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Not faking it

Not faking it

Saudi Arabia is currently battling the billion-dollar piracy industry that is rampantly growing in the Kingdom.

October 8, 2008 8:37 by

Alex Malouf

Fancy a fake Rolex? Sure. Need a pirated copy of Windows? No problem. As Saudi Arabia’s economy has soared, the counterfeiting business in the Kingdom has likewise rocketed. Estimates of how much is lost to the fake trade range from between 4 billion and 13 billion riyals ($1.06 billion and $3.46 billion) a year; however, the severest impact on the economy is in the souks themselves, where traders are openly selling pirated goods.

You can find fakes from dawn till dusk being sold in the centres of Riyadh and Jeddah, either openly on the streets or inside the local malls. Sellers of pirated merchandise often go from door to door.
“We had a refill company fax across their prices to the office only recently,” said one HP employee. “I don’t think he knew that it was HP, otherwise he wouldn’t have been trying to sell us fake ink.”

Estimates vary, but there are few sectors, if any, of the retail economy, which are not affected by fakers. The automotive sector loses about $210m to counterfeits; likewise, roughly half of Saudi Arabia’s software market, or $195m, is lost to pirates. Nayab Gohar, the COO of Jeddah-based anti-counterfeit firm International Trademark World, believes that there’s no one underlying reason for the boom in fakes..

“There’s a high demand of products, strong buying power and excess liquidity, low awareness of or about counterfeiting and little if any fear of the authorities. Counterfeiting has been growing alongside the legitimate retail industry, and it will continue to do so,” he explains.

Piracy has become so bad in Saudi Arabia that the International Intellectual Property Alliance (IIPA), the body that represents US industries worldwide, has listed Saudi Arabia on its global watch.
According to a study conducted by one intellectual property rights expert based in the Kingdom, the government set about drafting tougher laws to deal with piracy several years ago.

“Saudi Arabia enacted a new Copyrights Law, in August 2003, to bring the country into full conformity with WTO standards for protecting intellectual property,” notes Jehan Abdulkarim, Cisco Saudi Arabia’s PR manager. “At the end of 2005 and prior to WTO accession, Saudi has enacted laws that cover a range of intellectual property rights issues; the laws also increased penalties for violators, including fines and prison sentences.”

Walking into the offices of Hemaya Universal, another Saudi Arabia-focused anti-piracy firm, gives an idea as to how mature and widespread the counterfeit industry is in the Kingdom. On the office’s shelves are examples of fakes side by side with the real deal. Anyone who’s not an expert will have a hard time telling the difference. While the Kingdom does have some of the most stringent anti-piracy laws in the region, enforcement of these regulations is lax.

“Some consumers buy fakes because they’re cheap naturally, but others buy what they think are originals. Traders are clearly manipulating and misguiding consumers. They’re selling fakes which they are marketing as genuine to increase profits. What makes it even more difficult is that retailers are mixing originals and fakes together,” says Gohar.

While the effect of piracy on brand equity in Saudi Arabia has yet to be measured, increasingly companies are taking on the pirates. While some are pursuing pirates with disciplinary measures, others are using different means. Despite the staggering costs to its own sales, Microsoft wants to win over illegal traders and users of pirated software and bring them into the fold rather than into court.

“Just because we have the right to prosecute, doesn’t mean we have the obligation to prosecute,” explains Khaled Al-Dhaher, Microsoft Arabia’s general manager. “It could be that people do not grasp the concept (of pirate software). Two years ago I went to visit a customer who deemed himself the strongest believer in copyright laws. He told me, ‘I am the person that makes sure that nothing comes into my organisation that is pirated, nothing here is illegal.’ I said, ‘how do you do that?’ He opened up the safe in his office and brought a box of Microsoft Office CDs and he said, ‘This is an original copy that I bought and I make sure that every office installation of every PC in this organisation is from this box.’ He was serious,” adds Al-Dhaher.

But what about enforcement? The Business Software Alliance’s lawyer and representative in Saudi Arabia, Mohammed Al-Dhabaan, does believe that the government and the relevant ministries, namely the Ministries of Information and Commerce and Industry, are serious in their efforts to confront piracy.
“We meet the Ministry of Information on a weekly basis. A year ago there weren’t any dedicated members sitting on the breach committee – the committee which has the right to issue a judgment against resellers of fake goods,” says Al-Dhabaan.

“However, today, this committee has been re-established and meets regularly, once every two months. For the past five months they’ve started to push through pending cases. In one month they issued more than 15 judgments; for the whole of last year they issued only 10-15 cases. The country has wonderful laws relating to piracy, but the issue is implementation. Once we start judgements, such as imprisonment or closing the shops of those who sell fakes, then I think counterfeiting will drop rapidly.”

A number of multinationals have had remarkable success in combating copies of their brands. After working hand in hand with authorities across the region and rolling out consumer education campaigns, LG has been able to ensure that the only competition it faces in the market is legal.

“Fake items don’t have that much effect on us any more. Last year we noticed some imitation optical disk drives in the market, which were imported direct from China, but with the prices of commodity items dropping so rapidly there’s little incentive for fakers any more. On the premium side, they cannot produce high-quality imitations,” says Simon Lee, president, LG Electronics Saudi Arabia.

What companies like LG have found is that working hand in hand with recognised retailers to change customer buying habits has actually pushed down fake sales. “Today it’s the fashion to go shopping at a branded shop such as eXtra, CompuMe and Jarir. People will have the satisfaction of buying and knowing that they have bought a genuine product from a reliable supplier with quality after-sales service,” adds Lee.

One industry that has gone from strength to strength is the fake ink market, according to industry sources. Worth an estimated $10m a month for HP products alone, the fake ink business is booming despite the best efforts of vendors to clean up. And some in Saudi Arabia think printer companies could, and should, do more.

“Most of the resellers in the market are suffering (from low margins) and they mix products to make more profit. Margins for fakes are huge in this area, and non-originals still cost 40-50 percent less than originals. Suppliers price their consumer products very high and minimize hardware prices to encourage people to buy into their brand and kit,” explains Bassam Abu Baker, group general manager for solution provider NTG and the head of both retailer CompuMe and distributor AIM.

Abu Baker’s advice to vendors is simple – vendors should push the region up the priority list if they’re to make a dent in the fake issue. “There’s a shortage in the market, so make products available. If you have a shortage all the time and your prices are high then people will naturally buy fake, especially if it costs less than buying original and is readily available. We understand that the priority for Middle East markets is maybe lower than Europe as it’s more mature, more stable and higher margins are available but that’s no excuse.”

So is Saudi Arabia on the verge of going legal? Gohar believes that all the hard work will pay off, sooner rather than later. “This has to be a joint effort, and companies have to spend on educating consumers. They cannot shirk this or leave it to the government to do. We’ve submitted 252 complaints to the authorities this year alone, which has had a major impact on the fake trade. We’ve also implemented a campaign on behalf of our clients to get retailers on our side, which has resulted in a decline of just under 20 percent in those faking their products. We’re getting there.”

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