The market for fake car parts in the Middle East is rising at an alarming pace, now accounting for an estimated 30% of the region’s $11 billion sector.
In a recent Organization for Economic Cooperation and Development (OECD) report, the Middle East was highlighted as a central market in the $16 billion global trade in fake auto parts, which is growing at an estimated 9-11% a year.
In the Middle East, the counterfeit parts market has increased by 10% since 2003, and surged by over 50% in cash value, from $1.6 billion to $3.3 billion in 2007, as the legitimate spare parts market has correspondingly increased from $8 billion to $11 billion, according to a DaimlerChrysler report.
The Paris-based OECD has fingered China “as the principal source of counterfeit activity in the automotive sector, involving both trademark and design infringements.” Other countries are also swamping the Middle East with fake parts.
Spotting fakes now more difficult
“We don’t know the exact origins, but we think mainly from China, Taiwan, and Malaysia, and for Jaguar accessories — rims, tires, break pads and discs — Italy,” said marketing manager Wanes Nersesian of Al-Mana Group, which owns repair shops for BMW, Jaguar, Mercedes and Toyota in Kuwait. BMW said parts also come from Turkey.
On certain products, Nersesian said, it’s easy to spot fake parts, lacking brand names and other identifiers. “But for other products there are certificates of origin and they appear completely legitimate. They are shipped with official serial numbers and certificates from Dubai.”
According to the latest statistics, the number of parts involved in trademark infringements rose in the Middle East from 400,000 in 2000 to 1.3 million in 2003.
“Although this is very difficult to track, we do believe that fakes are on the increase,” said Phil Horton, managing director of BMW Group Middle East. “In general, all the fast moving parts like brake pads, oil filters and the like are the target of the counterfeit manufacturers.”
Dubai is cited by the OECD as the primary entry point for counterfeits in the Middle East, with fake goods then re-exported throughout the region and onwards to Europe, Africa and Russia.
“The biggest source for fakes is Dubai, a transit hub for body parts as well as ornamental,” said Ashish Tandon, deputy general manager of Kuwait Automotive Imports (KAI), a dealer for Mazda, Peugeot and Chinese brands.
With Dubai being the gateway for the counterfeit trade, a Brand Owners Protection Group (BPG) was established in the emirate by leading multinationals and automobile manufacturers to tackle the growing problem.
“More than 7 million containers pass through Dubai with 20% annual growth according to Dubai Ports, so it is very important for brand owners to be protected,” said Omar Shteiwi, chairman of the BPG.
Brand protection to the rescue
The BPG has been working closely with Dubai Customs, which has established an Intellectual Property Unit (IPU) and been on the offensive, seizing counterfeit goods estimated at $3.9 million between February and June last year. And in 2005, Dubai Customs had destroyed fake automotive spark plugs worth an estimated $1 million, which were seized following collaboration with General Motors. The BPG also reported that in 2005 it had knowledge of 250,000 fake car parts being seized in the region. This was described in its report as just “the tip of the iceberg.”
Indeed, Shteiwi said that seizing goods is not easy, despite trade, patent and customs laws in the Gulf Cooperation Council (GCC) countries.
“Elsewhere we need a court order and wait eight days, depending on local regulations,” he said. “There is a major focus on the issue in the UAE, but in our minds we need it for the whole GCC.”
The recently launched GCC Common Market could help to curb counterfeiting, especially if regulations are unified between the six-member countries and a regional approach to the problem is adopted.
“Obviously the new GCC Common Market is very much in its infancy at the moment,” said BMW’s Horton. “If it chooses to follow the European model, then we must be optimistic that it would have a positive impact on the availability of counterfeit parts.”
In the meantime, to improve seizures at the point of entry Dubai Customs launched a series of workshops in November for different GCC customs departments to present the latest methods used to protect intellectual property rights. In February, Dubai Customs will host the Forth Global Congress to Combat Counterfeiting and Piracy.
“Hopefully we will have a kind of engagement with the customs to train inspectors to differentiate between genuine and real products,” said Shteiwi.
An additional issue brand owners face is the lack of statistics and data about the extent of the counterfeit trade in the Middle East. To address this, the BPG has commissioned international auditing firm KPMG to carry out an economic study on the counterfeit trade in the UAE.
“The added value of this study is it will be a roadmap for us and the government as to whether to adopt new intellectual property laws, improve existing laws, give more authority to customs, and enable brand owners to carry out investigations,” said Shteiwi.
Shutting down unauthorized vendors
A further part of the solution, suggested Ma’n al-Hamawi, brand protection manager, DaimlerChrysler Middle East, is for joint public-private partnerships, saying that “mutual co-operation between the authorities and the manufacturer is the key to successfully fighting against the use of fake spare parts and property rights infringements.”
DaimlerChrysler has started surveying local markets to find and serve legal notice to unlicensed and unauthorized vendors of Mercedes-Benz spare parts. But although this has had some success in the Emirates, in countries like Kuwait, Jordan and Lebanon small mechanics are rife and the sector under-regulated, with offenders simply starting up elsewhere if shut down. Equally, in the lower income countries of Jordan, Syria, Lebanon, Egypt and Yemen, customers are ill-informed about fake parts, and the lower costs are viewed as bargains.
“The problem is, if we show a customer a fake part for $80 or a real part that costs $160, they choose the $80 one,” said Bassem Hobeika, a mechanic in Beirut. “And then we have customers that bring in fake parts and ask us to work with them, trying to cut costs.”
To try and keep customers returning to dealerships’ garages and not use fake spare parts, authorized dealers are offering services without labor charges. As KIA’s Tandon pointed out, “We are suffering a lot from fake parts in the market, so we are promoting a campaign for genuine parts.”
Other dealerships have sought assistance with manufacturers to strike at the origin of the fakes, with Dubai’s Al-Futtaim working with Toyota to tackle the problem in China. According to the OECD report, one Japanese manufacturer said up to 90% of its fake parts came from China.
A further problem in tackling the trade, however, is the rapidity in which the counterfeit market operates, keeping pace with manufacturers’ specification changes.
“China has access to a new model’s, supposedly secret, name before the car is even on the market,” said Tandon. “Before we launched a new pick-up, the parts were already on the market [in Thailand] … it’s incredible, and we can’t stop it.”
