Faking a Company

gambit3 writes "What happens when pirating a movie, an application, or a game is not enough for you? Well, you take the next step and pirate a whole company. It happened to Japanese electronics giant NEC. Counterfeiters had set up what amounted to a parallel NEC brand with links to a network of more than 50 electronics factories in China, Hong Kong and Taiwan."

Comments

Piracy means what again?

[DJ Rubbie]

This is not supposed to be called piracy of a company, it's a trademark violation, unauthorized and fraudulant usage of the NEC trademark. The affected factories claims that they have papers to prove that they were licensed to manufacturer the goods, but the papers were faked, which is considered fraud. The term 'piracy' has been utterly bastardized and overused already, please be more specific.

Re:This happens all the time...

[Cyvros]

Exactly. This was a very well-coordinated and well-conceived plan, not something down in the backyard. This was done in the open with, as the article noted, "official-looking documents", passes, ID cards, etcetera.

This is just taking piracy to new levels. This would have taken a lot of effort, but I'm sure that it would be increasingly commonplace in years and decades to come.

As a few people have said, slapping a bodge label on a bodge product in a bodge market is something, but producing decent-quality products, as the article infers, in proper factories and sold in proper shops and retail outlets is another.

Re:This happens all the time...

[myxiplx]

Read the article. They're not talking about putting a NEC brand on one or two shoddy items. They're talking about setting up a company and pirating the entire NEC image.

They were placing orders with factories using the NEC name. They commissioned R&D, their factories had NEC signs on the outside. They even designed and built their own products.

This is a huge step from the guy selling Oakley sunglasses. By faking the company and not just the product they were able to get their goods sold in legitimate outlets, right alongside genuine NEC products.

When you start to think about it, the scheme works on so many levels. Ordinarily you run a huge risk to create a factory producing fake goods and everybody in the factory shares that risk. That means it's massively expensive to set up and run, your staff are sub-standard and there's always the risk of blackmail. By creating a fake parent company and just ordering the goods from 'legitimate' factories, they bypassed all these problems. You've now got good cheap staff, proper management, and all in all a far more efficient service.

Even better, now the police can't prosecute these factories for producing the goods since they've done nothing wrong - they've just fulfilled orders as normal. Of course they'll have to stop production and will have their goods confiscated, but their insurance will cover that... The police have no choice but to go for the parent company. Fair enough you've now got to collapse that side of the operation but you've got nowhere near the costs. A few staff, some nice headed paper... sure beats loosing a factory.

Plus, you're no longer selling cheap pirated goods on the street. Instead you're able to charge full retail price.

In one fell swoop they've cut the costs of producing goods, made production more efficient, sold them at a higher price, and managed to legally insure the vast majority of their pirate production line against the risk of getting caught.

Genius, sheer genius. Yes it's illegal, but you can't help but be impressed. Somebody somewhere deserves serious Kudos for coming up with this.

So which one is the real NEC?

[tddoog]

This pirated company built existing and new products and business relationships. What if the fake company became more successful?

Just a thought. Seriously though, if I was NEC, I would try and by up the fake company and continue to operate it. you could probably get it for pennies on the dollar and you already have trained employees.

Re:Wow, that is so cool

[squiggleslash]

You may feel that's the case. I'm baffled by it, to be honest.

There are a lot of "counterfieting" operations where the work involved makes you wonder why they didn't go legit. People selling "fake" iPod Shuffles, for instance, that actually work, they're just not real shuffles. Someone's taken the time and trouble to organize the manufacturing of this item, including a certain amount of R&D, for a working product. And then they proceed to spoil the entire enterprise by putting someone's else's name on it, meaning:

- they can't sell via legitimate distributors
- they can't get funding except from organized crime.
- they have to do business constantly looking over their shoulders.

