Too Big to Fail?

Suppose for a moment that your company makes a product that is the most popular of its kind; the most common and most popular brand in the world. There are many government users, but the product is even more popular in the private sector, and export versions are found in literally every country in the world. Your industry is wide open, and there are in fact many competing products, but none are as cheap, few are as reliable, and certainly none are as well known as your flagship product. Given such a position in the market, is there any way your company could possibly fail?

Well, before you answer that question, you might want to check in with a Russian company called OAO Izhmash, manufacturer of the Kalashnikov, better known as the AK-47 assault rifle. Designed by Mikhail Kalashnikov in 1947 (hence the name), the AK-47 is the most common assault weapon on Earth, with an estimated 70 million examples of the type in service around the world. It’s widely considered to be the most reliable and repairable assault rifle ever built, with documented cases of AK-47s being left buried in mud or sand for years at a time, and then being fished out, wiped off, and working perfectly. So what could possibly cause the company that has been making them since 1947 to file for bankruptcy? In a word: piracy…

According to this story in the Globe and Mail, OAO Izhmash has applied for bankruptcy protection this week, largely because the market has been flooded with cheap foreign knock-offs of its premiere product, the AK-47. The Russian army isn’t buying a lot of weapons these days, but the main problem is that some versions of the AK are available for as little as $50, according to the online article. Apparently, Mr. Kalashnikov succeeded a little too well when he designed the weapon to be easy to fabricate…

Now, as you’ve probably guessed, I’m not calling this to your attention because I believe that any of you are going to neglect to patent, trademark or copyright your work as thoroughly as possible. I’m also not going to cry for a Soviet-era arms manufacturer that is now seeing its birds coming home to roost; the company’s treatment of Mr. Kalashnikov (who has never seen a dime of royalties for ANY of his designs) would be enough to make dislike them, and their State-sponsored contracts served them well enough back in the day. I’m telling you about this situation because it demonstrates that however much we may dislike anti-piracy measures, they’re not always the result of a greedy corporation wanting a bigger slice of the pie – and the cost of circumventing them isn’t always limited to having to pay 99 cents on iTunes…

If you’re a manufacturer (of anything; industry isn’t important here) you need to pay attention to knock-off versions of your product, and fight for your market share. You can use legal action when you’re being ripped off outright, but in the case of imitation products you can employ any number of strategies to maintain your market position – high quality and low cost being the two most familiar ones – but you can’t just bury your head in the sand and hope that people will see through the competition. And if you’re a consumer, you need to think very carefully every time you consider buying a knock-off version of a familiar product. Someday the company being knocked off might be your own…