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The cost of cutting corners

Part 1 looked at questionable trading practices in the market, from misrepresentation of certifications and approvals to the sale and distribution of counterfeit products. In this, the second part, Hannah Jo Uy looks at how the current business environment contributes to a price-centric mindset, which further aggravates the situation; the public sector’s role in ensuring stronger vigilance across the supply chain, and the consequences inauthentic products pose from a socio-economic standpoint…

| | Sep 10, 2018 | 9:48 am
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Colin Bridges

“I don’t need your five-year warranty. Why don’t you give me one year but give me an extra 10% discount?” This is what Colin Bridges, Business Development Director, Belimo Automation, faced while interacting with a client. A warranty, Bridges explains, is essentially a company’s way of expressing confidence towards its product and instilling a sense of assurance in customers that what they are buying is of good quality. This, however, goes off the rails once faced with contractors and consultants, whose main goal is to save money.

Bridges’ anecdote serves as one of many examples of the kind of attitude that prevails in an increasingly price-sensitive market. “They, in a sense, undermine the willingness to invest in the future of the quality of products,” Bridges says. “As a global company, we resist that, and we carry on [investing], but I can imagine that smaller businesses would be less able or willing to maintain high level of research and development to substantiate, where they can reduce their cost in favour of the contracts by producing lesser quality products.” This, he stresses, is not a good message to the industry.

Darren Farrell

Darren Farrell, Regional Sales Director, ME, Africa and ASEAN, Greenheck, also touches on how the current market environment is driving a lot of questionable practices. “A lot of companies are run in such a way that it is target-based,” he says. “If they come under budget in certain areas they would get a bonus. [Thus], purchases are targeted to save money.” In a certain project with its allocated budget, Farrell says, a number of checkpoints are considered and evaluated, but what isn’t happening is the policing of checkpoints, after the product is supplied, to ensure that products being provided are ‘what they asked or paid for and meeting the data submitted’.

Another pressing issue, Farrell says, is obsolete and outdated specifications, some as old as 10 years, being implemented in projects due to time constraints, if not utter laziness, as well as copy-pasted specifications. “In the past, consultants had time to meet suppliers that can support them with an unbiased, up-to-date specification,” he says. “Building owners need to have Civil Defense onsite inspections for approval of critical life safety equipment that meets third-party tested requirements, such as CE marking and UL testing, before applying for municipality building approval for utilities and opening to the public. It can be difficult for consultants to distinguish between AMCA, CE, ASHRAE, UL, BS [among others] and what each body represents.” To provide an example, Farrell elaborates on the difference between AMCA and CE. AMCA, he says is a third-party testing and certification agency for air movement equipment, certifying the performance of air and sound and ensuring the supplied equipment achieves the design output from the manufacturer, while the CE marking is a certification mark that indicates conformity with health, safety and environmental protection standards for products sold within the European Economic Area. “The CE marking is the manufacturer’s declaration that the product meets the requirements of the applicable EC directives,” he says. “CE does not guarantee the performance of the product according to the manufacturer’s claims. This is why it is important to have the product seal from such third-party testing bodies as AMCA or UL. People need to understand [the difference] between these bodies.”

Farrell stresses that new products and technologies that offer greater operational efficiency have been introduced to the market, yet many specifications call for outdated and inefficient equipment. This, he says, is not entirely the fault of the engineer but rather the environment, which cultivates such a behaviour. “Specification engineers are overloaded with work,” he says, adding that this often drives them to produce carbon-copy specifications of previous buildings they have worked on. “There has been no time to update it,” he says. “Consultants have a lot of different products to try to understand. They cannot be experts [on everything], and they are limited on time. We try to educate, but consultants don’t have the time to meet manufacturers to get updated information.” With the amount of construction and projects in the market, he stresses, there is a shortage of people able or willing to understand the vast amount of products flooding the industry. Such instances create an environment that allows for the proliferation of products with misrepresented labels, certifications or straight-out counterfeits.

To each his own

Counterfeiting is nothing short of a scourge and it has forced a lot of companies to develop and implement their own respective strategies to defend against malpractice in whatever way they can. For Bridges, Belimo’s strategy is making sure its products always land in the right hands. “We will refuse to sell life-safety products to companies that are not certified, as they might then take our product, incorporate it into their products and sell it into a life-safety scenario,” he says. “That is a global rule within my company, we don’t do that – we will turn the business away. We will direct those people to certified manufacturers, who we know have submitted our product with their product to UL for testing, and only those companies.” Bridges says that although such a practice may cause them to lose an order, as a responsible manufacturer it aligns with the company’s commitment to behave honestly and ethically to maintain the value of the brand.

Abier Wasouf

Abier Wasouf, Regional Anti-Counterfeit Counsel for the Middle East and Africa region (MEA), Danfoss, cites strong collaboration with customs and police authorities as the company’s main line of defense. Providing a perspective on the judicial process being undertaken, Wasouf says Danfoss is actively pursuing cases against counterfeiters across Middle East and Africa, some of which result in jail sentence and compensation, when it is a civil proceeding. The company, she says, works closely with governments across the GCC region, such as customs police and administrative authorities,actively building a good relationship. “Additionally, we have various mechanisms, which enable us to differ counterfeit products from genuine Danfoss products,” she says. “The Holospot security label is one example of how a product can be marked to enable customers as well as authorities to verify genuine product.”

