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Industry Analysis
Summary:
Looking into the project, which is trying to tackle with counterfeit products in a world where fake goods are being produced with increasing accuracy and detail.
Table of contents:

Walimai/WaBi Industry Analysis


Introduction

Every year, billions of dollars’ worth of counterfeit goods are sold across the globe. Unfortunately for both producers and consumers, there isn’t really a good way to stop counterfeit goods from being sold. Yes, the consumer can inspect the product to see if its fake and then make the decision to purchase, but there are a lot of problems with that approach:

  • You’re putting the burden on the consumer to make sure what they’re buying is real.
  • Fake goods are being produced with increasing accuracy and detail with respect to the original products, making it harder for the common consumer to spot the differences.

Current Use

With certain goods such as baby products, there is a real and present danger to children when they are counterfeited. Case in point: Parents in China, ever since the 2008 milk scandal involving tainted raw milk and the deaths of 6 children, prefer foreign milk products – unfortunately, just because its foreign doesn’t mean it can’t be counterfeited/tampered with. Over the years a significant amount of baby products sold have been either fake or tampered with (sell by date changed, repackaged, etc.) and the possibility that babies who are fed fake formula could have health problems for the rest of their lives is very real. The counterfeit baby products are also putting significant strain on the companies manufacturing the real products as well, with some foreign companies exiting the Chinese market entirely (such as Danone Nutricia) and domestic companies facing significant financial problems (such as Beingmate). 

In Hong Kong, as recently as October and December of 2017, imported baby formulas (from Ireland, France) were recalled or pulled from shelves due to mislabeled nutrition and possibility of salmonella infection respectively – another area Walimai protection could prove useful. When a product recall issued (say X brand, Y product, Z batch) it would be a lot easier to isolate the affected products if they were tracked the whole way, example: 

  1. X brands Y product is discovered to contain A infection in the Z batch.
  2. Subsequently, XYZ products are marked as recalled.
  • Allowing retailers to easily pull products from the shelves.
  • Consumers to easily identify unsafe products (if hypothetically the retailer doesn’t follow through with the recall or they’ve already bought them)
  • Manufacturers to help locate the affected products/trace materials back to the source of the infection.

Although Walimai has been focusing on baby products, the hypothetical situation/solution above can be applied to pretty much any product.

While companies regularly advise retailers and in some cases consumers as well on spotting counterfeit goods, they don’t have solutions to stop counterfeiting. WaBi/Walimai and VeChain are both working on blockchain based solutions, although VeChain is currently working on a rebrand and the whitepaper needs to be published – post rebrand VeChain will still be working on anti-counterfeiting innovations but in the grand scheme of things it won’t be their main focus. 

Walimai have been working on their solution for a few years now, first starting to sell products on JD.com at a 20% premium back in December of 2016 – reception was good, and it shows consumers are willing to pay more to make sure they are receiving real/safe products. In August/September of 2017 the first sales of Walimai secured products at physical stores happened (some customer feedback), with the ability to buy Walimai protected goods using WaBi coming soon after. Most recently they’ve expanded Walimai product shelves to another 7 stores across China and have added protected cosmetics – both are good growth indicators, especially the fact that physical stores carrying Walimai protected goods have more than tripled in the span of a few months. VeChain has been working on secured wine/liquor – with plans to expand beyond that soon.


Examining other industries

Shoes:

Looking further into the damage of counterfeiting, the amount of money clothing/shoes manufacturers are losing every year is unparalleled, and there’s nothing they can do to stop it – but the manufacturers aren’t the only ones losing money. Looking at sites like StockX and Grailed you can quite clearly see how big of an industry reselling shoes and clothing has become, and much like cryptocurrency, the reselling industry isn’t showing any signs of slowing down – periods of fatigue sure, but only until the next hyped release is dropped. 

Inherently there exist problems with verifying product integrity when reselling, what proof does the customer ever have that the product they’re purchasing is real outside of inspecting it upon delivery and seeing if it smells like leather or glue (not a joke, some people can tell if a shoe is fake based on the smell), once again placing a burden on both the buyer and seller. StockX currently relies on man hours to weed out fakes and place tags on genuine products (once the tag is cut off, you can’t return the shoes – protecting StockX from anyone trying to scam them into thinking they were sent a fake/messed up pair, although there were even fake StockX tags briefly – they switched to a new model to stop that). Often, shoes being resold are “deadstock”, aka new/unworn and still in the original box – In my opinion it’s just a matter of time before products like this are secured with Walimai or VeChain solutions. Consider what it costs a company to employ people solely to check for counterfeits vs. having a tamper proof tag on the product (with the capability to track and relay the entire history of an item) – on the corporate level, the decision to switch to an easier, cheaper, and more reliable method won’t be hard to make, especially as the technology continues to prove itself. From the consumer standpoint, being able to make purchases with the ability to track the items history from when it was made to when they’re receiving it completely changes the game with respect to consumer confidence in not only the product itself but also the avenue from which they purchased it.


