Alibaba with no fake goods would go broke.

Pressure has been mounting for Alibaba Chairman Jack Ma, to eradicate counterfeit goods or risk Taobao getting back on the U.S. Trade Representative’s office blacklist. Last year the site retailed $394 billion and handles five times the volume of Ebay. The threat hangs over Alibaba after Ma recently netted the world’s biggest IPO last year on the New York Stock Exchange, raising $25 billion. Alibaba’s revenue more than doubled over its last two fiscal years to $12.3 billion, while net income nearly tripled, to $3.9 billion. The pressure is now more intense including the Chinese government that typically turns a blind eye to counterfeiting.

The next step will however offer incentive as they strive to move it from being a giant in China to being a world giant. The crackdown on counterfeiting by Alibaba has recently taken off with the site setting up measures to identify and de-list counterfeit stores.

They are however taking a further step by working with brands to tackle counterfeits. This move is what got them off the blacklist under the condition that they would make further strides to avoid landing in the list again. This is something that the CEO of the American Apparel and Footwear Association, an industry group that represents many brands victimized by Chinese fakes, intends to undo. They want the retailer listed back on the black market, stating that they have been in talks with the Chinese company but have faced resistance every step of the way.

In their defense Alibaba states that most of the demands of the trade group were “unreasonable and unworkable”.

They have however the largest private task force in the world that is devoted to fraudulent merchandise. By these actions this is a good starting point for Ma and his company. Their “big data” computer system sniffs out counterfeits. Taobao transactions based on attributes such as a suspiciously low price, poor photo quality and the length of the product description. Transactions flagged as suspect get a follow-up look before a decision is made to take them down.

The program also seeks to partner with brands and has done so successfully to remove 130,000 counterfeit listings from Taobao.

There are those who are however unimpressed with Alibaba. One such individual is Nissan’s William Forsythe. According to him “They are counting the money with their left hand, and covering their eyes with their right.”

Alibaba will need to handle 3 parts of this equation: end Buyer, sellers and brands. The current system of penalizing merchants with strikes and points is fairly shallow. This is due to the fact that the slate is wiped clean and only grievous offenders are de-listed. This is dependent on the nature of the infringement the shop is shut down.

While the system is tougher it is still very possible to maintain the store of counterfeit items. Though the company is getting tougher, they have a long way to go to be able to discourage the counterfeiters.

Millions of customers are getting ripped off as was seen in the scandal in 2011 that resulted in the resignation of the then CEO, David Wei and COO, Elvis Lee. Some of the Alibaba staff set up fraudulent sellers with over 2,300 fake storefronts. While neither Wei or Lee were charged with any wrongdoing, the company risked being classified as having a culture of pursuing short-term gain at all costs.

Ma’s thoughts on luxury retailing for thousands of dollars is that it is innately absurd. “How can you sell Gucci or whatever branded bag for so much money? It is ridiculous,” he says. “I understand the branded companies are not happy, but I also say that’s your business model. You have to check your business model, too.”

While they are facing lawsuits form various corners of companies for trademark infringement, it is notable that Taobao was identified as “still the largest online platform for the sale of counterfeit goods.”

To help pull fakes the company has partnered with brands of strong records of accurately spotting counterfeits into a “good faith” program that reduces the time it takes to remove a listing from 3-5 days to 1-3 days.

The efforts from Alibaba and Ma are yet to show significant impact on the fight against counterfeits especially when it threatens to sink the small time sellers that remain his rice bowl. Can Ma crackdown on fakes to show that he respects brands globally and move the retail from China to being a global giant? He has his work cut out for him.


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