Brandon Witt

Brandon Witt, Global Brand Assurance Lead – FluoroChemicals, Chemours, says the company has turned to technology to help eliminate guess work for customers, in order to more clearly communicate the authenticity of its refrigerants. “IZON labels have been used for years as a checkpoint for our customers to know they have a genuine refrigerant from Chemours,” Witt says. “Now, through QR technology or an online portal, authenticity can be checked in seconds. Technology also allows us to quickly and efficiently analyse suspected counterfeit refrigerants in our labs and to programmatically scan the internet for potential infringements and counterfeit products.”

Nazme Mohsina

Nazme Mohsina, Associate Director of Certification, AMCA International, says that the organisation also endeavours to ensure only certified products enter the market with the aid of technology, by making available its online tools and mobile app, which she adds, provide easy access to its CRP database of manufacturers and products that have undergone rigorous testing to receive their certification. “We also maintain and post known violations to the program,” she says. “These are also posted at AMCA website to educate the industry worldwide.” Mohsina stresses that such products that do not conform or meet stated or specified standards, damage reputation and brand making, affecting the long-term financial viability of the offender. Mohsina, however, is quick to point out that technology, in the forms of online tools and apps, is a double-edged sword. “While it assists in the enforcement and monitoring of violations, it also allows for deceptive messages and claims to proliferate,” she says. “Electronic advertising, catalogues, websites, microsites and social media allow for messaging, which is highly targeted and customised, but it also often is very transient and, therefore, difficult to monitor, especially if someone is trying to be sneaky.” Owing to this, Mohsina stresses that nothing beats education, and this has driven AMCA to conduct seminars and social media campaigns to educate the market.

Saad Ali

The importance of education is not lost on Saad Ali, General Manager – Middle East and Africa, SPX Cooling Technologies, who is an adamant believer that capacity building must be cultivated throughout an engineer’s professional life, as it is a necessary step to ensure the next generation of building service managers, and so that those entering the building construction trade are aware of the differences between the products and what it means for them. “The education starts early and continues throughout their careers,” he says. “Otherwise, the entire building environment ultimately could be put at risk.”

 

Wasouf believes that Intellectual Property (IP) should be an integral component of the educational process, adding that she, as part of Danfoss, is eager to participate in talks regarding IP in schools and universities. “I think it should be a subject like mathematics and language – basic knowledge,” she says. “UAE is one of the best countries, where they realise [the importance of IP]. Dubai Customs runs an IP program for students and other emirates, as well, which I believe is the key for a future free of counterfeit.”

Gianpaolo Bruno

This goes to show that it is not only companies that look to protect themselves from malpractice but countries, as well. Gianpaolo Bruno, Italian Trade Commissioner to the UAE, Oman and Pakistan, says this is owing to economic consequences of counterfeit products. “Counterfeit products cause a lot of damage in terms of loss of turnover and loss of jobs,” he says, also advocating greater education on the subject of intellectual property. “Since the phenomenon is very large, we cannot sue everybody. The cost of going to court is high. We have to intensify promotional campaign and awareness campaigns to let people understand and educate people what “Made in…” accounts for, what it entails, to help them be aware of what they are buying.” Bruno adds that there should be a more rigorous system of checking and monitoring fraudulent practices, as well as a system of training to guard against companies misrepresentating provenance in a move to capitalise on a country’s reputation.

Tariq Al Ghussain

Tariq Al Ghussein, CEO, Taqeef, who has been dealing with fake products throughout the region, believes that early efforts to educate the market on intellectual property, coupled with more stringent policies, has led to fewer instances of counterfeit split air conditioners in many countries acrossthe GCC region, with Iraq being the only exception. Al Ghussein stresses this is especially true in the UAE, noting that he has seen reduced instances of smuggling in Dubai, owing to more strict implementation and enforcement of regulation.

Frank Ackland

Frank Ackland, General Manager, Eaton Middle East, adds that the UAE has introduced a new anti-fraud law, where anyone caught selling counterfeit goods or engaging in commercial fraud faces jail time of up to two years and/or a fine of up to AED 1 million. “The new law issued last year,” he says, “sets the maximum penalties for pharmaceutical and food products, but even those who deal in counterfeit goods outside of these categories may be fined up to AED 250, 000. The law also gives power to judicial authorities to close stores that sell counterfeit goods, and repeat offenders may have their trade licences cancelled.” Similarly, Ackland says that there is a new anti-piracy campaign in Saudi Arabia, leading to the confiscation of more than 4,000 devices and that legal action has been taken against those involved in this illegal activity. “We want to see more of this activity across all industries,” Ackland says.