Various Electronic Goods:

Power Banks, SD Card, USB Stick, etc. would also definitely benefit from counterfeit protection. Due to the generic nature of power banks the sector itself is very diluted, from personal experience I know factories in China are more than willing to copy any design – some will even go the “extra mile” and offer to put (pick a number) mAh on the packaging even if the actual unit has a far smaller capacity. The same applies to SD cards and USB sticks – say 32 gigs are advertised, in reality having only a fraction of that. These types of products are sold in countries like India by the hundreds of thousands and are generally not made to last more than a few months – they’re able to keep sales steady offering what seems to be a good deal and simultaneously keep costs incredibly low while making it so that genuine products can’t compete. Walimai secured products could potentially disrupt markets like this, customers would be able to know if a product is quality AND be assured of quantity (w.r.t. capacity: mAh, GB, etc.) – it’s reasonable to assume Walimai would refuse to secure any products that are committing fraud (in this case capacity).


Closing Statement:

All things considered, Walimai/WaBi are still in the early stages of development, they have products in 10 stores now and hope to increase that to 1000 by the end of 2018. Walimai protection on baby products has been working well and received positive customer feedback even with the price premium, indicating customer willingness to spend a little more to make sure their children stay healthy – it will be interesting to see how successful Walimai plans with cosmetics and pharmaceuticals are, how fast they can scale globally, and what other sectors they can impact – with a giant like VeChain on the horizon there’s no time to relax, but I do think that they have an advantage by being focused, VeChain’s broader plans may not let them focus as much on anti-counterfeiting – plus, while they’re developing, Walimai has a working product and can focus on expanding the secured products range and availability.

References:

  • https://medium.com/@wabiico/walimai-protect-cosmetics-and-expanding-to-7-more-stores-4f1ca24ba557
  • https://medium.com/@wabiico/weve-had-our-first-customer-purchase-using-wabi-today-c43f625cb3a5
  • https://medium.com/@wabiico/chain-of-stores-in-west-of-china-signed-up-15687451ce18
  • http://www.scmp.com/news/china/policies-politics/article/1932930/shanghai-arrests-six-people-over-17000-tins- counterfeit 
  • http://www.scmp.com/news/china/article/1450736/food-import-inspections-increased-after-claims-sell-dates- changed-baby 
  • http://www.scmp.com/news/china/society/article/1933512/chinas-government-orders-inquiry-sale-counterfeit- baby-milk 
  • http://www.scmp.com/business/china-business/article/2130061/widening-loss-forecast-china-partner-beingmate- leaves-dairy 
  • http://www.nbcnews.com/id/26827110/
  • http://news.bbc.co.uk/2/hi/asia-pacific/3648583.stm
  • http://www.chinadaily.com.cn/english/doc/2004-05/10/content_329449.htm
  • https://www.phonearena.com/news/Fake-capacity-power-banks-exposed-or-why-you-should-buy-genuine- accessories_id78146 
  • https://www.raymond.cc/blog/test-and-detect-fake-or-counterfeit-usb-flash-drives-bought-from-ebay-with- h2testw/ 
  • http://www.rmprepusb.com/tutorials/-fake-usb-flash-memory-drives#TOC-What-is-a-Fake-Capacity-USB-Flash- Drive-or-SD-card- 
  • http://abcnews.go.com/Business/authorities-sale-counterfeit-sneakers-lead-terrorist- financing/story?id=49682960 
  • http://money.cnn.com/2018/01/05/technology/goat-sneaker-app/index.html
  • http://www.foxnews.com/us/2018/01/09/border-patrol-seizes-55g-in-counterfeit-air-jordan-sneakers.html
  • https://help.stockx.com/sneakers/verification-process-for-sneakers
  • https://www.reddit.com/r/Sneakers/comments/6g7xfy/psa_there_are_now_fake_stockx_tags_being_sold/
  • https://iccwbo.org/media-wall/news-speeches/5-ways-counterfeiting-hurts-society-and-what-we-can-do-about-it/

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