KPMG prices hardware grey market at £25bn

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The grey market acts as an alternative source of equipment for the channel and although it is legal, the research warns of brand damage and profit erosion for both vendors and resellers as the grey market gains momentum.

The Anti-Grey Market Alliance sponsored study found these sales accounted for up to £3.1bn in lost profit for vendors as dealers and brokers divert products into the grey market.

The AGMA was set up by Apple, 3Com, Compaq, Hewlett Packard, Nortel and Xerox in 2001 to counter the practice of products being diverted from authorised distributors and sold cheaply by grey marketeers.

‘Grey market activity can be a cloak and dagger affair involving the secret movement of goods across borders, and breach of their distribution and partner agreements with the brand owner, including the abuse of incentive and discount programmes,’ said KPMG.

But resellers and distributors say they are being forced to use the grey market to compete – the survey found 71% of distributors said they believe it is necessary to purchase grey market products to be competitive on pricing and fulfillment.

But 81% of distributors said that their competitive position would improve if it the grey market was eliminated.

‘This is a big problem for resellers because it creates a very complex environment to sell in, with price volatility and a lack of quality assurance,’ said Stanimira Koleva, channel sales director at 3Com. ‘There is more risk now because resellers are trying to streamline their businesses.’

Simon Welch, marketing manager at Sun Microsystems distributor Clarity said this market undermines reseller investments in vendors.

‘All the quality vendors put contractual obligations on accredited resellers, and these people selling on the grey market with no commitment undermine them.’

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