Chinese fakes in Korean Markets
Nicholas Blank
The global apparel market is predicted to reach nearly $1,800 billion by 2011.1 Globalization has shifted production toward developing countries, especially China. That country’s National Garment Association estimates Chinese production capacity at 52 billion pieces per year. The country’s 120,000 manufacturers give United States and European fashion companies a wide variety of potential suppliers. Along with the benefits of increased competition, however, a dark side has emerged: counterfeit apparel.
Anyone travelling to Asia can find illegal imitations simply by walking through local marketplaces. With vendors and hidden showrooms spread through mazes of alleys, these places attract tourists on buying sprees for cheap designer fashions. Some counterfeit garments are outright unlicensed copies; others are made by authorized manufacturers that fail to prevent rejects from “going out the backdoor.”
China is struggling to clean up. According to Kroll’s Global Fraud Survey, nearly a quarter of companies in this region have experienced IP theft in the last three years. The country is on the United States Trade Representative’s (USTR) Special 301 Priority Watch List and has two marketplaces on the Notorious Markets List. For the first time, however, South Korea is not on even the USTR Watch List, and neither Dongdaemun nor nearby Namdaemun Markets are listed as notorious markets.
Despite Seoul’s persistent intellectual property rights efforts, major problems remain. Recently Korean Customs, for example, acted against an online dealer who sold, over two years, 70 thousand counterfeit luxury items worth $1.26 million. The dealer procured his stock from Namdaemun Market. Another counterfeiting operation sold 10,000 pairs of grade ‘A’ copies of shoes at Dongdaemun and Namdaemun Markets.
Many of Korea’s counterfeits originate in China. Guangzhou is a key location for procuring fakes to ship back to Seoul. Several years ago, working with the local Administration of Industry and Commerce (AIC), Kroll organized raids against stalls in Guangzhou’s Wan Tong garment market. Several times, Korean nationals arrived on the scene during the raid. Unable to speak Mandarin, they would argue with AIC officers through translators. One Korean, wearing dark sunglasses, demanded to see the AIC officers’ badge; another became physically aggressive. Clearly the raids were disrupting a profitable trade route.
Traditionally Koreans have a stronger presence in Northern China. Investigations around Qingdao indicate Korean involvement in counterfeiting there. During our investigations in the region, Kroll also found smuggling routes from Northern China into South Korea, with smugglers posing as passengers on ferries from Dalian to Inchon. Cargo agents, based in a cheap hotel near Dalian, often help with visas and shipping arrangements. The Korean Customs Service, in a crackdown from January to May 2009, dealt with 186 cases from China.
To learn more about the origins of fake apparel in Korea, we surveyed vendors at Namdaemun and Dongdaemun Markets. They almost all denied that their garments were Chinese-made. As proof of local origin, they said that orders could be delivered to their stalls in two to three days. Yet none gave further details about their factories in Korea. It seemed plausible that their garments were actually imported from China.
One vendor at Namdaemun, selling soccer uniforms, did admit that he bought them from a Chinese factory and then had them modified. It is easy to buy, or even custom order, “Made in Korea” tags and sew them onto imported garments.
Corporate brand protection efforts to address these issues can include, among other things, training programs for officials to familiarize them with English language brand names; garment tracing from major distributors back to factories; review of all licensee relationships; and preventive measures, such as regular audits of OEM and in-house factories. An audit that prevents T-shirts and jeans from being lost “out the back door” in China could very well save time and money in Korea.
1 http://www.fashionproducts.com/fashion-appareloverview.html
Global Fraud Report
2009/2010 Annual Edition
