How Digital Signatures Beat Counterfeits and Boost Bottom Line

Jan. 8, 2009
High tech manufacturers turn to encryption technology to authenticate consumer components.

While most are familiar with the high-profile cases of counterfeiting among high-end consumer fashion brands and accessories, a serious counterfeit and grey market problem exists for manufacturers of high-tech components parts and consumables. The U.S. Chamber of Commerce estimates the auto industry alone loses $13 billion worldwide from counterfeit auto parts.

As a result, manufacturers are turning to digital signatures and other encryption technology to secure distribution channels, profits, and brands in everything from auto parts to printer cartridges. Specifically, leading companies are using digital certificates and signatures to authenticate component parts through a highly automated, policy enforced system. While encryption has traditionally been used to protect data, manufacturers can now use the technology to ensure authenticity in their products -- and in turn maintain brand reputation.

Organizations can take the offensive in a streamlined and cost efficient manner. Across the enterprise, from IT to product managers to manufacturing operations, and even channel partners, benefit from encryption technologies that bring new levels of authenticity and trust to business around the world.

In the past, manufacturers have tried to address this problem through traditional marketing, labelling, loss prevention, and channel management. RFID, holograms, and even complex bar codes have been tried recently. But, all of these methods are simply band-aids and do not address the authenticity of the products themselves.

Scope of the Problem

In recent years the cost to manufacture complex products, including replacement parts has gone down drastically. This shift allows counterfeiters and off-brands to quickly ramp-up and flood with market with cheap, non-authorized replacement parts. In the United States, the Chamber of commerce estimates that counterfeiting totals up to $600 billion annually in lost sales And Eight percent of IT products worldwide are sold through grey markets (KMPG). According to recent news reports, Ford loses $1 billion annually from outright counterfeit replacement automotive parts.

The three common challenges manufacturers face today are:

  • Non-original components and consumables (off-brands) are eating away at margins and market share with prices unsustainable for branded products.
  • Grey markets are finding ways to spoil successful channel partnerships and damage customer trust.
  • Counterfeiters are assembling fakes that look and operate like originals, from chips to consumer electronics to mission-critical computing components.

These problems persist because manufactures, distributors, retailers, and consumers are unable to validate, identify and trust products components and consumables. For decades, manufacturers have responded to counterfeiting by managing the supply chain, verifying channels, and recommending original components. Meanwhile, counterfeiting, grey markets, and off-brand competition have all continued to grow. Instead of monitoring the problem and trying to apply a temporary fix, manufacturers need to stop the problem at its source. Non-originals cant hide from technology that validates the authenticity of components and channels, and ensure that only authentic parts work with the branded systems.

Authenticate at the Source

The same technology used to secure Internet banking connections can enable high-tech products to recognize and only work with authorized component parts. These solutions rely on digital certificates and signatures. Digital signatures are tamper-proof electronic stamps that cannot be forged. These signatures are unique identifiers for individual products and systems. Used together, they allow the manufacturer to easily validate the authenticity of products globally. Businesses can even choose to enable validity periods to define valid to/from dates for products and services. In addition, encryption can be used to secure intellectual property and processes when products are manufactured or operated.

But while lower-cost technology has contributed to the problem, manufacturers can also turn to lower cost chips to help solve the problem. The technology to embed digital certificates and encryption capabilities into products is now cheaper than ever. Standardized systems that offer high volume, low cost digital signatures on everything from physical parts to software is now a reality. But its important to remember that even with the best digital signature technology, brands need to rely on knowledge and experience in order to implement a reliable process.

When counterfeits, off-brand or grey market products lose their ability to appear equivalent in compatibility, function and support, they also lose their impact on a business bottom line. By re-establishing the value of authentic products, manufacturers can turn the tables on counterfeiters and grey markets and protect monetary and brand investment.

Kevin Bocek is Director, Product Marketing of THALES Information Systems Security and the nCipher product line THALES Information Systems Security is a provider of cryptographic data security solutions for securing electronic payments and ensuring the safe exchange of information for businesses and governments worldwide.

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