The piracy industry is booming, with the HVACR sector incurring losses worth billions of dollars. Despite stringent action taken against various rogue dealers in the form of raids and hefty fines, the battle against counterfeit trade is far from won. Industry insiders shed light on the thriving menace.
Rajiv Pillai reports.
According to estimates by FBI, Interpol, World Customs Organization and the International Chamber of Commerce, roughly seven to eight per cent of international trade every year is in counterfeit goods. In 2013, the US Department of Homeland Security seized counterfeit goods valued at over USD 1.7 billion at US borders. The International Anti-Counterfeiting Coalition (IACC) estimates that the counterfeiting of well-known brands costs industries USD 600 billion each year worldwide. It is known that globally, the trafficking of counterfeit goods is much bigger.
The problem is even more rampant in the HVACR sector. Big companies like Danfoss, Honeywell, Emerson and DuPont have borne the brunt of product piracy in the past. AED four to five million is the amount of sales Danfoss estimates it lost between the end of 2014 and early 2015 due to counterfeiting, reveals Santhosh Kumar, Danfoss Regional Sales Manager for Wholesalers. Adds Naveen Sivakumar, “Beginning in 2009, we’ve noticed that the problem [with counterfeits] has been escalating.” Sivakumar is the Regional Marketing Manager (Middle East and Africa) at Danfoss. He elucidates, “At first, the fakes were limited to simple products, like filter driers, but in the past few years, we’ve been seeing imitations of compressors and other technologies, some of which are patented.”
The real damage
Besides the financial damages incurred, says Abin P Kurien, Sales Manager at the Refrigeration and Air Conditioning Division at Naser Al Sayer & Company (NASCO), counterfeit products can harm the brand value and reputation of the OEM; this is for cases when customers fail to identify the difference between genuine and counterfeit products. This, he says, will “negatively impact their [the manufacturers’] turnover and profits”. Furthermore, one must not ignore the damage caused to the overall HVACR system. “Counterfeit HVACR products can affect the operation of HVACR systems in terms of reduced performance efficiency, increased power consumption, higher noise levels and overall reduction in the life expectancy of the system,” warns Kurien.
Vikash Sekhani, Director of Sales and Marketing at SAFE A&T Technology, Private Limited, India, referring to filter driers, contends that they should not be considered a small and simple product. He speaks from experience, as his company primarily exports filter driers and other accessories to the Middle East. He believes that a poor quality filter will result in the presence of moisture and solid contaminants in the system, which will eventually lead to blocking the expansion valve, causing damage to the brazed assembly and, ultimately, the failure of the compressor. “Where filter driers are concerned, I would say, if you plan on using counterfeit [filter driers], it’s better you don’t use anything at all,” he advises. “Filters are like insurance on your car. You can run your car without insurance. The problem really occurs when you meet with an accident.”
Rajendra Kumar Verma, the Divisional Manager at Technical and Trading LLC, asserts that the issue related to counterfeits is quite serious. He explains: “You will find lot of refrigeration controls that are fake, and they have been sold by various dealer channels in the market. There is very minimal difference between real and counterfeit [controls].”
Pirated products are not restricted to controls, filter driers and compressors alone, but extends to refrigerants, which is an all-new dangerous ball game. At the recent Climate Control Conference (C3) that took place on June 15 and 16, in Dubai, Dermott Crombie, Vice President of Strategic Initiatives at Ingersoll Rand, warned about the availability of fake refrigerants in the market. “If you take something as generic as 134A, it comes in a light blue bottle,” he says. “It has got 134A written on the outside of the bottle, and you assume that inside, it’s 134A, and that it meets the AHRI specifications and is 99.5% pure. What we have found, over the last several years is that it may not necessarily be true.
“The simplest test to apply is that if somebody offers you a refrigerant that looks too good to be true in terms of price or delivery, then it’s probably too good to be true. The most worrying one is a product called R-40; I don’t know if people are familiar [with it], but R-40 reacts violently with aluminium, and then you get into big problems.”
