Soaring dollar turns the channel to grey
- 28 January, 2011 12:31
- Comments 5
Due to the soaring Australian dollar and what many consider to be continually steep vendor prices, some resellers are allegedly turning to grey importing goods, risking vendor/reseller agreements.
A senior channel figure, who wished to remain anonymous, told ARN that grey marketing was a well-known concern in the channel and had increased recently with the strength of the Australian dollar.
And while grey importing is legal, the goods are sold outside normal distribution channels by companies which may have no relationship with the producer of the goods. With analysts tipping the dollar to stay high for the short-to-medium term, what are the implications for the IT channel?
Dicker Data managing director, David Dicker, shuns the grey market activity, but said there wasn’t much distributors could do – it’s in the vendors’ hands.
“I do think the Australian dollar will stay up where it is, for a while. Obviously, we are not going to be involved in any grey importation, under any circumstances, but the recent GST on sub $1000 sales has highlighted the fact that prices are generally pretty high in Australia,” Dicker said. “But action on that will obviously have to come from vendors.
“It’s completely out of our control.”
The issue of grey importing comes as many retailers are up in arms over imported online goods not being taxed the same as traditional retail markets. Harvey Norman chairman, Gerry Harvey, sounded alarm bells, claiming many retailers will perish unless immediate action is taken to add GST onto Internet transactions of under $1000.
ARN contacted a handful of vendors for feedback on the pricing situation and impact of the soaring dollar. Many declined to comment, however, some were willing to make statements.
Big Blue offered up its two cents on the soaring dollar and vendor pricing.
“IBM has not changed its product pricing,” IBM A/NZ director, business partner organisation, Phil Cameron, said in a statement. “We’re committed to setting prices on products that are competitive and regularly monitor the marketplace. Our practice is to avoid frequent price changes due to currency fluctuations, providing pricing predictability in local currency for our business partners and clients.”
Acer marketing manager, Robin Tang, said the company reviews its channel pricing regularly.
“We typically time our pricing revisions bi-monthly. As a global vendor, we have an established process to accurately estimate our forward pricing [beyond 30 days] to remain competitive,” Tang said.
“Hardware vendors like ourselves are subjected to inventory and logistics which take a little longer to incorporate cost changes. Acer has reduced some models of our products in the recent pricebook update. In other cases, we also improve the specifications to remain cost-competitive.”
Cisco A/NZ senior PR manager, Linda Horiuchi, said the company “continually reviews its pricing and makes changes accordingly.”
“Our latest price change was made in November 2010 when we informed our partner community that effective from Monday, November 8, 2010, Cisco Australia is reducing the list price of its products and technical services by 11.08 per cent.”
Cloud players big winners
InfraServe managing director, Roy Pater, said the soaring dollar is good for his cloud business.
“Being a cloud-only distributor, it doesn’t affect us,” he said. “The top dollar is good news for us – our equipment costs are cheaper and vendor costs are cheaper, so we can remain price competitive. We’ve been largely unaffected. You have a better buy price at a cloud-level.”
It does, however, force the company to be more cost competitive on a global scale. Pater cautioned resellers to avoid grey market activity.
“Being in distribution for a long time, the pricing highs and lows come and go. It is a storm in a teacup – some guys will take advantage of it and do grey market activity, but then realise that in the long-term the vendor relationship gets destroyed,” he said. “Why risk breaking down the relationship with a vendor for some short-term gain?”
Channel Dynamics director, Moheb Moses, agreed the benefits of grey marketing are short-lived and could have nasty long-term ramifications.
“In the end, the question every partner needs to ask is, ‘Is the short-term gain worth the impact it has on the relationship with the vendor and supplier and overall profitability?’” asked Moses.
He said grey importers ran the risk of a lack of support – a situation that would see them shut out of the vendor support infrastructure.
IDC Asia-Pacific channels program director, Kerstin Baxter, said this isn’t a new issue for the community.
“Whenever there’s a huge fluctuation we hear more and more chatter in the channel about grey importing,” she said. “Over the last five to six years all vendors have developed much stronger strategies and how to deal with price.”
Baxter said it’s a fine balancing act, noting vendors need to make sure they stay competitive, and that any price adjustments don’t stall sales or lead to channel offshoring. Many vendor strategies involve enablement programs and promotions, along with deals on inventory in a bid to deal with competitive pressure.
“We’ve seen some vendors slow with readjustments because of the fiscal year end. Many are waiting to see if the Australian dollar stabilises.”
