Shades of grey

The buying and selling of products outside of a designated territory can create havoc for authorised channels, but just how seriously are vendors taking the matter in the Middle East? positive for the channel.

Tags: Belkin International IncorporationFoxconn Technology GroupGrey marketHPLG ElectronicsWestern Digital Corporation
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Shades of grey Felix Baretto, LG
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By  Andrew Seymour Published  June 20, 2010

The buying and selling of products outside of a designated territory can create havoc for authorised channels, but just how seriously are vendors taking the matter in the Middle East? Channel Middle East brought together a handful of the top product suppliers in the region to find out how they are addressing parallel importing and whether the grey market can ever be positive for the channel.

CHANNEL: There are suggestions in the channel that grey market activity is actually getting worse in the Middle East. What are the reasons for this?

Youssef El Arif: We do believe it is becoming increasingly ‘active’ in this part of the world. Resellers are always eager to have this technology here as early as possible to offer the market, however by the time the technology reaches our region the market is almost served. This is one of the main reasons for grey market activity. Moreover, resellers are able to receive enhanced deals from sellers abroad due to lower costs. Sellers enjoy low margin sales since they have a lower OPEX when they sell to the unauthorised regions. They do not have local presence and after-sales support because they do not invest in those markets with resources and money. They simply achieve quick and easy deals, which is, of course, appealing to the buyer.

Khwaja Saifuddin: Grey market sales are no longer limited to China. All manufacturers have to compete with grey market players as they expand into emerging markets in Asia-Pacific, Eastern Europe, the Middle East and Latin America. Grey market sales actually take place only when there is room left by the authorised distributors for grey players to come in and fulfill market demand. Where there is a lack of availability of genuine products, price disparity or the product is significantly cheaper in other parts of the world, grey markets are usually found to be actively operating.

Felix Baretto: Market dynamics have changed a lot in the few years where accessibility across the globe to any product can be availed by paying in cash. The economic conditions that have prevailed over the last year have put stress on global players to look out for new avenues to move their stocks for liquidation.

Nader Redjeb: The major reason is the pressure of the target and the market share. Every sales person is facing this challenge daily. He might not be able to make an aggressive offer based on a killer price to his market because he needs to keep the price level for the coming months, but he doesn’t care about the other regions where he can play this game. On the other side, the distributor is looking to make a profit as fast as possible, and in the absence of any control or aggressive rebate plan from the vendor it will not hesitate to purchase grey goods.

Shashank Sharma: Grey activities could increase when there are price or supply discrepancies between countries. Due to this, opportunistic traders can see opportunities to indulge in grey imports. It is up to the brands to be consistent and maintain a balance.

CHANNEL: What steps have you taken in the past year to address the issue of grey marketing in the Middle East?

Kv Narayanan: Over the past year, HP Middle East has taken several major steps in order to address the issue of grey marketing. Firstly, serial number tracking and retention of serial numbers for a period of two years is a mandatory clause in all HP contracts. HP Middle East has also employed severe loss penalties and termination of contracts for those found engaging in grey market activity. Finally, we have ensured that we have a local presence in every country within the region, and have also built the capability to drop ship products in countries, ensuring local availability, uniform pricing and service centres. Each of these steps has contributed to a reduction in grey marketing in the Middle East.

Nader Redjeb: The first thing to do is a loyalty plan and this has to focus on the profit base. We have to convince our distributors of the value of the official market; that the support and the after-sales service are more important than even a 20% difference on the grey market price. We add our aggressive rebate plan to that and if the distributor will think on the long term then it definitely won’t turn to the grey market. We have to educate the distributor.

Dan Smith: Xerox has a series of compliance officers who work with our partners to ensure that counterfeit and grey market consumables are identified and then appropriate action is taken. There is a route for our partners to contact these officers and work with them to protect customers from the poor level of quality and service that comes with grey or counterfeit. In addition, Xerox works closely with law enforcement officials, such as customs and excise, as well as legal counsel internationally to investigate any developments in the grey and black market.

Youssef El Arif: At Belkin we are continuously expanding our presence in the region to have our products widely available in different countries and offered by locally-based distributors. We have succeeded in various key markets and are proactively working to fulfill this task in other markets. Also, we are customising benefits for resellers in the respective countries to make it very attractive for them and to ensure they do not get lured into buying from unauthorised sellers.

Shashank Sharma: At Packard Bell we want to be as consistent as possible in supply and pricing, and this is the best way to address the issue of grey products in the Middle East. We also do not want to dump any one country with more supplies than required, which could create pressures.

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