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Impact of counterfeit products on global value added

Client

Philip Morris

Year

2022


Our mission

The problem of counterfeit products and brand piracy for industrialised economies is an often underestimated one. The production, import, and sale of (illegal) products reduce the turnover and profits of legally operating companies in competition. Job losses and a loss to tax revenue are two further negative macroeconomic consequences.

Economic losses not only occur in Germany but also along the value chain of legally manufactured products that is generally organised globally. Against this background, on the basis of data from the OECD, we calculated the global loss of value added through the illegal sale of counterfeit products in Germany. Three product categories were considered – clothing and (personal) accessories, medicines, and personal care products.

The study, commissioned by Philip Morris, consists of several topics, with Prognos authors contributing the calculations of the economic loss caused by product piracy. Another part of the study was contributed by Kantar.

Our approach

Data from German customs and information from the relevant literature are used to estimate the economic loss caused by counterfeits sold in Germany. This estimated economic loss caused by counterfeits sold in Germany is then distributed globally using data on value-added links. The basic assumption here is that for every product sold illegally, a regularly manufactured product is displaced.

Core results

The calculations show that counterfeits in the three product groups cost Germany 1.9 billion euros a year in value added. In Europe, the products that have been squeezed out of the market and thus not produced lead to a loss in value of around two thirds or almost 1.3 billion euros. In Asia, some 500 million euros of value added is lost due to brand and product counterfeiting and piracy.

Global job losses from the sale of counterfeit goods in Germany are also significant. As Asian and African countries are particularly involved in labour-intensive production, a decline in production levels due to displaced value added has a much greater impact on employment there than is the case in Europe or America. Counterfeit products and brands sold in Germany are thus contributing to a decline in employment, particularly in Asia and Africa. In addition to global value-added losses, the sale of counterfeits leads to tax revenue reductions due to lost VAT/sales tax revenues and income tax revenues. In addition, unpaid customs duties on imported legally manufactured goods are added, resulting in a reduction in EU revenues.

Project team: Dr Andreas Sachs, Dr Michael Böhmer, Eva Willer

 

Latest update: 26.09.2022

Do you have questions?

Your contact at Prognos

Dr Michael Böhmer

Chief Economist, Head of Corporate Solutions

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Dr Andreas Sachs

Project Manager

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Eva Willer

Consultant

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Prognos is one of the oldest economic research centres in Europe. Founded at the University of Basel, Prognos experts have been conducting research for a wide range of clients from the public and private sectors since 1959 – politically independent, scientifically sound.

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