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Comments
John Shepherd
1
Grey marketing is good for competition and is low risk to end users. Generally, I think we are all pretty well fed up with vendors gouging the Australian market - its been going on for years and years.
Vendors should stop complaining and drop their prices otherwise get out of the Australian market.
Giuseppe De Simone
2
There is only one way to reduce grey marketing. Australian vendors need to price more competitively. This means they need the support of their parent (usually in the USA but more frequently it is an Asian subsidiary office linked to an Asian manufacturing centre) to wear the currency fluctuation risks so the local subsidiary can respond more nimbly to currency movements. Vendors quite often are conflicted between an Australian branch office request and the demands of a major domestic partner who sells from the US or Singapore or Taiwan or Hong Kong or Shanghai to overseas buyers as well as to their local market. If Australian branch offices had CEO's with real balls, they would take the fight all the way up the reporting chain to get justice for resellers in Australia who build the brand here to be undercut by direct importation (either by grey marketers or end-users directly). This has nothing to do with GST but everything to do with the cost structure of Australian offices and their ludicrous price mark-ups compared to domestic US pricing. Also, Australian resellers should start thinking about their real value-add - if it is in market development and support, perhaps they need to get compensated directly by vendors for these activities so they can price in the same unbundled way as the major online sellers. If they have no value add worth being compensated, then they are dinosaurs that should become extinct.
Greg
3
Seems to me GST on sub $1000 internet sales is nothing more than a tariff in disguise.
Tariffs didn't work and neither will this do anything to reduce local prices here.
Personally I've been looking into replacing my marine chart plotter. Import from the USA $650 with maps inc delivery. Buy locally $1300.
That's ludicrous.
helpme
4
the thing is, it usually isn't our distributors settings prices, its the company that makes the products, that then goes to a distributor then to a vendor/reseller.
the thing is due to our country doing really well economically vs others. we are being used as a top up and thus being ripped off vs other countries.
some items from the us i could buy at retail prices at 1/3 or less than what they cost at wholesale levels.
Does grey importing hurt local business? You bloody bet it does. if all the local shops closed down and you could only buy online and find you have a problem with it but there is no one for 200Km's to service it then who is to blame?
Yourselves.
Support local shops, unless they really are ripping you off due to having other competition in the area.
Hydrans
5
The inflating of prices for goods shipped to Australia by large manufacturers is something that is out of control. Australia is the 20th largest economy in the world and yet Australia pays more for goods than countries both larger and smaller. When asked why, answers are typically one of four, regardless of manufacturer.
1. Distribution costs from the manufacturering plant to the country of destination. (I would expect that shipping from China/Malaysia/Taiwan/Singapore to most countries are the same, give or take 20%)
2. Landing costs, some vendors state that it is 7%, however surely this landing cost would be the same in all countries, after all most countries have Free Trade Agreements with the manufacturing countries.
3. Local Costs, this is by and large wages and facilities, I understand that a person in Australia costs far more than a person in other countries, however are the costs of these costs, when split amongst total unit sales justifiable for the average increase of the cost of the unit price when sold. I am sure that people working for these companies don't want to take a pay cut to be more competitive, however this is indeed what might have to happen to maintain the current cost platforms if this is correct.
4. Volume of business in country - I was recently told directly by the overseas HQ of a large manufacturer of Memory and HDDs that large US based websites buy more than the entire volume of goods than the master importer of their goods to Australia and that this volume is justifiable for them to receive a price that allows them to sell identical products (by part number) for 20% below the prices that the distributor sells to large resellers. Who is making the money there? the distie in Australia (I doubt it, I have seen their invoices), the reseller in the US (I am sure that they are making some money however unlikely to be much as all US websites are within 5% of each other), or the Taiwanese manufacturer that is importing to Australia, that is making about 25-30% more on goods sold to Australia than the US.
The question is however, is any of this wrong, the answer must be NO, if you as a business owner can make the money, because you provide a service that people consider to be valuable, and make money from that service then good luck to you. However if someone else enters the market and destroys your pricing model, if the customer is prepared to take a slight risk on supply, then you as a business must evolve somewhat. This evolution should happen now, however it will only happen if enough profit is lost to the competition to the local branch.
If you value and trust the vendors to do the right thing by your clients, then don't do this, work with the vendor on your deals and you will ensure that you will not need to do this. At the moment Grey is not out of control, however I am sure everyone knows where they can buy networking equipment at 55% off current list, or servers’ accessories at 50% of list.