous suppliers and counterfeiters and in turn damaging their own brands. Threat of Substitute Products or Services: This is the category where most of the brand protection technologies try to make a difference. Making your product or service demonstrably and visibly unique is a good tactic in preventing counterfeits. It is still surprising how many brand owners are content to sell high value items in low complexity packaging. This may be due to the mind-set of some R&D based industries like pharmaceuticals – the function is more important than the form. Consumers think the other way round, very often. They assume that something that looks the same as the original will do more-or-less the same thing. This logic applies to medicines, food or Louis Vuitton bags. Ask yourself whether you have made your product or service truly unique. Is your packaging hard to duplicate or can it be sourced on the open market at How difficult is it for someone to copy your form factor (tablet shape, device components, bottle design etc)? Bargaining Power of Suppliers: In situations where supply of raw material is insufficient to meet demand, the supplier has an opportunity to make very easy money by adulterating or counterfeiting their material. This is the root of the heparin tragedy of 2008 which probably caused the deaths of over a hundred people. If one of your raw materials is often in short supply or is only made by one or two suppliers then ask yourself how you could engineer that dependency out of your production process. Rivalry Amongst Existing Competitors: This last category should be irrelevant to counterfeiting. Rivalry between legitimate suppliers only affects their businesses, surely? Well, no. Misplaced rivalry can create perfect conditions for counterfeiting. If I want my brand to dominate against a competitor’s similar product, then I might be prepared to tolerate a high level of fakes on the basis that it is “free advertising”. In the public consciousness, brand ubiquity often means brand reliability. If everyone is using it then it must be safe. Counterfeiting is breaking down that connection and some of the big global brands are playing Russian roulette by tolerating fake versions of their products. Off-label usage of drugs is another example of commercial rivalry that invites counterfeiting. Although it is usually not illegal for a physician to make a personal judgement and prescribe a drug for a condition for which it was not licensed, it is generally illegal to promote that use. Several companies have been heavily fined in the past for knowingly selling their products (or tolerating their promotion by others) for indications in which they were not licensed. The commercial advantages of this are obvious. In time of lean sales growth it can bring much needed revenue and may help keep the stock buoyant versus the competition. However, the market buzz about such products can create an opportunity for illegitimate suppliers to use the internet to supply that growing demand. Look in the mirror and ask yourself if all your company’s commercial practices are compatible with anti-counterfeiting and consumer safety. Even if your own products are top quality, could your commercial activities be encouraging the proliferation of fake, diluted, diverted, expired or adulterated versions? There are no magic answers against counterfeiting. It is simply too lucrative and low risk for criminals to avoid the temptation. That doesn’t mean that there is nothing we can do about it. Start treating it like any other business problem and address the competitive challenges in the normal way. Blue Sphere Health works with companies large and small to address the issues raised above. If we can help, please get in touch. If you enjoyed the post please tweet, like or comment.
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Pharmaceutical Anti-Counterfeiting

Combating the Real Danger from Fake Drugs has become a must-have primer on anti-counterfeiting and is widely used by drug companies, regulators and others. The book covers the legal, strategic and political issues as well as the technical counter-measures such as process control, digital serialisation and physical security.

Pharmaceutical Anti-Counterfeiting book