How Johnson & Johnson has revamped its approach to fighting counterfeiters and enlisted the help of Chinese officials was one topic among many at day two of the ASIS International second Asia-Pacific Conference in Singapore.
Report from Singapore – Day Two
The second day of ASIS International’s second Asia-Pacific Conference in Singapore began Wednesday with an in-depth analysis of how Johnson & Johnson radically rethought its anticounterfeiting strategy in China.
Jack Chang, now senior IP counsel at GE in China, described in minute detail how Johnson & Johnson, where he was previously in charge of IP protection, changed its approach from firefighting – reactively dealing with individual cases of violations as they arose – to a broader approach that focused on catching kingpins, rather than low-level entrepreneurs and their employees.
Chang stressed the importance of winning over government officials, especially police. Chang said he was able to win the support of top government officials by giving them accurate and unbiased information. Chang said one minister told him that “the information provided from within the government is different from the information provided by private industry.”
From that day on, he says, the minister backed a rigorous anticounterfeiting campaign. He said Chinese officials complain that foreign governments are not energetic enough in curbing demand for fake products in their own countries. If there weren’t the demand for cheap knock-offs in the U.S. and Europe, then there would be no supply of counterfeit products from China, they say. Investigators have discovered complex procurement networks linking illegal markets in the west with illegal manufacturers in China. However, the Chinese populace itself is also a big purchaser of the counterfeits.
Chinese industry is becoming more sophisticated. Chang quoted Chinese President Hu Jintao, who says he wants “to change the ‘Made in China’ label to the ‘Created in China’ label. What this signifies is that China wants to move up the value chain to get more involved in the creation and design of new products.”
This is a legitimate aspiration, but Western companies may also have to prepare for a different kind of competitive threat from Chinese counterfeiters. They may start conducting industrial espionage more aggressively. Already, the more sophisticated counterfeiters are infiltrating their employees into the work forces of multinational companies in China to study their design and production methods.
Another issue is supply-chain security.
The outsourcing of manufacturing capacity to China has created a long, vulnerable supply chain linking consumers in the West to a myriad of producers and subcontractors. Weaknesses in the supply chain are readily exploited by criminals, said Walter Palmer, CPP, a retail supply chain consultant. He said the FBI estimates supply-chain thefts in the U.S. alone at around $15 billion to $18 billion annually.
Long supply chains are both difficult to manage and inherently risky. Palmer gave the example of a ceiling fan company in the U.S. that manufactures its products in Shenzhen, China. Shipping the fans 12,000 miles from Shenzhen to the port of Charlotte, North Carolina, takes 26 days and each box is handled a dozen times – by packers, truckers, freight forwarders, stevedores, and rail yards.
Each stage exposes the product to a range of risks. These dangers are multiplied for those companies that have moved their manufacturing capacity to China, instead of buying products from trusted subcontractors. This exposes them to major risks, principally from counterfeiters. The key, says Palmer “is that companies really have to improve the visibility they have of their supply chain if they are going to get better control of their business.”
Then there is the question of terrorism. Around 335 terrorist attacks took place around the world between 2000 and 2007, according to Peter Boyce of Lloyds Register Quality Assurance. The global supply chain is particularly vulnerable to exploitation by terrorists. About 90 percent of the world’s trade is transported in containers, and 10 million of them enter the U.S. every year. Yet only three percent are inspected.
Governments have responded to these risks by tightening customs, port security, and transportation regulations. Organizations such as the United Nations and the European Union, as well as U.S. government agencies, have drawn up standards and regulations. Although there are many similarities and some overlap in their rules, there was clearly a need to develop a global standard. The result is a new set of standards from ISO, which have become the basis for national and regional port security and supply chain regulations. The ISO 28000 family of standards was published in September, 2007 and is designed to be a foundation for international, national, and sector-based security requirements.
Standards were the subject of a lunchtime presentation by Marc Siegel, who is driving ASIS International’s role in interfacing with ISO in drawing up a set of standards governing the security industry. “There’s no point resisting standards. They are here already. This is a participatory sport, so if we don’t get involved in writing the rules we won’t be able to affect the outcome,” said Siegel.
“And the important thing about standards is that these are not regulations. There is no government involvement,” he noted.
ASIS is acting as a liaison between ISO and the global security industry, giving it an important advisory role in the standard-setting process. Coherent standards will mean that the same definitions, working methods, and outcomes of security management can be applied in all parts of the world.
Also discussed were concerns about pandemics.
Asia is an incubator for some of the world’s deadliest diseases, such as malaria. It is a densely populated tropical region with deficient health infrastructures and low incomes, said Dr. Kevin Baird, a Jakarta-based health security consultant. Baird, a retired U.S. Navy Medical Service Corps captain, says multinational companies in Asia have not paid enough attention to the potential impact of health risks.
A disease outbreak can spiral out of control, triggering panic. But most companies are reactive, by taking action after employees have fallen ill. Few take preventive measures to reduce employees’ exposure to risks. Baird says companies operating in regions where infectious disease is rife, such as Asia, need to identify principal threats, diminish those threats, and monitor compliance with health protocols.