Consumables channel sees red over grey

Middle East printing and consumables companies rail against rampant grey market activity

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By  Julian Pletts Published  March 5, 2008

Major players in the Middle East printing and consumables channel have hit out against the level of grey market activity that continues to blight their profit margins.

The illegitimate shipping of printing products into the region from areas where they are brought at a much cheaper price, such as the Far East, continues to have a significant effect on the bottom lines of distributors and resellers in the supplies channel. It is estimated by experts that up to 40% of the entire consumables business in the Middle East is derived from this unscrupulous practice.

“Smuggling is affecting everybody,” proclaimed George Saliba, sales manager at Lexmark consumables distributor Medmark. “It is affecting channel dynamics because we are losing 40% of the business, and resellers are also coming to us and saying that their warranty is genuine when we know that it is not from us. Vendors are not doing enough to stop this from happening. They still have a big role to play, but legally they cannot stop resellers. The authorised distributor is taking the major hit because of this,” he added.

Faisal Jamal, purchase manager at consumables distributor Despec MERA says the biggest impact of grey marketeering on the channel is the de-stabilisation of pricing, which in the long run restricts the standard of service to the customer.

“Grey importers set an unrealistically low price on certain models in the market. Unfortunately, as the distributor, we cannot ignore this because we would lose market share,” he complained. “This means we have to depress our margins as we try to compete, which in turn means we have less money to provide the value-added services that we strive for. This is, of course, not taking into account the fact that counterfeit products are often mixed with the grey products. The issue of grey and counterfeit products needs to be addressed by the OEMs to ensure that the legitimate distribution partners in the region have a sustainable platform in the future.”

The impact that grey market products are having on the revenue stream of the channel can vary from country to country, but is perhaps more acutely felt by those who work from Dubai given its role as the re-export hub for the region. According to Khaldoun Bourini, general manager at Jordanian commercial reseller Integrated Standard Solutions, the problem is less prominent in markets such as Jordan, which are not as open as those in the Gulf.

However, he calls on vendors to do more to address the issue. “It has to be tackled from the vendor level — they have to focus on this area in their price structures, programmes and channel strategies because it is a problem in the larger Gulf area. There has to be more help in terms of the margins and rebates that are given to the channel and the marketing programmes around the products so that we can aggressively go after the grey market,” he concluded.

Vendors on the other hand say that they are already doing everything they can to stem the flow of grey products into the Middle East. Printing hardware and consumables vendor HP says that grey marketing has always happened in waves, typically when there is a drought of certain consumables products in the market.

“We try to eliminate all the factors that lead to grey marketeering,” explained Amr Hassan regional general manager at HP Middle East’s imaging and printing group. “One of the most important factors is pricing. If there is a different pricing in one region it can lead to grey marketing. It is under control from an HP perspective because we have a very good channel that is reliable and they buy only from authorised distributors.”

To find out what else resellers and vendors have to say about the challenges facing the regional supplies market, read our 'Consumables Culture' feature in the forthcoming issue of Channel Middle East.

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