Introduction

The considerable growth in the consumption of luxury products in the recent years has been accompanied with a significant rise of counterfeits. The decision of consumers to buy counterfeit products instead of the authentic products has developed to a global crisis. China has become recognized as the popular made in for knockoffs whereby all kinds of counterfeit products can be traced. Such products lay over a diverse variety of goods inclusive of foodstuff, apparel electronics, cosmetics products, pharmaceuticals and many others (Gordon, 2002). Specifically, since the Chinese are avid purchasers of luxury goods, luxury brands counterfeit has attained astronomical levels. Consumers in China behave irrationally in luxury buying since luxury brands are a must to have for them (Chevalier & Lu, 2010). This paper starts by describing how China became both the leader of luxury goods consumer and the leader in knockoff sales. The paper then analyzes how luxury brands and knockoffs interact. Finally, the paper speculates about the kind of supply chain the knockoff industries choose to operate. In particular, this paper analyses the coexistence of luxury goods and knockoffs in China.

According to Ang et al. (2001), counterfeit brands of luxury products are related to the low prices and low quality. Also, counterfeit products are given to a wider market as compared to the authentic luxury brand products; thus, jeopardizing the exclusiveness of authentic luxury brands. Chevalier and Mazzalovo (2012) suggest that there exists a high demand for counterfeit brands on the market. There are two major reasons that compel people to purchase counterfeit luxury products: the low price as compared to the authentic luxury brands and expressive value function that the brands deliver. Consumers purchase counterfeit brands as a status symbol in order to classify themselves to the prestigious social groups they desire to belong to.

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Using counterfeit luxury brands make consumers identify themselves with people wearing original luxury brands and allege to belong to a similar social class. One of the biggest issues in the luxury and fashion industry in China is counterfeit products, which results in the loss of millions on sales annually (Green & Smith, 2002). Green and Smith suggest that consumers in China are becoming enlightened, as well as hooked on fashion and popular brands; however, for the majority, the cost of genuine products remains too high. Consequently, such consumers tend to go for counterfeit goods. Fashion companies complain of the counterfeit products since it is their right, although they understand that counterfeit brands with their designs and logo scattered all over the nation increase the brand recognition and coverage.

Chevalier and Mazzalovo (2012) argue that the industry of counterfeit goods is among most apparent forms of organized crime in China. Vendors of counterfeit luxury brands own full product catalogs and up to date information about the latest seasons products from the many luxury brands. Consequently, the case of trademark law enforcement by the public in stemming the tide of counterfeit luxury goods is weak, more especially in China. It is not a surprise the government of Chinas anti counterfeiting enforcement endeavors have been considerably ineffective and that piracy; thus, thrives even when luxury products sell in huge numbers in Chinese burgeoning wealthy class (Hilton, Choi & Chen, 2004). Regardless of how much or whether Chinese counterfeits bring harm to luxury products manufacturers, from the viewpoint of Chinese, counterfeits possess many virtues (Stravinskiene, Dovaliene & Ambrazeviciute, 2014).

In China, both income and economy inequality are rapidly expanding, and the growing gap between the poor and rich contributes to social unrest, which troubles the leadership of the country. In this context, the tolerance of counterfeits acts as a necessary political and social goal, which might outweigh whichever harm might stem from counterfeits (Lu, 2008).

Chevalier and Lu (2010) suggest that the catalytic increase of counterfeit products can be a result of the increase in global trade, as well as the emerging markets. Counterfeit practices in luxury products can also be due to the increase in goods, which are worth counterfeiting. Luxury brands have likelihood to be easily counterfeited since it is easy to sell them and they do not require high costs in manufacturing. Counterfeit luxury brands diminish the authentic luxury symbolic value and lead to the erosion of the authentic luxury brand equity. Since Chinese consumers are in the pursuit of status goods and the need of being in tune with fads and fashion, the demand of consumers in rising (Chevalier & Mazzalovo, 2012). In order to attain such a status, purchases need to acquire goods, which are recognizable and which they are more ready to pay for the visual attribute exclusive of paying for the related quality (Hilton, Choi & Chen, 2004). As a result, they prefer counterfeit products, which have a visual distinction and a popular brand name.