In 2012, DuPont initiated an investigation into T.A. Fresco, a company in the Philippines, which was supplying refrigerants to a service provider in the shipping industry. DuPont conducted an undercover purchase, which revealed that T.A. Fresco was selling R-134A refrigerant cylinders with incorrect spelling and markings, which indicated that the product was counterfeit. Upon further testing the contents of the cylinders, the product was determined to be made up of more than 90% R-12 refrigerant. With the assistance of US Homeland Security officials, the local police raided the T.A. Fresco warehouse and seized 511 counterfeit cylinders.
Those who fuel the fake market
It is evident that the entire issue of product piracy would not exist without a demand for fake goods. Low cost is the primary driving factor behind this damaging demand. Mathai Chacko, General Manager at Cool Air, says: “We have seen a lot of fakes [being sold], because there’s a lot of price difference. Many customers for monetary benefit are going to every store checking for duplicates [to buy]. The price difference between a fake and an original maybe 50%.”
The culprits fuelling this demand are small-time traders and businessmen, who, for short-term monetary benefits, indulge in such malpractices, Sekhani observes. He adds that at times, the official dealer is also to blame. When Sekhani once reportedly confronted a dealer about this, the blatant reply he got from him was, “The guy who sells duplicates gives me more business.”
Verma claims that his company is constantly trying to educate and warn wholesalers and customers that not all traders carry genuine products.
Countering counterfeits – an ongoing battle
When awareness campaigns and warnings go unheeded, almost all big companies attempt to curb piracy through raids and by levying huge fines. “We also go legal at times,” says Sivakumar. “When we identify that someone is selling fakes, we take legal action against them by taking them to the court. In Egypt, for example, we won a case and the trader was sent to jail for six months.”
However, the majority of the HVACR players feel that such punishments are not stringent enough, and that they do not solve the problem. “Let us be realistic, we cannot stop this,” admits Sivakumar. “We can only make these people’s lives difficult. That’s all we can do.”
Manufacturers like Bitzer, Danfoss and DuPont, says Kurien, adopt modern technologies like QR codes, holograms and special design markings on their products in order to easily identify genuine products. Sekhani earlier believed that holograms were one of the best ways to stop counterfeit products. He has, however, observed that counterfeiters have found a way to copy them, too.
In addition, most HVACR players point their fingers towards China, claiming it to be the hub of counterfeit factories. Sekhani states that 99% of counterfeit products come from the Far East countries like China. “We close one factory in China, another one will open,” Sivakumar reveals. “They’re like mushrooms – they sprout up here and there.”
Verma says that the only thing you can do is to continue with raids in China and find out where they are manufacturing fake products. “It’s an ongoing process,” he says. “It’s not going to end so easily. The only step that we should take is create awareness in the marketplace to buy genuine products, and not counterfeits.”
A “renewed” problem
For the HVACR sector, apart from dealing with product piracy, there is a new, or rather, a renewed problem. Rajendra Kumar Verma, Divisional Manager at Technical and Trading LLC, says that old products such as compressors are refurbished and sold as new. Here’s what he says on the subject:
“Re-new is something that normally happens in China. What they do is they refurbish used compressors and make them look like new. And they will sell them at a (re) new or a bit cheaper price. So, the customer is not aware of what it is, but he is getting them at a much cheaper price. For example, if I’m selling my SECOP compressors for AED 300, other traders would offer those at say, AED 275 or 270, which I can’t match, because I’m not even buying at the price because my margin is not that high. I’m buying from Danfoss, and I really can’t think of selling at that price. So, basically, they are making very high margins on refurbished products. That’s another area of concern for us.”
“As a manufacturer of highly engineered and quality-assurance-tested components, it is our duty to tackle counterfeit goods. With the support of Dubai’s economic authorities, we have conducted raids on local establishments, but often the major distributor is left unaffected. We also educate the market with genuine parts campaigns. Since counterfeiters have become very good at fooling people, the best way to guarantee you are buying genuine products is to only trust our network of authorised distributors. Counterfeiters cost the market tens of millions of dollars each year, but they will not flourish if we all refuse to stay silent.”
– Tom Parrish, Vice President of Sales and Marketing, Emerson Climate Technologies, Middle East and Africa