Counterfeit Goods Harm Alibaba’s Efforts to Go Global

21 Dec

Jack Ma is struggling to shake Alibaba’s reputation as a platform for cheap counterfeits and unauthorized merchandise, Bloomberg News reported Monday.

Alibaba is heading into 2016 after a tough year that saw more than $50 billion erased from its market value amid lawsuits and criticism from Chinese and U.S. regulators.

Improving its image next year is imperative for Alibaba to win the trust of global merchants and shoppers overseas, from whom Jack Ma wants to get more than half the company’s revenue within a decade, experts say. A weakening Chinese economy makes that effort even more pressing.

In China, JD.com is winning customers in part because it holds the inventory itself and sells directly to them, said Mary Ma, an analyst with Bloomberg Intelligence, adding that such a business model – which is used by Amazon – is simpler to police and regulate.

“By now, management should have eliminated this problem,” said Cyrus Mewawalla, managing director of London-based CM Research, in an interview with Bloomberg. “The fact that they haven’t is a worrying sign for investors.”

Underscoring the urgency of the issue, on Monday, Alibaba appointed a former Apple cybercrime and counterfeits investigator, Matthew Bassiur, to supervise its global efforts to combat piracy. From January, the former Department of Justice prosecutor will work with global brands to fight infringement.

Alibaba’s struggle with counterfeit goods is part of a larger issue in China, where piracy is rampant. But over time, the country’s growing middle class will demand higher-quality goods, placing the onus on Alibaba to clean up its act, market observers say.

Alibaba earns money from its Taobao shopping site through advertising revenue, while third-party merchants hold the products for sale. Since the goods are not in the e-commerce giant’s possession, it is harder to verify if they are legitimate.

The high volume of listings on e-commerce websites makes policing fakes challenging. Amazon and EBay struggled with similar issues early on, Sage Chandler, Senior Director of International Trade at the Consumer Technology Association, told Bloomberg in an interview.

“It’s whack-a-mole, they pop right back up,” Chandler said. “These guys are always going to have these problems as long as there are counterfeiters out there.”