Asia and the Counterfeit Product ProblemDiscussionI. Countries and productsII. Reasons behind the problem1) Profitability2) Demand is strong3) Penalties are low4) Good way to launder moneyIII. Consequences of counterfeit products1) Loss of revenue2) Tarnished corporate image3) Social costs(1) Child labor(2) Exploitation4) Effects on consumers(1) Fire(2) Damage and death5) Loss of wages and jobs6) Criminal activity( 1) Financing of terrorism (2) Organized crimeIV. Why is it so difficult to stop?1) Lack of collaboration from the government. Chinese legal environment(1) Intellectual property laws are very strict in China(a) Condition for admission to the World Trade Organization in 2001(2) Legal environment(a) From 200,000 judges to 140,000 lawyers(b) I judges have no experience in law(c) Judges are selected locally, paid locally, promoted locally and fired locally(3) Corruption – Paying for a decision is very common in Chinese courts.b. Government(1) Wide use of counterfeit products and pirated software(2) Problems of economic dependence2) Difficulty in identificationa. Legal Question – Is it counterfeit if it is produced in the same factory using the same materials to the same specifications?b. Technological progress in the fields of printing, scanning and copying.3) New equilibrium in ChinaCurrent events1) Time Warner DVD sales in China2) Microsoft Windows Genuine Advantage3) Application in China: too weak to stop pirates4) Indian pharmaceutical company Aurobindo grows Pharma via Piracy StrategyAppendix A - Current EventsTime Warner DVD Sales in ChinaBusiness Week Online, “Take That You Pirates,” October 9, 2006, http://www.businessweek.com/magazine/content/06_41/b4004063.htm?chan =top news_top news index_global business Hollywood studios say up to $2 billion is lost to pirated DVDs across Asia every year. In a new strategy, Time Warner has lowered DVD prices from $3 to $1.88, close to the price of pirated copies. This allows piracy, but makes pirated copies (typically obtained from raw reproductions without extras) less attractive. This is one of several attempts to combat piracy. The MPAA recently filed a lawsuit against two local retailers and has won settlements in 10 similar cases over the past three years. In the first half of this year, the MPAA says an operation called Operation Red Card led to 405 raids in China and the seizure of 1.9 million pirated DVDs. do the trick?”, July 26, 2005, http://software.silicon.com/os/0,39024651,39150740,00.htmMicrosoft estimates that 1/3 of all copies of Windows are not legitimate. Windows Genuine Advantage ( WGA) is a program that will ensure that all non-security-related Windows XP add-ons will require validation. Microsoft will also begin offering add-ons that will also require legitimate copies of Windows end will become unstable, obsolete, or simply undesirable, thus making pirated versions less attractive in the long run. If not done correctly (i.e. too many false positives), Microsoft runs the risk that this strategy could have a negative impact on the customer's user experience and. possibly result in non-trivial operational expenses related to customer service issues.