Networking equipment and operating system software are the products most vulnerable to grey market imports in Ireland, according to a survey of Channels magazine readers.
However, there is some ambivalence in the local industry as to what the correct attitude to grey market selling should be, with some participants accusing major vendors of tolerating the activity in practice while condemning it in public.
For the purposes of the online survey, the grey market is defined as the business of sourcing from outside the country products for which there are already accredited or official distributors in Ireland. Or, put another way, sourcing products from firms not authorised, registered or accredited by the OEM or vendor.
The online Channels survey, which was completed by 70 respondents (but viewed by over 300), reveals that more than 50 per cent said the grey market was affecting their businesses. Of the remainder, 27 per cent said the grey market was not an issue for them, and 21 per cent said they did not know if it was affecting their businesses.
The UK is by far the biggest source of grey market products to the Irish market, according to the survey, followed by the US and Far East.
The survey asked about the grey market in both hardware and software. In terms of hardware, networking equipment seems to be very susceptible to grey market products with 65 per cent of respondents saying such products were competing with their own.
PCs and peripherals also featured strongly. In terms of software, operating systems (75 per cent) were by far the most common type of grey marketed software, which suggests a big problem for Microsoft. Security software (47 per cent) also registered strongly, as did personal productivity applications (41 per cent).
Almost half of the respondents to the survey listed Microsoft as the technology brand most susceptible to grey marketeering. HP came second at 44 per cent, followed by 3Com (32 per cent) and Cisco (31 per cent), figured strongly as the brands very susceptible to grey market competition.
Most respondents (75 per cent) said that vendors should be doing more to tackle the problem. As you would expect, vendors and official distributors contacted by Channels said they take the problem very seriously, but also that awareness of the issue among end users is growing.
‘We treat it very seriously with all the range of products we distribute,’ said Paul White of Sharptext, which emphatically denies using the grey market. ‘It undermines the distribution channel in Ireland and causes problems with revenue recognition with
vendors in Ireland.’
‘Some vendors do not offer stock rotation rights to partners and it is generally this excess stock that ends up in the broker channel. Also, the abuse of specific promotions when higher discount is available for certain end users, such as the Government, can cause kit
to be offered in the marketplace at a higher than normal discount.’
Roland Noonan of Horizon Open Systems said: ‘Just as piracy attacks the intellectual property of a manufacturer and so jeopardises future product innovations and enhancements, grey [products] attack the large investments made by the channel
community in support and professional accreditations, which are designed to ensure that the end user community is well served not just at procurement time but through out the
life of the product.’
Barry Dillon of Nortel Networks said that the grey market is less active now than it was during the dot.com bust. ‘However there is still a problem with customers buying grey market product. Customers need to remember that when they buy product on the grey market there may be no manufacturer warranty.’
A spokeswoman for Cisco Ireland said that it takes a number of steps to protect its brand, including a re-licensing programme for customers who have bought Cisco software on the grey market, and an ‘Authorised Refurbished Equipment’ programme that enables
customers to buy fully warranted and supported used (off Cisco lease) products from authorised Cisco channel Partners.
Donna Gibson, licensing compliance manager at Microsoft Ireland, said that for Microsoft, any of its software products sold on the grey market are potentially stolen or counterfeited, although she added that the company treats every case it comes across
individually. But Microsoft still considers products lawfully made outside the EU but imported into EU markets without its permission as illegal, she said.
Gibson admitted that it was difficult to measure the extent of the grey market in this country but said it remains a serious problem and is working with partners to raise awareness among customers. Microsoft Ireland is currently taking an Irish reseller to court over counterfeit goods.
Joe Brennan of reseller System Options, said that the grey market is a ‘reality’ for his firm. ‘You can’t avoid it. The law says you cannot tell a customer where they can buy their software from.’ He said the grey market is more active at the commodity end of the product scale, as customers are less concerned about support and more interested in price.
However, he added that while there were clear advantages to buying commodity product from a recognised supplier in terms of local support and reassurance, ‘our prices still need to be competitive.’
Others don’t see the grey market as a problem at all—at least not for vendors or OEMs. A small minority of the respondents (15 per cent) said they engaged in selling or sourcing products from the grey market. Two of those firms contacted by Channels said they had no issues whatsoever about dealing in hardware through non-official channels.
Martin Clark, CEO of Drogheda-based IT equipment supplier Datapart, stresses that his company deals in entirely legitimate trade, and makes a distinction between genuine products sourced through non-official channels and products that are clearly counterfeit. ‘We can buy legitimate product from major vendors, though not through official
channels.’
Clark said his company is sometimes approached by major vendors with excess stock that they cannot sell themselves, and for which Datapart finds buyers, usually overseas (70 per cent of its stock is exported). The company also deals in secondhand hardware, which
it retests and repackages before selling it with a warranty of at least six months and sometimes a year. He lists at least three major vendors based in Ireland as Datapart customers, and even works with some distributors. ‘This kind of thing goes on all the time. No one wants excess stock. People need us’, he said.
Greg Geoghegan of Computer City says that roughly 50 per cent of its products are sourced through unofficial channels. He said that many customers are confused about what the distinctions between ‘official’ and ‘unofficial’ suppliers really mean. Grey markets would not exist were it not for the OEMs or vendors, he said. ‘The products can only come from the manufacturer.’
Geoghegan said that vendors and distributors will do whatever it takes to get rid of excess stock, so ‘they’ve no choice but to use the grey market.’
12/07/04
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