The impact of counterfeit products on the growth of infant industries in low developing countries

Table of Contents

DECLARATION

APPROVAL

DEDICATION

ACKNOWLEDGEMENT

LIST OF ABBREVIATIONS

Table of Contents

ABSTRACT

CHAPTER ONE
1.0 INTRODUCTION:
1.1 BACKGROUND
1.2 STATEMENT OF THE PROBLEM.
1.3 OBJECTIVES OF THE STUDY
1.3.1 Purpose of the Study
1.3.2 Specific Objectives
1.4 Research Questions
1.5 Scope of the study

CHAPTER TWO
2.0 The government and counterfeits products
2.1 The role of Government in controlling counterfeit goods

CHAPTER THREE
3.0 Introduction
3.1 Research design
3.2 Sampling frame and sample size
3.3 Measurement of the study variables
3.4 Data collection Methods
3.5 Data Analysis
3.6 Data Quality Control
3.7 Ethical Considerations
3.8 Limitations of the study
3.8.1 Areas for further Research

CHAPTER FOUR
4.0 Introduction
4.1 Respondents Demographics
4.2 The impact of counterfeit goods on the infant industries in Uganda
4.3 The Knowledge on counterfeit goods by the consumers.
4.4 The effectiveness of counterfeit goods on customers
4.5 The role of government towards controlling counterfeit goods

CHAPTER FIVE
5.0 SUMMARY OF RESARCH FINDINGS
5.1 CONCLUSION
5.2 RECOMMENDATIONS.

BIBLIOGRAPHY

DEDICATION

I dedicate this research project to my dear husband Mr. Samuel Bbaale for encouraging me, standing with me financially, spiritually and emotionally during this journey of my PhD studies.

May the good Lord bless you abundantly.

ACKNOWLEDGEMENT

First and foremost I want to thank the Almighty God for enabling me complete my PhD studies.

Thank you holy spirit for the wisdom, knowledge and understanding and above all for giving me good health.

I am grateful for all the support for the staff of Atlantic International University, My friend Dr Tom who also encouraged me to pursue my PhD studies, Ronald Kyagulanyi who helped in data collection and analysis.

Finally special thanks go to my family, my husband, children Roy, Jesse, Blessing and Praise for the support and also for bearing with me in my absence and late comings.

LIST OF ABBREVIATIONS

Abbildung in dieser Leseprobe nicht enthalten

ABSTRACT

The main objective of carrying out this research was to find out the relationship between counterfeit goods and infant industries.

The research was centered on the following objectives;

a) To find out the impact of counterfeit goods on the infant industries in Uganda

b) To find out the role of government towards controlling counterfeit goods

c) To assess the effectiveness of counterfeit goods on the consumer.

d) To examine measures that have been undertaken to curb counterfeit goods.

The researcher used both primary and secondary data where qualitative and quantitative analysis was used.

Primary data was collected from a random sample of 103 respondents including retailers,

Wholesalers, managers of infant industries and consumers of counterfeit products while.

This was done by using interviews and questionnaires which were administered in different places. Secondary data was from literature that was previously written by other Authors.

Data was analyzed using frequencies, percentages, and SPSS software and correlation analysis.

The findings were descriptive and inferential statistics was used.

These results depicted that75% reported most counterfeits goods as produced in Uganda and 25% from china.

Many of the respondents were not happy with counterfeit goods and also showed low sales of original goods compared to fake products since the latter were considered cheaper than the former.

The researcher concluded by recommending more strict measures to be employed by government so as to control counterfeit products in the country to enable the growth of infant industries.

CHAPTER ONE

INTRODUCTION AND BACKGROUND

1.0 INTRODUCTION:

This chapter includes the introduction and the background of counterfeit products in Uganda. It focuses on the history of counterfeits and their effects on the growth of infant industries in Uganda.

1.1 BACKGROUND

Counterfeit products have been on the rise for the last ten years in Uganda. They mainly come from international markets that consider low developing countries as dumping grounds. Many of these goods have replaced domestic products that were locally produced hence affecting the infant industries that are struggling to grow.

Just as an infant is defenseless and vulnerable upon its entry into the world, young or “infant” industries are weak and vulnerable to a variety of market challenges and economic pressures. For example, they usually lack a skilled workforce, efficient production processes, experienced managers, and established sales channels and market share even in their own domestic markets. During this start-up phase for new industries, young firms often find it difficult, if not impossible, to compete with the established international competitors.

For example, Infant Industry Theory was the basis of U.S.A trade policy after gaining its independence from Britain. At that time, the well-established British and other European products were familiar and sought by the U.S. consumers but were made more expensive by tariffs and duties, giving a chance for U.S. firms to take hold in their own domestic marketplace. Year’s later, in the late 19th and early 20th centuries, the U.S. steel industry was granted protection from international competition through tariffs and quotas that kept other steel producers out of the U.S. market, allowing the U.S. steel industry to dominate its own domestic market and to compete effectively in international markets.

