The May 1, 2006 Fortune article Not Exactly Counterfeit is a must read for firms considering the use of offshore manufacturing.
This piece described the challenge New Balance, an athletic shoe company, has had with one of its offshore contract manufacturers. Apparently, one its contract manufacturers started making additional copies of one of New Balance’s shoes in 1999. Those shoes are still on sale today in Shanghai. That same contractor makes a look-alike brand, called Henkee that is also attracting the New Balance customer.
The third shift problem highlighted in the article (a practice where a contract manufacturer produces more product than agreed to just to have their own inventory to sell) is a practice which ensnares other retailers. These retailers cannot distinguish these products from counterfeits and yet, the theft of the IP (and additional sales) from their owner is substantial.
From here, the problems only get more interesting: IP theft, copycat marketing, etc.. The piece is too good to pass up and I strongly encourage Spend Matters readers to follow the link.
Brian Sommer authors the blog: Services Safari.