Counterfeit: The Price of Growth in the Electronic Component Market

By Logan Wamsley

For every action, there is an equal and opposite reaction.

So goes Sir Issac Newton’s Third Law of Motion. The beauty of such a simple statement is that it can be applied to virtually every aspect of the physical universe, from apples falling on your head to specs of cosmic space dust. But this law has a second application – in a more abstract sense, it is a very useful way of looking at the consequences of any given action. If a variable knocks any given object or state of being out of equilibrium, there will be an equal and opposite reaction as the world around it adapts. If you decide to buy a vehicle, for example, then you must factor in what you are sacrificing to make the payments. If you are hired for a new job, then that likely means someone else was denied one.

This is especially true in economics. If one market experiences a somewhat abrupt and unprecedented boom, then the effects of that can be felt in virtually every business even tangentially related to it. A good example of this can be seen today in the IoT market, which encompasses many different submarkets that each have an upward trajectory. According to Market Research Future, the IoT data management sector is expected to be valued at approximately $62.53 billion in 2023 – up from $22.85 billion in 2017. The IoT Smart City market is expected to reach even greater heights, with analysts predicting it to be valued at $219.6 billion in 2023, up from $79.5 billion in 2018.

Such positive growth projections have profound implications for the future of IoT and its long-term longevity, but with every action, there is an equal and opposite reaction. In this case, the opposite reactions are taking the form of increased risks OEMs will be forced to take on to meet such a rabid demand.

One such risk is the likelihood of sourcing counterfeit components. By 2022, the International Chamber of Commerce (ICC) anticipates the global economy will lose approximately $4.2 trillion to counterfeiting and piracy, and put roughly 5.4 million legitimate jobs at risk. Technologies such as near field communication (NFC) tags and blockchain have emerged to help to counter this trend, but pricing (for now) remains too prohibitive to be adopted on the mass scale needed to solve the problem entirely. Facing increasing demand for electronic components and semiconductors that OCMs are unequipped to meet, many manufacturers will be forced to source critical inventory from unauthorized channels where component traceability is limited at best. When facing the possibility of delayed production and millions of dollars in lost profits per day, even the most sophisticated supply chains (including even the U.S. military) are led into making quick, rash decisions that have the potential to not only compromise the product in question, but threaten the lives of those who depend on them.

But while the electronic component market itself is struggling to counter the rise of the counterfeit industry, supply chain partners such as Partstat has offered the only true solution: the ability to source critical electronic inventory direct from the component manufacturer without any upfront loss of working capital. Not only does this guarantee the integrity of the inventory, but it also allows the OEM to avoid the inflated prices of third-party vendors. In some cases, our last time buy solution has even been used as leverage by OEMs to negotiate significant bulk purchase discounts.

If more OEMs had the financial means to purchase inventory directly from the source, the counterfeit market would have no room to establish itself. Protection technologies can help secure supply chains to a point – but technologies have a nasty way of becoming obsolete at the most inopportune times. For every new security system, there’s always someone in the world ready to crack it. To truly resolve the issue at its root, OEMs must commit to simplifying their supply chain and eliminating barriers between them and the source of their inventory.

To do so, a Last Time Buy Solution that guarantees the entire lifecycle of your products without any risk would be a good place to start.