China has become both the leader of luxury goods consumer and the leader in knockoff sales while they are two competitive and opposed products in one market. The immense growth of manufacturing in China has become among the major drivers in the 21st century international economy. Such growth can be attributed to the outsourcing done by foreign companies desiring to take advantages of low high productivity in China (Ang et al., 2001). The majority of the relative value of products accrues to the firms doing outscoring, meanwhile Chinese manufacturing companies retain a comparatively small value. Such a mutually beneficial arrangement becomes only possible since the majority of Chinese firms respect the outsourcing companies intellectual property rights. Unfortunately, this circumstance whereby the manufacturers and designers of a product brand reside in different continents has facilitated the growth of counterfeiting (Lu, 2008).

Counterfeit is a very attractive option to licit commerce since costs are lowered to distribution, transport and manufacturing. The costs, which are involved in the design, marketing and research, are avoided. Since counterfeiters are fundamentally accountable and hold no interest in developing the reputation of the brand, costs are additionally lowered through cutting the corners on the production phase. This includes the use of sweatshop labor, engaging in manufacturing processes that are environmentally unsound and applying inferior-grade materials (Green & Smith, 2002). On the other hand, profits are further increased through avoiding taxes. Import duties are avoided by outright smuggling; customs fraud and sales taxes are evaded by informal retaining, which makes use of illegal migrants working for low compensation. The resulting product looks like the original, but can be sold at a less price while generating a bigger profit (Gordon, 2002).

Modern China is criticized for its widespread copying of foreign creative works and inventions. Today, China is best known for its knockoffs on every imaginable product. A common perspective is that China has failed to innovate since it has inadequate stable and strong protections for intellectual property (Park, 2007). The majority of economist, as well as lawyers, deem that the intellectual property rights are vital since they ascertain that the innovation economic rewards go to the innovator. As a result of the inadequate intellectual rights protection, copycats outrun and undercut the originators resulting in the dry up of the innovation investment. For Chinese individuals and firms, counterfeiting present irresistible benefits, which go past simply undercutting its premium luxury brands (Stravinskiene, Dovaliene & Ambrazeviciute, 2014).

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According to Chevalier and Lu (2010), the majority of Chinese have acquired valuable manufacturing and design skills through copying products originally produced somewhere. The outcomes of such imitation are services and products that are affordable, which have permitted millions of Chinese to take pleasure on the trapping of the consumer society. The wealth generated by counterfeiting of luxury brands has played a key role in aiding the growth of the emerging middle class in China that represents a massive prospective pool of new customers to foreign firms, which sell the authentic products.

There are many means through which luxury brands and knockoffs interact. Luxury counterfeit products apply the marks of others without authorization. The question then remains whether they create consumer confusion or if consumers can tell the difference between authentic and counterfeits when purchasing them. Manufacturers in China acquire their share in the Chinese market and elsewhere through giving the inexperienced consumers copies of premium authentic luxury products. In the process, they also learn, attaining skills to facilitate the process of production and ultimately innovate their own products (Chevalier & Mazzalovo, 2012). The freedom to develop counterfeit products has a vital social dimension in China.

Counterfeiting has resulted in the nations amazing growth that has skyrocketed economic growth. However, the truth that counterfeits are tolerated and even encouraged by China does not necessarily imply a catastrophe for authentic luxury brands. A huge population in China remains poor and few people can afford authentic luxury brands (Ang et al., 2001). Counterfeit products do not necessarily mean lost sales, but they serve as efficient advertisement for the authentic products. Also, they serve as gateway products, which in the long range may spur demands for genuine products as the burgeoning middle class grows (Hilton, Choi & Chen, 2004).

