Time for vendors to take responsibility

The grey market can be a tempting place for Middle East resellers who want to get hold of products at decent prices. But if IT vendors really want to reduce parallel importing they need to look at their own policies first.

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By  Published  November 30, 2006

The extent to which grey market trading is occurring in the Middle East is a topic that continues to split the industry. Having spoken to a range of local vendor and channel sources during the past month, there appears to be no conclusive answer to the question of whether grey marketing is more of a problem than in the past. Some commentators are adamant that parallel importing is a phenomenon fast losing momentum; others claim it is actually more prominent than it ever has been. What this difference of opinion does emphasise, however, is that the difficulty faced in assessing and measuring the issue remains one of the biggest drawbacks to tackling it properly. Interestingly, more than 75% of respondents to a recent online quick poll we ran on the subject believe that the Middle East grey market is more prevalent than this time last year — a figure that doesn’t say a great deal for the many vendors that like to publicise the great job they believe they are doing in tackling grey marketing. You can argue that for some vendors the grey market is a necessary evil — particularly when it comes to hitting quarterly numbers or getting product into embargoed markets — but even if that is true it still undermines the authorised channels that play by the rules. Indeed, reducing grey market activity comes down to how seriously each individual vendor regards the subject because at the end of the day they are the ones who control the key mechanisms of pricing and availability from the start. Whether they like it or not, it is the responsibility of vendors to ensure that they get both aspects absolutely right. If manufacturers over-forecast or stuff the channel then excess product will get dumped into markets it shouldn’t. And if they under-forecast, buyers will source products from the grey market because they can’t procure it from authorised routes. Alongside that is the highly sensitive issue of price, which remains the primary cause of grey market trading due largely to vendors operating differential pricing structures and compensation models between channels, countries and regions. Make that element less open to abuse and grey importers lose considerable power. After all, the only thing that encourages a buyer to use the grey market, as opposed to a legitimate channel, is lower price. In fairness, the likes of HP, Cisco and Microsoft are all cited as vendors that have done a fairly good job in addressing the grey market, although it doesn’t mean they have found the magic formula. Their commonality is that they are all large, global organisations with the ability to pursue the issue aggressively. And as well as possessing huge marketing collateral, they also have the financial resources required to actually follow through with their actions and prosecute offenders, as they have done in markets such as the UK, Germany and Nordics. Grey marketing is a problem that demands manufacturers to stand up and be counted. And in this region, specifically, it reverts back to a point that emerges time and time again: there is nothing wrong with vendors drawing on their global experiences and business models, but to fight it properly they need to develop dedicated tools that address the issue locally. As one UAE distributor recently argued: “If I have one comment to make to vendors about the grey market, it is not to implement sales and marketing strategies in the Middle East that they use in other regions. The Middle East has a different business mentality, which they have got to work harder to learn more about.” Grey marketing is a universal dilemma, but that doesn’t mean the ‘square pegs in round holes’ approach is the way to solve it, however hard it is forced.

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