Now, we're talking about creating a massive corporation. This solves the first part of the problem, but suddenly introduces brand new ones. We're no longer talking about a one-off production run of something that, once off loaded onto distributors, can be treated as a job done and, as time goes on with no knock on the door, a success that doesn't have to be worried about. We're talking about a business where you're guaranteed to get caught eventually. Your risks just went up massively. Even organized crime is going to be careful dealing with you. On top of this, you need the organizational ability and resources to hire a hell of a lot more people, which is going to be difficult to do if you either have to fool everyone in the organization that you're legit, or you limit yourself to a pool of people who don't really care about the almost certainty they'll end up in prison at the end of the game.

What the hell? If you're that skilled in business, why knock off NEC? Why not start something legitimate? Yeah, NEC's an established brand, but, c'mon!

Chain of trusted sources

[RubberDogBone]

I'm a fan of NEC's burners and happily recommend the brand to my friends. Good stuff.

One of these friends said "Wow, I am sure am glad I get my NEC stuff from a reputable online dealer, like Newegg!"

My question is, where'd Newegg get these drives? Did their distributor vouch for the goods? How about their distributor's distributor or the originating factory?

When somebody up the chain said "I _KNOW_ these are good drives" and vouched for them, then that product carried that credential all the way to the end users and that's what we're trusting. But we don't know, really.

"It came from Newegg" might be nice sentiment but Newegg probably has no idea if they were selling fakes or not. I don't think they would knowingly do so, of course. That kind of cheap money is not worth the hassle with an IPO in the works.

Quite simple

[Oldsmobile]

It is quite simple compare business case number 1:

1) Buy generic mp3 player innards off general market for next to nothing
2) Wrap iPod shuffle lookalike plastic
3) Sell as iPod
4) Profit

Compare with business case number 2:

1) Buy generic mp3 player innards off general market for next to nothing
2) Pay designer to design a cool funky faux iPodesque white plastic exterior
3) Pay huge international marketing firm to make worldwide humongously expensive marketing campaign
4) Rummage through garbage for scraps of food, use cardboard for shelter

Re:Quite simple

[squiggleslash]

You're forgetting a number of steps that I specifically mentioned in my write up:

1) Buy generic mp3 player innards off general market for next to nothing
2) Wrap iPod shuffle lookalike plastic
3) Sell as iPod
4) Profit

Let's insert 0) Raise money for (1) and (2), from investors who need a rough idea of what you're doing. This limits you to organized crime. Congratulations.

Between 2) and 3) you need to insert "2.5) Find distributors for a product who know you're not Apple but will be selling a product branded as Apple, therefore putting themselves at risks of lawsuits. This limits you to organized crime, and they'll be demanding a high margin on the products. Which they'll be selling discounted anyway. Congratulations.

4) needs to be replaced with "Get some money, pay back your investors, and hope you're not caught"

So: to recap: you're having to get your money from people who'll kneecap you if you don't pay it back. Despite the high price of the legit product, you'll be making a tiny margin, if one at all, because you're selling to distributors who will be taking a massive risk and will want to be compensated for it and who don't want to sell for the same price as the legit product, you're restricted in terms of the number of sales anyway. Where's the profit?

Your second example, of the legitimate company, is absolutely laughable. Have you seen Apple's profits lately?

Re:MP3 Players, too

[Rolo Tomasi]

You mean like Sony buying LiteOn Optical drives, putting their logo on them and changing the firmware to report 'Sony' instead of 'LiteOn'?

Or like virtually every notebook manufacturer (including Apple), assembling their notebooks out of Chinese OEM parts?

Do you know why Chinese 'piracy' is so rampant? Because all the products are made in China anyway. One factory produces the 'brand' product during the day and the 'pirate' product after-hours. Of course they're completely identical.

I mean think about it, if you were a Chinese company manufacturing electronics, and you see how the stuff you design and produce is sold for ten times the price that brand X pays you in the West, you'd start to wonder a bit too.

If the products were designed and produced in the 'West', this would be much more difficult. But the corporations don't care. They still make a huge profit by sticking their brand name on Chinese stuff and selling it for a huge markup.