Counterfeit brands are almost identical to the designer versions in aspects of trademarks, appearance, labeling and packaging; however, the difference lies in the quality and price. The objective of selling counterfeit luxury brands is to mislead consumers to buying something, which they deem is real (Gordon, 2002). More than 5,000 websites have been developed to sell counterfeit luxury products. Such websites claim that they sell authentic and genuine products. However, there exist no means to be sure that the customers get the real deal in the absence of extensive research, as well as its website (Lu, 2008). Luxury brand designers work hard to offer the trendiest fashion for the individuals who are fashion-savvy. Among the majority of the product categories, which could be counterfeited, luxury products are the most counterfeited, whereby the brand is always related with the counterfeiting since the counterfeited luxury has to be a copy of an existing popular trademark brand (Stravinskiene, Dovaliene & Ambrazeviciute, 2014). Meanwhile, brands that are successful should posses the highest level of attractiveness to counterfeiters

In regard to non-deceptive counterfeiting, research asserts that the decision to purchase a counterfeit presents the choice of the product and the decision of the brand. Since counterfeits products quality has been improving steadily in the recent years, some of the counterfeits are recognized as the similar quality, better durability, as well as even the same design as compared to the originals (Green & Smith, 2002).The perceived luxury product authenticity is the key difference to the counterfeit brands.

Luxury product counterfeits are considered as the pursuit of luxury through imitating its attributes; however, it may be placed on the level of the brand. From this perspective, the luxury concept would play a vital role in the consumption of counterfeits. Counterfeits can be perceived as alternatives of luxury for some of the purchasers. The consumers make decisions based on what could impress others to have a high probability to buy luxury counterfeit. Consumers who are image driven show a higher tendency to buy logo exposed counterfeits. This results in the assumption that purchasers motivated through social reason have a higher probability to select counterfeits since both the originals and fakes offer social benefits, but counterfeit are superior in price (Chevalier & Mazzalovo, 2012).

The kind of supply chain that the knockoff industries choose to operate is very different as compared to the supply chain for authentic products. Many factors have resulted in the counterfeit in the recent years. The transformation of much of the global manufacturing to nations with poor intellectual property protection has offered both the opportunity, as well as the technology to make knock-offs. In general, e-commerce sites and the internet have made it possible for the distribution of counterfeit products (Chevalier & Lu, 2010).

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Counterfeit products supply side claims that the authentic luxury brand products do not lose consumers because of the presence of counterfeit products on the market. Counterfeit products consumers are people who have no ability to afford authentically branded products. However, the loss of consumers may not be the biggest loss for the luxury products as a result of counterfeits. The real issues may be that the values, which are connected to the luxury brands, are impacted by counterfeit products. This is an area that needs a lot of research in order to generate knowledge of such impacts (Green & Smith, 2002).

The distribution of luxury branded product must be restricted and limited to maintaining the high demands. As a result of the existence of counterfeit brands in the market, the distribution of the luxury brands is unmanageable for the authentic luxury brand manufacturers. Moreover, manufacturers experience the risk of damage to the reputation of their brand and reputation is rather necessary for luxury brands (Gordon, 2002). When purchasing luxury brands, consumers assess the product brand more than the actual features of the product even if such features are rooted in the brand values. Consequently, there exists a probability that the segment of luxury brands can become extra vulnerable to the presence of counterfeits. The supply chain of counterfeit products takes into consideration the distribution strategies as the use of a joint venture, local distribution and exclusive sales (Park, 2007).

Conclusion

By some measures, China is the largest market on the globe for luxury goods and such goods make up a category famously reliant on the intellectual property for its value. On the other hand, China is the undisputed global champion in counterfeiting. How this is possible has been the focus of this paper. Since very little empirical work on the association between copying and intellectual property rights has been carried out in China, the arguments in this paper can be considered preliminary. However, the arguments presented in this paper draw on a more basic, as well as well-grounded claim, which is that counterfeits and knockoffs are not as harmful as the most economic and lawyers deems. There exists no compelling reasons to deny this logic for China; however, there are some more twists of factors that can make China be distinctive. One of such factors is the unprecedented growth of the economy on the last 30 years has produced massive income differences. As a result, this generates huge pressure for the newly-wealthy to get involved in conspicuous consumption and also a vast market of middle and poor class Chinese, who only aspire to afford counterfeited luxury goods they desire. In order to understand the coexistence of luxury goods and knockoffs in China, the perception of consumers and the process of decision making are necessary. The future steps are in empirically testing the counterfeiting concept using qualitative and qualitative research methods.

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