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They look like a genuine iPhone, HTC or Samsung Galaxy smartphone and they are often made in the same factories as the original models shipped by Apple and Samsung, but the big difference is that these smartphones that are being sold in Australia are not approved by the vendors whose name is on the back.
US research company Strategy Analytics has said that thousands of smartphones made by Chinese factories that have major manufacturing contracts with Apple and Samsung are secretly running additional production lines with these products shipped direct to black market operators who are then selling the devices at markets and side street shops in Australia.
Many Australians are buying the fake phones for sub $200 when they visit Asian Countries.
During a recent visit to a market in Sydney SmartHouse was unable to distinguish between an original Samsung Galaxy 5 and an original model.
Elizabeth Woyke, author of The Smartphone: Anatomy of an Industry, published last month, says knock-off devices and “diverted” phones – devices intended for sale in one market but illegally imported into another – are big business with estimates of 195 million devices shipped in 2013 alone.
Smartphones account for up to 60 per cent of that illegal racket, according to Strategy Analytics.
This is how the scam works, Apple initially contracts a Company like Foxconn to make millions of iPhones as a result hundreds of component suppliers put their factories right next to a major manufacturer. Then as the genuine device is being manufactured on one level another production line is knocking out millions of copies using the same components going into the original smartphone.
A former technology journalist with Forbes and BusinessWeek, Wyke, travelled to Shenzhen – the Chinese city home of Foxconn, a manufacturer of Apple products – for research and says her preconception that counterfeiting occurred in back-alley shops was proven wrong.
“Counterfeiters need the same infrastructure as a legitimate manufacturer and that infrastructure is grounded in southern China,” she said.
“Generally, they are making counterfeit phones in the same factories as the big guys.
Her book puts the spotlight back on counterfeiting, after a spate of factory worker suicides in 2011 raised questions over staff handling of devices and the sources of samples for counterfeiters.
Mark Turnage, chief executive of OpSec, a company that specialises in anti-counterfeiting technology, contributed his expertise to the book. He said some factories ran an extra production shift to their usual two shifts a day with the “back door” shift going to the black market.
In Shenzhen, Ms Woyke saw stores selling what they labelled as 8GB iPhone 5 devices even though Apple had not released that model (it subsequently produced a 5c model that size) and “iPhone” accessories.
Stores in Shenzhen also masqueraded as official Apple and Samsung outlets with staff dressed in fake company uniforms.
Neil Mawston, head wireless industry analyst at Strategic Analytics, told Fairfax Media that China, the US, India, Brazil and Indonesia would be the big five smartphone markets until 2020 and would account for 55 per cent of all smartphones sold worldwide.
“We forecast smartphones will account for 60 per cent of all grey phones [an industry term for devices that are either counterfeit or diverted] sold worldwide in 2014. Most grey phones are smartphones now.”
Ms Woyke added: “Counterfeiters pick their targets. A global very high-volume business with brand names, is fast-moving and fashion-forward, is one they want to be in. Smartphones are all those things.”
