The making and selling of counterfeit luxury goods is big business in emerging markets such as China and India.
But buying a fake Gucci loafer or Louis Vuiton purse could be financing the next suicide bombing.
That was the chilling warning from experts at the Business of Luxury Summit in Shanghai last week.
While some luxury brand companies tend to look at counterfeiting as a compliment, publicity or simply another challenge, Hambro said it is an often-underestimated problem.
Rupert Hambro, chairman of British research firm Walpole, said that while in emerging markets, luxury goods are a growing business, the fastest growing segment of the industry is counterfeiting. And that may be a more dangerous proposition than spending a monthly pay cheque on a new top.
Since 1993, production of fakes worldwide has jumped by 1,700 per cent, according to some estimates. And proceeds from some sales of fake goods around the world have been tracked by intelligence agencies in Britain and the United States to terrorist organizations such as al-Qaida.
"Profits benefit organized crime rather than the local community," said Hambro.
Counterfeiting may also undermine the brand value of luxury goods, for which everything is in a name.
Ultimately, despite the myriad opportunities created by emerging markets like China, India and Russia, luxury brands are fighting battles on multiple fronts.
Though luxury manufacturers believe China is in vogue, the potential for the likes of Gucci, Prada and Police is more smoke and mirrors than dollars in the bank.
Taxes in the mainland mean prices are higher and the percentage of people who can afford luxury goods is relatively microscopic, between 5 and 10 million. More to the point, counterfeiting is rampant and there is no end in sight to the blatant rip-off, copy culture.
But such angst and long-term problems have not kept hundreds of industry representatives in Shanghai from salivating at the potential of the market, small as it may be at present.
"Basically, we need to create a market here," said Patrizio Bertellio, Chairman and CEO of Prada during the summit held on Thursday and Friday.
The summit brought a dazzling collection of the world's most prestigious and expensive names to Shanghai, a city according to Grosvenor Asia Pacific Managing Director Nicholas Loup "poised to become a capital of the luxury business."
Shanghainese lead mainland pack of affluent Chinese, gobbling up luxury goods like Louis Vuitton purses, Bulgari diamonds, Rolex watches or Prada dresses.
According to a Merril Lynch study last year, Chinese were the third largest buyers of luxury Italian goods - buying up 11 per cent of the total.
They trail only religious shoppers the Japanese at 26 per cent, and retail hungry America at 25 per cent or US$107 billion. By 2014, Chinese buyers may account for 30 per cent of the luxury goods market.
"It is a promising market to say the least," said Melanie Flouquet of JP Morgan, but "probably the biggest challenge for the luxury sector is that the market is changing extremely fast."
Luxury brands are fighting to hold on to their identity. For them, branding is everything; a given item sells an image more than they sell a product.
"We have become a guarantee for quality in the eyes of the consumers," said Prada's Bertellio.
(China Daily May 21, 2005)