Counterfeit goods are non-genuine goods “that copy or otherwise purport to be those of the trademark owner whose mark has been unlawfully used” (Mallor, 2007). Counterfeits may or may not be of lesser quality than the genuine goods, and they may or may not be convincing replicas of the copied good. As David Hopkins, Lewis Kontnik, and Mark Turnage said, Counterfeit goods means any goods alleged to infringe any copyright, any goods which are copies made without the Consent of the rights holder or person duly authorized by the right holder in the country of production and which are made directly or indirectly from an article where the making of that copy. Would have constituted an infringement of a copyright or a related right under the law of the country of importation.

They are also goods alleged to infringe any trademark, including packaging, bearing without authorization and is identical to the trademark validly registered in respect of those goods, or which cannot be distinguished in its essential aspects from that trademark, and which thereby infringes the rights of the owner of the trademark in question under the law of the country of importation”; The trading blocks in Africa’s countries schemes and the equivalent attempts to create continental trading blocks and the issue of free market indicates a wider market for fake goods. Examples of such trading blocks are the African Economic Treaty(AET) that came into force in 1994, the Abuja Treaty(AT) which originally sought to strengthen existing regional schemes and promote formation of new ones that would be the frontrunners of a continental integration scheme. The East African Community (EAC) that seeks to unite the East Africa and allow free movement of its people for trade and investments. Others include but not limited to Economic Community for West African States, (ECOWAS) and Preferential Trade Area (PTA) which consist of political, economic and social objectives that also create environment for counterfeits business (Biersteker, 1987).

Therefore regional integration has been viewed as a useful component in eliminating counterfeit goods and as a way towards attaining of global integration that such an arrangement will help in overcoming the disadvantages of small economies minimize adjustment costs, enhance export

Competitiveness, and provide an effective framework for financial sector, legal and regulatory reforms, investment promotion, and the implementation of sectored policies thus a recipe for

Eradication of counterfeit. Lawrence (1995) sees regional integration as a tool for conflict prevention and resolution and for fostering conditions for health economic development.

1.2 STATEMENT OF THE PROBLEM.

A surveillance report by Uganda’s national standards agency for 2017 and 2018 indicates that more than 54 per cent of goods on the market are fake, but the public thinks as high as 80 per cent of the goods are substandard.

From the study, it was established that a cross-section of products on the Ugandan market both imported and domestically manufactured are substandard. On average, 54 per cent of the sampled products failed tests for compliance to Ugandan standards.

But Mr. Ben Manyindo, the Uganda National Bureau of Standards executive director, said: “Over half of the 54 per cent sub-standard products are locally made. We are continuing to engage the local producers to register with UNBS and bring their commodities for verification.” He said the substandard products have found their way into the Ugandan market through adulteration of standard products by traders buying cheap products from the international markets and dealing in expired products. “When it comes to verification at the borders, they present pens when they have books. This means fake books will enter into the market without being verified,” Mr Manyindo said.

The UNBS report also indicates that the substandard products on the market are mainly foods and beverages, followed by cosmetics and chemicals, electronics and electro appliances, and construction products which are mainly from international markets. In practice, governments use a variety of tools, such as tariffs, quotas, and duty taxes, to keep international competitors from being able to match or beat the prices of a new or infant industry. These tariffs and taxes have the effect of increasing the costs to the competitor and giving the infant industry the chance to build an efficient operation and establish its presence in the market.

During this period, the new firm or industry is given a chance to grow up.
This is still a challenge in Uganda since there are so many fake goods on the market hence threatening the growth of infant industries. Therefore the researcher sought to find out the impact of these goods on the growth of infant industries.

1.3 OBJECTIVES OF THE STUDY

1.3.1 Purpose of the Study

The main reason of the study was to explore and assess the impact of counterfeit products on the growth of infant industries.

1.3.2 Specific Objectives

1. To find out the impact of counterfeit goods on the infant industries in Uganda
2. To find out the role of government towards controlling counterfeit goods
3. To assess the effectiveness of counterfeit goods on the consumer.
4. To examine measures that have been undertaken to curb counterfeit goods.

1.4 Research Questions

The study was guided by the following research questions;

1. What is the impact of counterfeit goods on the infant industries in Uganda?
2. What is the Role of government towards controlling counterfeit goods?
3. How to assess the effectiveness of counterfeit goods on the consumer?
4. How to examine the measures that have been undertaken to curb counterfeit goods?

1.5 Scope of the study

The study was guided by content scope, geographical scope and time scope.

In terms of the content scope the study aimed at finding out the impact of counterfeit goods on the growth of infant industries in Uganda.

The study was conducted in different places including madvani group of companies, mukwano, Lugazi , This research project was conducted between the period of 4 months. The literature used was between 2010- 2016.

CHAPTER TWO

LITERATURE REVIEW

2.0 The government and counterfeits products

The governments of economies where counterfeits are sold spend a lot of amounts of finances in funding police and other investigation and enforcement operations. Additionally, the judicial authorities, together with the courts and prison service, need to devote supplementary time and financial reasons in dealing with counterfeiters. Ultimately, the consumer pays the cost of this unfair rivalry.

