By Paul Kunert
11 July 2008
The size of the grey market globally in 2007 was valued at around $58bn and dented industry profits by up to $10bn according to the latest survey by KPMG and the Alliance for Grey Market and Counterfeit Abatement (AGMA).
Set up in 2001 to stem the flow of technologies through unauthorised channels, AGMA and KPMG found the grey market accounted for between five and 30 per cent of total IT sales worldwide last year.
To deter the activity vendors must establish robust relationships with distributors and resellers and create consistent policies and strong business incentives to nurture long term and mutually beneficial channel partnerships, said KPMG.
“Today there are strategic measures that vendors can take to reduce the risks of grey market behaviour, by properly devising and implementing a strong channel partnership programme with proper checks and balances,” said Tom Lamoureux, KPMG Global Advisory Sector Leader, software and services.
He added, “By establishing tighter management policies and more effectively monitoring compliance among their business partners, the non-compliant behaviour that is feeding the grey market problem can be greatly reduced”.
The survey revealed that the Internet has specifically impacted areas including pricing policy, product availability, warranty, service and maintenance.
The primary reason that resellers source kit on the grey market is typically financial and KPMG advised vendors to reduce partners’ willingness to seek out “objectionable alternatives”.
According to four in ten respondents, the Internet had become the “major highway” of information on offers of grey market products said Ram Manchi, AGMA president.
“One of the key challenges facing IT companies today is the use of the Internet as a key vehicle for news and solicitation of illegal and counterfeit technology products,” he said.
AGMA’s last grey market survey in 2002 valued the sector at $40bn but its growth to $58bn had been outpaced by the expansion of the industry at 81 per cent.
It is not surprising that vendors are trying to get tougher with reseller partners caught operating in the grey sector given the economic slump the economy is starting to experience.
But if most manufacturers tightened up their supply chain and harmonised pricing across the world, the grey market would probably collapse tomorrow.
