Alibaba: Fakes Are Good-Quality Now, and It's Making Piracy Harder to Fight

The Chinese Giant Has Drawn Scrutiny From Brands Over Counterfeits

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Jack Ma of Alibaba
Jack Ma of Alibaba Credit: SeongJoon Cho/Bloomberg

Alibaba Group's founder Jack Ma said Chinese-made counterfeit goods today have gotten better than the genuine article, complicating the effort to root out fakes on the country's largest online shopping services.

Global brands have long relied on China and other low-cost manufacturing bases to beef up margins. But those same factories have gotten savvier over the years and are now using the internet -- including Alibaba's platforms -- to sell their own products straight to consumers, Mr. Ma told the company's investor conference on Tuesday. Still, Alibaba is the best in the world at fighting the sale of counterfeits, he added.

"The problem is that the fake products today, they make better quality, better prices than the real products, the real names," Mr. Ma said in Hangzhou, China. "It's not the fake products that destroy them, it's the new business models."

Failing to clean up online bazaars like Alibaba's Taobao could alienate merchants and shoppers abroad, particularly at a time when the company is drawing scrutiny from both investors and international brands over its reputation as a haven for knock-offs. Its membership in the International AntiCounterfeiting Coalition, a nonprofit global organization that fights counterfeit products and piracy, was suspended in May after questions were raised about conflicts of interest involving the coalition's president. That's after its inclusion in the group irked some members who said the company wasn't going far enough to cull fakes from its marketplaces.

Right or wrong, Mr. Ma's comments on the caliber of counterfeits may not sit well with those trying to tackle an endemic problem that's tarred China's image abroad.

"It's inappropriate for a person of Jack Ma's status to say something like this," said Cao Lei, director of the China E-Commerce Research Center in Hangzhou. "For some individual cases what he's saying might be true, but it's wrong to generalize the phenomenon."

Mr. Ma wants to get more than half the company's revenue from outside China within a decade and a cooling domestic economy makes the fight against counterfeiters more pressing.

Alibaba pleaded its case to hundreds of members of the IACC that it has the data, technology and desire to help keep fake brands off its online marketplaces. Its collaboration with Chinese law enforcement in 2015 resulted in the arrest of 300 people, the destruction of 46 places where counterfeits are made and the confiscation of $125 million worth of products, President Michael Evans told the group in May.

"We would love to work with the branded companies," Mr. Ma said, adding that the company had around 2,000 staff working on the problem. "We cannot solve the problem 100% because it's fighting against human instinct. But we can solve the problem better than any government, any organizations, any people in the world."

Alibaba handles more e-commerce than Amazon and eBay combined. It expects to reach 423 million online shoppers around the world this year, mostly through its Tmall.com and Taobao Marketplace sites. It aims to have 2 billion consumers by 2036 and double gross merchandise volume to $911 billion by fiscal 2020.

"Alibaba has a remarkable amount of big data at their disposal and I believe there are many triggers which could help them identify fakes better than they are doing at present," said Mark Tanner, managing director of the China Skinny, a research firm in Shanghai. Those included price variances, reviews, and selling patterns, he said.

While battling the immediate problem, Mr. Ma is also keeping an eye on the longer term. He said his goal of reaching 2 billion users would require more success in rural China, which he estimated had 700 million people. While there is merit in calls for expansion in Malaysia, Indonesia and India, Mr. Ma said the domestic approach would be more successful because his company understood the local market better.

And he already has an eye to posterity, telling investors that over 90% of key company meetings, decisions and events have been recorded on video to be analyzed by future generations studying Alibaba.

--Bloomberg News--

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