COUNTERFEIT CONSTRUCTION PRODUCTS FROM LOW-COST SOURCING COUNTRIES

misbe2011 Tracking Number 18

The U.S. Federal Bureau of Investigation estimates that two percent of all US airliner fasteners are counterfeit and that at least half of those are dangerously deficient. Sadly, a failed fastener was recently blamed in the crash of a state-of-the-art B-2 stealth bomber. Economically, the counterfeiting “industry” does twice the business worldwide as the illegal drug trade. But what does the practice of counterfeiting mean for the construction industry? The answer is injury, death, and economic loss. Recent events include a worker killed while welding when a counterfeit “Motorola” battery exploded. Workers have been injured when counterfeit pipes and valves have failed when placed under pressure. Concrete has failed on China’s newest high-speed railway before the $12 billion project is even completed. The culprit? Fake fly-ash that looks exactly like the real thing and can only be detected through laboratory testing. The media has been filled with news stories in recent years about the problem with counterfeiting, copyright infringement, intellectual property violations, the grey market (the trade of something legal through unofficial, unauthorized, unintended distribution channels), the practice of passing fake raw materials off as the real thing (see fly-ash above), and the deliberate manufacture of inferior products and bribing officials to accept them, or selling the products to a local subcontractor who installs them and covers them up before the owner or prime contractor discovers them. This last scenario happened to one of the world’s largest international construction owners. Though China is usually the country identified as the source of these problems, research by the research team has indicated that China is not the only source country of these problem products. While over 85% of the problem is estimated to originate in China and Hong Kong, nations traditionally allied with the US are also identified as source nations. In fact approximately five percent of the problem products reportedly originate in US ally nations Taiwan, Pakistan, and the UK. These figures are based on items seized by U.S. Customs and Border Protection agents and are for all products. An international team of investigators spent two years conducting an investigative study that entailed 192 face-to-face interviews conducted in seven countries. Those interviewed were executives, procurement officers, and quality managers for some of the world’s largest construction owners, contractors, insurance companies, manufacturers, and suppliers. Also interviewed were government and pseudo-government officials. Preventative actions for buyers that should be taken from this research are supply chain management and training. For instance, if China is going to sell to the west, they need to understand how westerners feel about counterfeiting. Conversely, if the west is going to buy from China, westerners need to understand the risk and send corporate representatives to China to oversee production. This can mean third-party verification, resident inspection, extensive use of product material identification (PMI), or many other methods of inspection. As for training, the buyer must train the people that they retain to manufacture for them in low-cost sourcing country to manufacture things to western standards. They must train their own people, both in their Procurement Division and their last line of defense, their field personnel. Finally, the construction industry must train law enforcement personnel, especially customs and border patrol personnel in what to look for. U.S. Customs officials interviewed as part of the research said that “construction items are not on our radar. We don’t know what to look for. Please train us.” The results of this research are shared in this paper.