Although many buyers in most cases believe they are getting a better bargain after buying counterfeits; the actual value of the merchandise is normally lower. Hence, they end up paying an unnecessary high price for an inferior product. The inferior quality of many counterfeits, especially those relating to consumer health and safety, has had devastating effects. It is no longer rare to find fake spare parts in aircraft as well as other motor vehicles causing death and injuries, or duplication of pharmaceuticals in hospitals. Employees in factories where fake products are produced are frequently exploited.

These often work in a deprived working environment and are frequently exposed to health and safety risks. In addition, they are generally poorly paid. Counterfeiting has also attracted both organized and petty criminals who have not only derived huge incomes from the trade but have also used it, both as a means to invest the proceeds of crime and to fund other crimes.

2.1 The role of Government in controlling counterfeit goods

It could be argued by many trade economists that counterfeiting industry creates jobs but taking a close look at these jobs, they are majorly and often poorly paid, often involve substandard working environments and conditions as well as using child labor. The foundation for new business improvement in any country is the existence of a legal structure to shield the rights of the entrepreneur as well as promoting fair competition. The prevalence of more than twenty three counterfeiters in a market dampens originality and inventiveness in that country because it prevents

Honest producers from investing resources in new products and market development ¹.Depaulo et al 1996. An additional direct loss for the countries that become havens for imitators, are tax losses because the counterfeits are normally sold through underground channels and counterfeiters are not generally keen to paying taxes on their ill-gotten gains. Monetary losses are increasingly shown to justification by enforcement officials in most countries The other adverse effect of counterfeiting is on the economy as a whole. The presence of forgeries might shake the confidence of shoppers in product quality being available in the country, then attractiveness of Uganda as a “shoppers’ paradise” could get damaged. Counterfeiters, attracted by low costs and high margins could automatically drive genuine businesses out of the market affected by cost and profit pressures. Cordell.V.V1997 In case of non-deceptive counterfeiting, where the customer distinguishes that the product is not genuine and so pays an adjusted price for it, the branded producer will not be affected, as these consumers are not likely to purchase the genuine product in the absence of forgeries. However, this damagingly affects the business and trading and business environment of the economy.

Further, since a large majority of products sold in the Uganda for example are imported, the loss in industry revenues has a direct relationship with loss of revenue (customs) for the government, due to “ either undervaluation of counterfeit items, leading in partial loss of customs revenues; or if smuggled into the economy, a full loss of custom revenue”. Other losses could be measured in terms of reduction of n GDP that is non-oil, employment levels, trade just to mention.

Countries promoting tougher enforcement of intellectual property rights in the world have a strong reason for doing so Anti-counterfeiting group 1997 the monetary costs of counterfeiting for such “victim” countries include job losses, unexploited sales opportunities and loss of revenues in form of tax. This can be seen in the long run as counterfeiting will systematically discourage investment in product development since a company will not get all the benefit from its investment ².

Intellectual property is every bit as important as physical property. For many corporations, intangible assets like brands and trademarks are even more valuable than tangible assets (Hopkins, 2003). For example, the Coca-Cola brand name is far more valuable than the ingredients that go into a can of Coca-Cola.

Businesses spend a great deal of time, energy, and resources to protect their ideas, brands, and identities from counterfeiters and intellectual property infringers. Firms do this not only to preserve their reputations and profitability, but also to prevent the consumer from unknowingly purchasing unsafe, low-quality goods from unscrupulous dealers. A substantial number of governments have enacted laws and treaties that protect legitimate holders of intellectual property and punish infringers in order to protect their citizens and local industries from those who would attempt to usurp the brand names of successful companies.

Despite these attempts to defend intellectual property rights, however, counterfeiting remains rife. Counterfeit goods cost the American economy as much as $250 billion a year, and counterfeiting is responsible for the loss of over 750,000 American jobs (U.S. Chamber of Commerce, www.thetruecosts.org; Federal Bureau of Investigation). Trade in counterfeit goods may account for as much as 7% of all world trade, and some have estimated that one out of every hundred pharmaceuticals in the United States is counterfeit (Teresko, 2008; Congressional Hearing 11/1/05.

Manufacturers and distributors of counterfeits have also been known to utilize violence against persons and property to resist the anti-counterfeiting efforts of law enforcement, private investigators, or other American citizens, even counterfeiters that are not linked to organized Crime or terrorist groups (Congressional Hearing, 5/25/05; White Paper, 2005). Counterfeiting poses threats to legitimate businesses as well. By counterfeiting a company’s product, that counterfeiter becomes a competitor of that legitimate company. As a result, that company loses sales and market share. Making matters worse, the counterfeiter has an unfair advantage, since it has not had to pay for R&D costs or brand development. Therefore, counterfeiters leech profits from American businesses in ways that no legitimate competitor can. As mentioned previously, counterfeiting costs the U.S. economy as much as $250 billion a year (U.S. Chamber of Commerce, www.thetruecosts.org; Federal Bureau of Investigation).

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