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Francis Tchertoff, Channel Experts

by Stuart Wilson, Wednesday 30 April 2008

Channel Experts’ Francis Tchertoff delves inside the grey market in his first column for Channel EMEA.

The grey market issue: ‘See no evil, hear no evil, speak no evil’ by Francis Tchertoff

AGMA recently released new information to the market (Bye bye grey the AGMA way) and one can’t resist reacting to what AGMA is suggesting. Before we do that, let us take a look at the genesis of AGMA.

In the midst of 2001 -that’s seven years ago, the year of the Enron and WorldCom scandals and also 9/11 - 3Com, Cisco Systems, Hewlett-Packard and Nortel decided to create an organisation to address their grey market issues. AGMA was born. Funnily enough, at the time, certain of those vendors were being suspected of ‘stuffing their channel’- thus potentially generating a grey market.

One can safely say that the major responsibility for grey market activities lies with the vendor itself. Think of it: grey market products appear when there is sufficient space for the grey marketer to derive a margin when he resells those products.

And the best way to push product into the grey market is to stuff your own channel through push promotions. Force your channel to build more inventory than they need, and they will have to get rid of some of it. You have just created your own grey market (and shot yourself in the foot).

Another cause is badly managed currency variations: worldwide broadliner Ingram Micro has just announced good consolidated results while EMEA generated a 1% growth in sales (in local currency). Thanks to the US dollar dropping against the Euro the growth turned into 11% for Ingram worldwide, once converted into US dollars and consolidated (Ingram Micro plans EMEA restructuring).

If vendors don’t manage their prices at a worldwide level - regularly taking into account the massive currency variations we have seen in the last 12 months - they will open a new Pandora’s box for the grey market specialists. A 10% difference between the European and US product price is more than enough for a grey marketer to make good money.

At the moment, he will purchase product in the US and sell it into Europe, circumventing the whole distribution channel thanks to the internet. If the US dollar goes back up and vendors don’t re-adjust their prices accordingly, the market will flow the other way. There isn’t much grey market within the Euro zone itself…

Creating alliances and federations to try and control something that is generally caused by complacent management or pure financial greed never solved anything.

Look at what is happening to the music industry: it is collapsing because it thought it could force people to continue buying CDs rather than download the tunes they liked from the internet and produce their own ‘Best Of’ CDs. Instead of addressing the cause (people were tired of being sold a CD containing 80% of music they didn’t want) they tried to suppress the symptom.

Somehow, a few years ago AGMA (Alliance for Gray Market Abatement) became Alliance for Gray Market and Counterfeit Abatement but never changed its acronym. So the question one might ask is: what is AGM(C)A’s core activity? Is it counterfeit products or grey market?

Prior to starting Channel Experts, Francis Tchertoff spent 25 years working for some of the best known US and European IT vendors and distributors, developing and managing their European channels, launching new products and running successful channel programmes.

www.channel-experts.com

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