Wasouf says that with regard to intellectual property there has been increasingly more awareness than in previous years and that Danfoss has had a very good experience with authorities in the region, especially in the UAE. “They are efficient, and they respond immediately to complaints, which make us feel protected as a brand and as a business,” she says. Wasouf adds that enforcement of stringent policy with regard to counterfeits also attracts foreign investments. “The more protection we get in each country,” Wasouf says, “the more investment we do. I don’t believe counterfeit is separate from investment or economy. The more you protect [the brands] the more they come to invest.”

Why should you care?

Alexander Abrass

In addition to the economic concerns, the consequences individual consumers face are perhaps the most disconcerting. Alexander Abrass, Senior Sales Manager, Danfoss Middle East, Turkey and Africa, stresses that counterfeit products come with significant concerns, such as safety issues and the impact on the environment, owing to the lack of engineering, testing and of meeting of specific industry standards. “In refrigeration and air conditioners,” he says, “expansion valves are considered to be the brain of the system. If this particular valve is faked and not up to the specifications the cooling process can become unstable and can have adverse effects on the product and stimulate health problems for the consumers.”

Abrass adds that the counterfeit systems also do not have lasting stability and may end up leaking refrigerants. “This, in turn, increases the greenhouse effect and reduces the cooling temperature of a cold room or a fridge,” he says. “This can be quite hazardous at times, because food can either spoil or turn too poisonous for human consumption.”

James Walters

James K Walters, Vice President, International Affairs, Air-Conditioning, Heating, and Refrigeration Institute (AHRI), elaborates further, touching on the issue of counterfeit refrigerants themselves, adding that on a micro level, it could cause severe damage to equipment but that on a macro level, if an equipment continues to operate at a lower efficiency, owing to counterfeit refrigerants, it compromises the overall energy performance of a country. “That has effects on climate change [and] safety and operational [consequences],” he says. “The environmental consequences and safety consequences are all linked.”

Witt seconds this. “From an environmental standpoint,” he says, “the composition of fake refrigerants are unknown and can use gases that have very high GWP or Ozone Depleting Substances (ODS), which are banned under the Montreal Protocol.” In addition to damaging equipment and causing costly malfunctions that require a total system replacement, counterfeit products pose significant safety risks, which in the most severe cases, could be fatal, Witt says.

Farrell stresses the importance of vigilance in this context, especially for fire- and life-safety components. “The major consequence everyone wants to avoid is death,” he says, simply. “Government bodies should probably be the gatekeepers, when it comes to this. The UAE is working hard in order to do that, but it’s difficult to 100% police every single piece of equipment all the time – it is not realistic. Consultants and contractors should be held more accountable to ensure they deliver the building to the owner with evidence of due diligence to prove that life safety products used have third-party certifications.” Farrell believes there should be gate-keeping systems in place and that consultants or contractors should submit the life safety testing, as well as the third-party testing certification, to an authority to show it meets the designed submittal from the manufacturer, before being permitted to install the equipment on site. “From that point, the government should potentially have harsher penalties, when certification and third-party testing is not complied with through the different gates,” he says, emphasising that “Ignorance is not an excuse.”

Wasouf is of a similar opinion, adding that she believes harsher penalties should be imposed, especially when there are safety issues concerned. Ackland echoes this, saying that Eaton believes tougher enforcement and penalties are needed to deter people from buying and selling counterfeit products. “At the moment, counterfeiters are getting away with it, and counterfeit items are unfortunately prevalent in the Middle East,” he says. “The whole supply chain has a responsibility to ensure they are buying genuine products from authorised resellers.” Bridges adds that the best regulatory body is called ‘common sense’. “If something is so low in price and it appears to be too good to be true, it is probably because it is,” he says.

Mohsina says that though there is a degree of self-governance, as this is how AMCA discovers and acts upon the lion’s share of illicit activities in the market, violations continue to be a problem. “It is unfortunate, but it is human nature,” she says. “The industry must continue to be vigilant and cohesive to ensure that we effectively self-monitor and enforce the ratings and standards that the industry themselves have developed and implemented.”

Ackland says that if every individual along a product’s supply chain played an active role in stopping counterfeit products from being bought and sold, the demand would decrease, adding that the responsibility lies with everyone to raise the issue of counterfeit products, be it a consultant, distributor or an end-user. “If anyone is aware of any activities that are taking place in their respective countries they need to report them to the relevant authorities immediately,” he says. “The most important thing people need to understand is these products could lead to a fire and, as such, the ramifications could be very severe.”

Market vigilance is, indeed, key with lack thereof posing very serious consequences. Bridges says: “The consequences of non-tested or non-compliant products finding their way into buildings – we don’t want to think about that. I and my family would not want to be inside a building, where anything less than a fully certified life-safety product has been installed.” With that in mind, Farrell poses a simple question as a final challenge to cost-centric thinking: “Is not paying 5-10% more worth putting people’s lives at risk?”

 

Hannah Jo Uy is Assistant Editor at Climate Control Middle East magazine. She may be contacted at hannah@cpi-industry.com


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