Finding the fakes

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Fast-growth construction activity gives opportunities to innumerable firms. Foreign companies enter whichever country is building, local companies innovate, deals are struck and prices across the supply chain become a battle ground for margin.

But for some building materials and products suppliers there is a significant downside to this international mix and healthy competition – the proliferation of counterfeit products.

Sharjah last month saw a dramatic example of construction’s black market. Following a discovery by Italian electric pump manufacturer Pedrollo that products bearing its name were offered in a showroom in Dubai by Chinese firm Shano International, with its main storage in Sharjah, the Economic Development Departments of Sharjah and Dubai swooped on the outlet, confiscating and destroying 13,750 pumps based on the Pedrollo design.

The value of the pumps was estimated at US$1million, according to Pedrollo’s general manager Joseph Gomes.

Gomes says this is an issue the company has fought for a number of years in Italy, and that the only resolution is a collective effort from all companies affected.

“After 15 years the problem is yours, the problem is mine, the problem is everybody’s. It has become a global problem, and we need to fight it globally, not individually,” he says.

The impact of counterfeit goods goes beyond the loss of sales, or even the infringement on copyright, manufacturers say. Low quality copies of products for MEP and finishing work can present significant risks to an unsuspecting end user.

Pedrollo points out that a genuine electric pump from their factory contains a copper-enamelled motor winding part at the centre. The fake versions contain motor winding parts made of aluminium. “If electricity is passing through inside the motor and the copper is not high quality, then automatically the motor will burn, then catch fire,” adds senior sales executive AN Natesan.

Gomes adds that the pumps go through a year of internal testing before it is brought to the market. When fake versions appear on the market soon after an official launch, they typically lack any certification to an international standard, nor have they been through any testing.

It was the second major haul from the Sharjah department in the last quarter. At the beginning of April inspectors destroyed thousands of expired and defective LPG cylinders.

HE Ali bin Salem Al Mahmoud, SEDD general manager, at the time outlined the three-point approach by the department that resulted in the successful claim.

“Firstly, we monitor the market and seize any LPG cylinders flooding in through a variety of unauthorised distribution channels; secondly, we regularly check the cylinders in the market and exchange the defective and expired ones; and thirdly, we launch awareness campaigns to raise public awareness on the safe use of LPG cylinders, and to educate the public to reject defective and expired cylinders,” he said.

Black market opportunities arise when providers cannot fulfil orders at the official market price. The size and speed of growth seen in the last decade, in places like Dubai, increases the need for quick and cheap products that can be sold on.

Even in markets that have seen slower growth, such as Oman, a deficiency of supply leaves holes for rogue traders, especially when they are one step ahead of authority action to balance the market.

From 2007 to 2008, the country had suffered a shortage of cement as the number of developments increased. In 2008 two Asians were arrested for selling counterfeit cement above market rates in the Wilayat of Ibri in the Sultanate.

It was less than ten days after the Chamber of Commerce and Industry announced it was considering a revision to its import duty, to help reduce the local cost.

Saudi Arabia has not been immune to fake goods either. Ahmed Al-Dedy, a manager at Exova Company in Saudi Arabia, revealed in a whitepaper earlier this month that Saudi Arabia loses more than SR41billion from commercial fraud. In the first half of 2010, eight million counterfeit items were confiscated, he found.

In the UAE, Gomes says it is important that consultants and contractors are aware of the proliferation of fake merchandise, but, more than that, he says there needs to be a better regulatory framework to act as both protectorate and deterrent.

An AED5,000 flat fine for a rogue trader is too low and needs to be proportionate, he adds, and traders found guilty should have their licenses revoked.

“A trader may have sold ten containers and may be losing a small amount of money [in fines],” he adds. “[The authorities] are on the right track, but not much is done to safeguard the companies that are investing millions into Dubai’s economy.”