Why Fighting Counterfeits Is Critical For Alibaba?

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Recently, Alibaba (NYSE:BABA) unveiled a new online platform that is aimed at streamlining the process required to track and remove fake goods on its e-commerce platforms. Termed as the Intellectual Property-Joint Force System, this tool will give participating brands an online portal and account manager to better facilitate the removal of counterfeits from Alibaba’s sites. The system will also allow Alibaba to alert brands on suspicious listings which it is unable to verify independently. Brands can then notify Alibaba if these products violate intellectual property rights so they can be taken down from the website. This move comes after several warnings from U.S. trade officials about large quantities of counterfeit goods being sold on its platform. It is estimated that fake products account for more than 60% of products sold on Alibaba’s platforms (as per China’s State Administration for Industry And Commerce) and complete elimination of these products can impact its volumes to a large extent. However, as the company looks to expand globally, it is critical for Alibaba to build a strong reputation and foster consumer trust across the world.  Fighting counterfeits will be key to achieve this goal.

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The quantity of counterfeits sold on Alibaba’s platform is very large.  NetNames, which tracks counterfeits online for brands such as Inditex and Billabong, estimates that 20% to 80% of branded goods on Alibaba’s Taobao platform are fakes. Brands do not believe that Alibaba’s efforts to resolve this issue are genuine.  The International Anticounterfeiting Coalition recently suspended a category under which Alibaba was admitted as a member, following questions from brands about Alibaba’s sincerity in fighting fakes.  This is a clear indication of Alibaba’s loss of reputation. While the company does appear to be taking several steps, including the recent online process to track and remove fakes, it can build its reputation back only when fakes on its platform reduce significantly. However, given the huge quantities of fakes sold on its platform, elimination of these products can impact Alibaba’s volumes significantly. The company is walking the thin line of maintaining both sustained growth and its reputation as a seller of genuine products.

Alibaba’s CEO justified fake products on its platform by stating that they have always existed in China and the internet has made it easier for these Chinese producers to connect with customers and sell their products. Rapid expansion of its e commerce platform has led to a huge number of these Chinese producers becoming part of Alibaba’s Taobao platform.  The company is definitely dependent on these players for transaction volumes. However, as it looks to expand globally, a trustworthy reputation is critical. As the Chinese economy slows, Alibaba is looking at regions such as India, Australia and Europe for growth.  Unless it solves the counterfeit problem, this growth might be difficult to achieve. While it does appear that the company is taking serious initiatives to remove fakes from its platform, greater demonstrated success will be critical for long term growth of the company.

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