The problem of illegal product circulation is particularly acute for Russia: the share of illegal circulation in the manufacturing industry is about 35%, in the perfume market – 20%, and in the medicine market – up to 10%.
According to research by Kantar TNS analytical agency, the share of the illegal cigarette market in Russia increased to 7.7% in Q1 2018, as compared to 4.6% the previous year.
In December 2017, Russian President Vladimir Putin approved the resolution of the Government for the creation of a Unified national track & trace digital system by 2024 based at the Center for Research in Perspective Technologies (CRPT).
CRPT is a joint project of USM (Peter-service, 50%), Rostec State Corporation (Avtomatika Concern, 25%) and Elvis-Plus Group (25%).
The track & trace system being created by the Centre, known as Chestny ZNAK, makes it possible to effectively combat counterfeit and contraband goods and protects legal businesses and brands of bona fide manufacturers and consumers.
Thanks to the introduction of a track & trace digital system, legal businesses will receive protection from counterfeit goods, while their good names on the market will eliminate risks to reputation due to low-quality products being sold under their brands.
Track & trace digital system will allow businesses to increase their production capacity, improve logistic schemes, increase market share and ultimately increase revenue:
The manufacturer applies a digital code on the goods. The system records the entire journey of the goods along the logistics chain. They will be scanned twice at the store: before being placed on the shelf, and at the cash register. Thanks to the fiscal mass storage built into the online cash register and the permanent connection with the Chestny ZNAK system, illegal goods will not be sold.
Moreover, anyone that downloads the Chestny ZNAK mobile application on his/her smartphone can check the origin of the goods. It will be available on the App Store and Google Play in the near future.
The verification algorithm is rather simple: look for the digital Data Matrix code on the product packaging, similar to a QR code, and scan it in the application.
If the status of the check produces the result «Correct Code», you are the owner of an honest product. If the application produces an error, then you likely have a counterfeit product.
In the application, you will be able to send a notification about the counterfeit product. Depending on the type of violation, the information will be handed over to the competent control and supervision authorities, who will assess the results and perform checks on dishonest manufacturers.
Thousands of mobile checks will be carried out by the minute across Russia, and, thanks to the public control, the market will become truly transparent.
The Center for Research in Perspective Technologies creates a unique digital Data Matrix code and sends it to trusted manufacturers and importers. They apply the code to each package of their goods. It is possible to trace the entire route of the goods by means of the digital code – from the conveyor to the online cash register that removes it from circulation. The system records the transfer of goods from owner to owner at each stage of the logistics chain, which makes it impossible to introduce a counterfeit product.
Unlike a simple paper mark, a digital code is difficult to falsify. Thanks to domestic crypto-technologies, the data on goods cannot be deleted from the system or adjusted. The marking code is comprised of two parts: the identification code, which determines the product's position in the system and in the unified catalogue of goods, and the verification code or crypto-tail generated by the CRPT.
When goods are removed from circulation, their legality is confirmed at the online cash register using fiscal storage. It synchronises the data of the track & trace system and the unified catalogue and prevents sellers from offering counterfeit goods.
The series of unique codes cannot be predicted, and the digital code itself is not repeated for 5 years after the release of the good's position.
Global experience has shown that governments usually use a private operator to launch track & trace projects. In China, this is the Alihealth Company owned by Alibaba; in Brazil, it is a Swiss company SICPA. By investing its own funds, this type of operator does not create an additional load on the state budget. In Russia, the Unified national track & trace digital system operates in the form of a public-private partnership. The Center for Research in Perspective Technologies is a private and joint system operator.
CRPT is the joint operator of the track & trace experiment for tobacco and also localises production facilities to manufacture equipment for pharmaceutical products marking.
On 3 May 2018, the Government approved a list of 10 new goods subject to mandatory marking as of December 2019. The list includes perfume and eau de toilette, jersey/knit tops, long and short coats, trench coats and jackets, windbreakers, bed, table, bath and kitchen linen, photo cameras and flashbulbs, tyres and pneumatic tyre casings. In addition, the project for mandatory marking for tobacco products begins in March 2019 and the marking for footwear in July 2019. The Centre is ready to start marking the new groups of goods promptly, thanks to the scalability of the Chestny ZNAK track & trace system. To ensure a smooth transition to marking, the company will work with businesses to refine all solutions and technologies in the course of pilot projects.
At the end of 2017, Russian President Vladimir Putin approved the November government resolution to create a Unified national track & trace digital system by 2024 through a joint operator – the Center for Research in Perspective Technologies.
CRPT is a joint project of USM, Rostec State Corporation, and A. Galitsky's Elvis-Plus Group.
This combination of shareholders makes it possible to unite industrial resources, experience in implementing large-scale transformation projects, expertise in the sphere of cryptology and in servicing hundreds of thousands of customers, and technical support. Moreover, the financial capabilities of the shareholders facilitate the localisation and production of equipment in amounts sufficient for the market.
After the track & trace system is implemented, the prices for goods made by legal manufacturers will drop.
Consumers will not have to bear the costs of purchasing the track & trace equipment – this will fall to businesses. Moreover, the economic effect of implementing the track & trace system will cover the expenses. Thanks to the system, manufacturers will know the exact quantity of goods sold and how the logistics chain works. This will make it possible to optimise business processes and reduce costs.
After the marking is implemented, even in the most conservative outcome, the prices for goods could drop by 10% due to the reduced share of counterfeit goods on the market and other positive effects.
Over the course of one year, in which the track & trace experiment for medicals in Russia was conducted, violations worth half a billion rubles were discovered. Thanks to the track & trace experiment, it was also discovered that costly pharmaceuticals purchased by the state for hospitals as part of the «7 Nosologies» Federal programmes were being resold.
The mandatory marking of fur coats, launched in 2016, has also proven to be effective: within a year, the share of legal fur products on the market increased 10-fold.
Three hundred thousand fur coats were sold in 2015, while in 2017, the number of fur products increased to 2 million.
Examples of similar track & trace systems implemented in other countries have also shown positive results. In Brazil for example, the volume of counterfeit tobacco goods was reduced, 7 illegal plants were closed, and tax collection in the tobacco segment grew by 40% between 2008 and 2010.