A few days ago, I was reading a report from accounting firm KPMG on the grey market. Consider this: it’s a $US40 billion industry worldwide. Now that makes it a pretty big issue for the IT channel. And it got me thinking about its impact and how it continues to thrive.
So I made some phone calls. The response was interesting. Most distributors and large resellers I discussed the topic with said that, by and large, the local industry managed to avoid the complications of grey marketing. But they were also aware of how grey it can get during extreme circumstances, particularly at the small end of town.
KPMG was commissioned to conduct the research on behalf of the Anti-Grey Market Alliance (AGMA), a group of IT vendors concerned about the growth of the grey market. These companies include those that have the most to lose from it — vendors such as Cisco and Hewlett Packard.
The study defined grey market products as “branded products diverted from an authorised distribution channel or imported into another country without a manufacturer’s consent.”
It found that grey marketing exists due to fraud and the abuse of distribution agreements and discount programs. But the problem (and the blame) is far from being that simple.
Most of the surveyed distributors were wary of selling grey market goods due to the potential for counterfeit and support issues. Distributors I spoke to tended to agree – their customers demand full warranty support, and getting caught distributing counterfeit or re-labelled goods can demolish your reputation in the industry overnight. Some were also fearful of buying on COD terms with overseas suppliers because “you never know exactly what they are sending back”, as one person succinctly put it.
But that doesn’t mean that the grey market isn’t appealing to distributors — even just as a back-up plan to authorised sources. Most of the distributors in the KPMG study said that they were attracted to the price advantages and convenience associated with the grey market. Mind you, most only admit this when they are off the record!
The industry is facing an interesting contradiction — more than 70 per cent of the distributors surveyed said they believed that it was necessary to buy grey market products to be competitive on pricing and fulfilment. Conversely, 81 per cent said their competitive position would improve if all grey market activity was eliminated altogether.
The issue is not likely to go away soon.
There are lessons in this for all levels of the channel. ASI Solutions director, Maree Lowe, said that that any reseller worth their salt should be able to provide their trusted suppliers with advanced scheduling and forecasts to ensure they always have fast access to the products they need. No shortages means no temptation to use a dodgy source.
There are also lessons in this for vendors.
“Manufacturers need to understand the impact of grey marketing on their profits and brand integrity, and scrutinise their internal and external controls,” KMPG partner, Dale LeMasters, said. “If they want to gain control over grey market activities and improve profits, they need to improve relationships at all levels of the distribution channel. Those that do stand to gain significantly.”
So how about you? Would you take a dip in the grey market if you had to? Drop me an email at email@example.com.