Whiskey made them sick. So they created a way to combat counterfeits in China

Alex Busarov was living in China in 2013 when he and his friend, Yaroslav ‘Yaz’ Belinskiy, became ill immediately after drinking a few sips of whiskey from a bottle they had bought at a store in Hangzhou.

The whiskey, he suspected, was fake. Busarov admits that he never got the whiskey tested in a lab, but he knew counterfeit products are a common problem in China.

The value of counterfeit products, such as liquor, baby formula, prescription medications and clothing, traded worldwide was an estimated $509 billion in 2016, according to the latest report from the Organization of Economic Cooperation and Development. And the majority of those fake goods originated in mainland China and Hong Kong, according to the OECD.

Knowing how big a problem knock-off goods had become, Busarov and Belinskiy created a solution that would detect counterfeit merchandise.

In September 2016, they launched Techrock, an online store that sells hundreds of imported products to Chinese consumers that are certified as authentic using their anti-counterfeiting system.

Techrock affixes NFC (near-field communication) encoded labels around the opening points of products, such as across the caps of bottles, that carry a unique code that is constantly changing. Consumers with the Techrock app can use their phone to scan the code, which is then matched against a code maintained in Techrock’s blockchain platform.

“We had a clear vision. Our system had to be convenient, secure and quick for people to use anywhere,” said Busarov.

Moving to China

Busarov and Belinskiy first met as students at the London School of Economics where they both graduated with philosophy degrees in 2008.

After graduation, Busarov worked as a consultant with McKinsey & Co. for a few years. Then, in 2013, he quit his job and moved to Hangzhou.

“China was exciting, unusual, unknown. I knew I would move there at some point,” he said.

He wasn’t interested in finding a job there. He wanted to start something of his own and Hangzhou inspired him. The city is an entrepreneurial hub and the famous hometown of Alibaba and its founder, Jack Ma.

Plus, his friend Belinskiy was already working in Beijing with consulting firm Bain & Company.

Busarov’s first business idea was EarlyBird, a crowdfunding platform for startups in China. But he ultimately realized the business was unsustainable and shut it down.

When Busarov and Belinskiy got sick after drinking the whiskey, inspiration struck again and the two decided to collaborate on Techrock.

“Yaz is a problem solver and has a very good understanding of China. He’s also an old friend. So I thought we should partner on this,” said Busarov.

Protecting consumers from counterfeits

At first, the pair only wanted to sell their counterfeit protection labels and scanning technology.

Between the two of them, they invested about $200,000 toward market research and R&D, building a team and developing the authentication algorithm with dynamic codes that update with every consumer scan of the label, making it difficult to tamper with them.

But when they tried to take their technology to market and get manufacturers to put their labels on products before the goods reached store shelves, a problem arose.

“Our system was built as a business-to-business solution that manufacturers and brands would deploy on their products,” said Busarov. When they approached companies to get them to sign on, there was either a lack of interest or “long corporate deliberations that led nowhere.”

“We definitely thought they should be caring more about this problem and about consumers than they were,” he said.

The pair quickly changed their business model to importing and selling products that they certify as authentic themselves.

“We made it a business-to-consumer solution instead, and we launched an online store that would carry the NFC-protected products that we would sell ourselves,” said Busarov.

The company has since raised a total of $10 million from private investors. The service currently sells more than 250 different products to 13,000 users across China and expects to grow to 100,000 users by the end of the year, Busarov said.

With each sale, the company takes a share of the profits. Busarov declined to disclose the company’s total annual revenue, but did say he expects Techrock to become profitable sometime next year.

‘A very serious problem’

Bruno Mercier has lived in China for more than two decades and has extensive expertise in the retail markets there. He was previously CEO of Sun Art Retail Group, a leading food retailer in China, and is now a business adviser to Techrock.

“China has a long history with counterfeit product scandals,” said Mercier, who does not have a financial stake in Techrock. “Think back to 2008, when thousands of babies became sick after drinking contaminated milk.”

Even though regulations in China have become stricter, Mercier said there is still a lot of distrust about product safety.

“If you shop at a major retailer, like Walmart, you are probably safe. But if you are a consumer in a smaller city with fewer established retailers, you never know. There is still an element of risk,” he said.

“The Chinese market is saturated with counterfeit products,” said Bob Barchiesi, president of International AntiCounterfeiting Coalition, a non-profit based in Washington DC focused on combating product counterfeiting and piracy.

Consumers have to be educated about the issue, and they need to be vigilant, he said. “Some simple rules to remember there: If a brand-name product is very cheap, it’s probably fake. If the product packaging has misspellings on it, that’s another clue,” said Barchiesi.

So far, all of the products sold by Techrock are imported from Japan, Australia, New Zealand and Europe. But the company plans to add goods from the United States and Korea soon, said Busarov.

He also hopes to partner with bigger brands in the future and expand the service to markets outside of China.

“A lot of problems in China are being solved through innovation like what Techrock is doing,” said Mercier. “They’ve got the initial traction. Now they have to get the word out.”