Counterfeit and pirated goods are a problem globally. The fake-goods market has been valued higher than the GDP of some major economies, including those of Ireland, Portugal and Israel.
In Sub-Saharan Africa, the problem is especially acute—and life-threatening. More than 435,000 deaths per year are linked to falsified or substandard antimalarial drugs and antibiotics alone.
The types of counterfeit products most likely to be found in customs seizures—footwear, clothing, leather goods and electrical equipment—may not cost lives. But they are costly for businesses trying to market their genuine brands.
“It’s a major issue that businesses and governments worry about a lot,” said CARISCA Director Nathaniel Boso, who spoke on the subject Sept. 15 as part of the Distinguished Lecture Series.
“This illicit trading activity substantially increases operating costs for manufacturers of genuine brands and diminishes their ability to generate and grow sales revenue,” said Boso. “It’s also been denying governments needed taxes that are required for development projects.”
Boso and one of his doctoral students have been studying the problem of counterfeit goods in Sub-Saharan Africa since 2016. His lecture was based on papers the pair published in 2022 and 2023 in two top journals, Journal of World Business and Journal of International Business Studies.
“It’s a big business that’s flourishing across the continent,” said Boso about the counterfeit goods market. “A question that keeps coming up is, what are governments, businesses and institutional leaders doing about it?”
Weak institutions drive high illicit trade
Boso said a number of factors underlie the problem of counterfeit and pirated goods in Sub-Saharan Africa. These include poverty, corruption, materialism and cultural issues.
“But what about institutional structures in Africa?,” asked Boso, who holds the O.R. Tambo Africa Research Chair at KNUST. “To what extent are these institutional structures potent enough to be able to regulate and ensure efficient functioning of markets, such that there will be no or limited incentive for people to engage in illicit trading?”
These questions are what motivated the research studies. Boso and his co-authors wanted to know to what extent institutional conditions in Africa drive the illicit trading problem and how businesses deal with that.
“The important thing about institutions is that they provide a stable elastic fiber that helps to guide, control and constrain societal behaviors,” Boso explained. “That condition is supposed to be happening in all societies, irrespective of their level of development.
“So whether you are in an advanced society or developing society, the expectation is that institutions must guide, constrain and control individual and organizational behavior. But largely, the institutional condition in Africa can best be described as weak.”
In formal institutions, Boso said, this weakness is exemplified by the following conditions:
- weak property-right protections;
- poor legal and regulatory environment;
- under-developed capital market;
- poor infrastructure;
- opaque industry rules of engagement.
“These weak conditions will give rise to higher illicit trading activities,” Boso said. “It is easy to see the property rights of genuine brands being violated.”
Informal institutional structures—shared norms, values and beliefs—also are weak in Africa, he noted. Thus, they too fail to promote stable, effective and efficient business transactions and processes.
“When those conditions are absent, or when their effectiveness is low, then there is a high degree of social exclusion and marginalization in society,” said Boso. “You also see the emergence of elitism, where powerful people are allowed to leverage their power to use resources any way they want, because of the belief that they cannot be touched.
“All this leads to a lack of trust,” Boso added. “If you push people to the margin of the society and exclude them from activities that allow them to improve their economic well being, then they are most likely to engage in illicit trading to feed their families.”
It’s important to build relationships
The context of Sub-Saharan Africa offers a unique setting to try to understand how these institutional complexities and weaknesses enable trade in counterfeit goods, explained Boso. While industry players and policymakers have talked about the issue, scholars had not studied and theorized about it before.
Boso and his doctoral student conducted two studies on the topic. One was an in-depth qualitative study of eight subsidiary firms operating in Ghana and 15 government, religious and local leaders. The other was a quantitative study of nearly 650 multinational subsidiaries operating in 23 Anglophone sub-Saharan African countries.
What they learned is that African society is highly complex when it comes to its institutional structures. To do business on the continent, managers need to deal with multiple institutional actors simultaneously. These include national, regional and local elected officials; local chiefs; religious leaders, plus political activists and opinion leaders.
“We argue that business success is a function of the extent to which businesses are able to develop and utilize relationships with these different groups of political actors,” said Boso. “Each one of these actors generates unique, but at the same time interrelated, resources that the local and multinational businesses could use to minimize potential costs and risks associated with doing business in this environment.”
One example is a subsidiary of a multinational company that sells Scottish whiskey products. Boso said the sales manager related that he will go to a funeral and donate the whiskey product to the local chiefs. When the chiefs display the whiskey at the funeral, it serves as notice to consumers that they should buy that brand of whiskey over other brands.
“That gives what you might call a moral justification to buy a particular brand or product,” explained Boso. “So, the relationship that businesses build with those local institutional actors provides the support that allows them to protect their brand from counterfeit products and illicit traders.”
In Boso’s studies, he found that businesses that invested in building these relationships experienced greater sales growth. Both sales and profits grew even more when the firms operated in environments with a high incidence of illegal behavior and lack of adherence to market rules.
“Clearly we have a good argument and evidence to suggest to managers that it is important to build and leverage relationships with multiple political actors, at least within the context of Sub Saharan Africa,” concluded Boso.
“In fact, it’s not unique to Africa,” he added. “In many high-relational societies, like Latin America, China and Japan, where multiple institutional actors play a prominent role in shaping people’s and organizations’ behavior, an ability to build and leverage such multifaceted relationships becomes a source of competitive advantage.”
About the speaker:
Nathaniel Boso has won multiple international awards for his scholarship. Notably, in 2021, his article “(How) Does Africa Matter for International Business Scholarship?” won the Academy of International Business Insight Outstanding Article Award. In 2019, he was recognized for authoring the paper in the Journal of International Marketing that made the most significant contribution to the advancement of international marketing management that year.
His research focuses on the interface between international entrepreneurship, industrial marketing and supply chain strategy. It has been published in numerous high-impact journals such as Journal of Business Venturing, International Journal of Production Economics and Journal of International Business Studies.
In addition to being an award-winning scholar, Boso holds multiple academic titles and administrative appointments. Among these are the prestigious OR Tambo Africa Research Chair, dean of the KNUST School of Business and director of CARISCA. He also holds positions as Extraordinary Professor of International Business at the University of Pretoria in South Africa and visiting professor at Strathmore University in Kenya.