Last week I attended the AGMA Global meeting in London. AGMA (The Alliance for Gray Market and Counterfeit Abatement) represents members from a wide spectrum of industries who see the growth of the gray market as a significant threat to profitability and growth.

Most information technology companies are successful thanks to distribution channels that move products from manufacturer to the consumer through a series of legitimate distributors and partners globally.

There is, however, a growing and quite detrimental market that can cause unwitting customers to encounter serious problems through purchasing technology products with invalid warranties, some designed for use in other countries—or worse, products containing counterfeit parts. These experiences erode customer satisfaction and damage brand integrity, causing significant profit erosion for manufacturers.

Welcome to the global “gray market,” where branded products have been diverted from the authorized distribution channel within a country or are imported into a country for sale without the consent or knowledge of the manufacturer. Gray market products are generally sold at lower prices than those offered by authorized distributors. Gray market products pose a serious challenge to information technology manufacturers and their authorized distributors. A recent study reveals that IT manufacturers alone are collectively losing up to US$5 billion in profits annually—a figure that is growing.

Historically in the IT market, many manufacturers did not have secondary market Certified Pre-Owned programs which encouraged gray market activities, as customers had no other choice where to source products that the manufacturer had moved to ‘end of sale’. Established Infrastructure is sometimes very difficult to transition, especially in sensitive markets such as Service Providers where customers are not prepared to easily move away from a service platform that works and is trusted.

Within the gray market there are no guarantees, whatever the seller may say. There is no guarantee you are even buying genuine product. There is a huge boom in counterfeit electronics driven out of cheap manufacturing in the Far East. They may look genuine but could present serious risks as they will not have to adhere to the same safety and QA processes OEM’s do. Then there are the security concerns around what firmware is loaded. Could this second hard card load a virus into my network? ‘Refurbished’ does not mean using OEM parts and processes and hardware replacement guarantees from someone who may not be around tomorrow and are not worth the paper they are written on.

All of the above can present significant compliance issues for companies. Non-compliance with regulations and Intellectual Property laws can be very expensive and damaging from a brand perspective for both the customer and the OEM. High profile outages caused through non-standard sourcing result in loss of customer loyalty and damage the OEM even if the equipment at fault was counterfeit.

Certified Pre-Owned programs allow both customers and OEM’s to safeguard their brand integrity and deliver compliant solutions.

One final thought: In the past when customers have bought gray they have been able to get the equipment re-instated with manufacturers to access support and up to date software. Be aware the costs of re-instatement can far outweigh the initial price benefits of buying gray. In some cases, re-instatement and re-registration fees can double the cost of the original gray purchase.

There will always be a price incentivized gray market, but Certified Pre-Owned programs can provide cost effective, compliant and manufacturer supported alternatives without the threats presented by an unregulated gray market.

Julian Smith
Sales Director EMEA