Sydney Borg, Fast50 2009 No.5 alumnus, says resellers shouldn't be able to buy products on the international grey market cheaper than they can from their suppliers at home.
Parallel importing or the "grey market" is a threat to legitimate channel operators in Australia and a poor substitute to those who commit to employment, standards and statutory obligations and decent customer service.
In the six months to April I lost about $3 million to grey market importers or about 15 percent of my business.
A grey importer is not running a real business. It shows a total lack of commitment to employment and running a substantial business in the country of operation and also lends itself to the thought that they're not complying with the tax laws.
That must be the case when there's such a significant price difference between what a grey marketer and a legitimate channel partner can charge customers.
The grey importer has no clout with the local distie or manufacturer because they're not liaising on potential business. If I grey import Acer equipment, for instance, then what clout or respect could I expect from the local vendor?
Those who bring in goods on the grey market often start life spurned by vendors and disties, who won't give them a credit because they don't have any strength in their business backing them up. They then turn to parallel importation because they say, "Hell, I understand the market so I'll undercut the competition".
Five risks to the channel from the greys:
1. Price erosion is the first thing competing channel partners suffer from parallel imports. I could place an order in New Zealand, Singapore or Hong Kong with Acer, HP or Lenovo and, based on the strong Aussie dollar, ship it here for 15 to 20 percent less than buying as a gold, platinum or silver accredited reseller. But what about warranty? If it's a $50 product would you really care about warranty? If I'm buying 50 printer cartridges for 20 percent less than I normally would then I have that margin of failure if they don't work.
The Asia head offices don't want to make Australia's channel price competitive. They allow their disties to export genuine products to Australia under their noses, stabbing their own Australian operations in the back.
It makes a mockery of vendors' claims they are 100 percent channel when they allow parallel importation.
2. Customer attrition: How can you retain customers, especially the most profitable ones, once they know they can buy cheaper from a grey importer? Your clients trust you to provide a quality service but at the end of the day they have to look after themselves and price is often the final arbiter of their decision. Once you lose a client to that type of market it's very hard to get them back. Once they have a taste for grey wares using genuine product, why would they change unless someone screws up?
That happened to me recently with Canon, who has lost the plot with their channel and made it very difficult to operate. I had a deal to align notebooks with printers for a couple of thousand units and they wouldn't give me a competitive price or give me the quantity I needed. That demand is being met 100 percent by parallel importation now.
Why should the manufacturer care what I'm doing with the product in Australia? You could ring any major manufacturer in the US or Britain and if you want 1000 units they will sell it to you. Why is Australia so unique and protective? Australia is becoming another New Zealand, which was the No. 1 dumping ground for IT.
3. Deteriorating customer service: Cost cutting to compete with the greys means there's less money to spend on good customer service. We've seen it happen where a customer says they have bought an Acer laptop and the minute we know they haven't bought it locally we turn them away.
From a business perspective, price erosion is the thin edge of the wedge because once I'm making less margin I can't afford to keep a support infrastructure. Everyone in business has a right to make a profit. Grey importers can sell to my client for less than I can buy it, which leaves me nowhere to move. We've tried re-educating vendors and it falls on deaf ears.
For the situation to improve, vendors have to drive the greys out of the market by gutting our cost prices for three months so we can compete.
Customers know they will get better customer service by buying from us but then it gets down to the product they're buying. If a product has one-year local warranty, how much do they need our service especially if the technology rarely fails and products come with international warranties?
4. Loss of initial hardware sales: The vendors are being very hungry on margin - the Australian dollar has strengthened significantly and they haven't been as aggressive in their repricing as when the dollar plummeted to $US0.55. So they're getting some serious margin; it's time for them to share the wealth a little bit.
And if we come up against a grey on substantial business, vendors should be prepared to cut their margin to the bone to level the playing field. The grey importer can't sustain a loss for very long. As a grey, at 90 days you are seriously hurting if you have a container of notebooks on its way. Hardware is not the biggest profit earner for us, but it was the cream, the icing on the cake.
The worst industry is the consumable market - I can sell huge numbers of printers but I can't sell them the ink and although the manufacturers understand the problem they won't do anything about it.
5. Lack of manufacturer support: The only way to get manufacturers to value the channel is for disties to switch the tap off to the vendors but I feel the disties are not strong enough. Alloys tries and we have a great relationship with Ingram Micro but I think Ingram is weak on this issue and that's a real shame.
The bottom line
I shouldn't be able to buy a Canon printer, for instance, cheaper from Singapore than from my own supplier in Australia. When the Australian dollar is high grey importers do well so it is up to the manufacturers to level the playing field and make their prices to the channel competitive on a global scale.
Enter the 2010 CRN Fast50 search for Australia's savviest IT resellers at http://fast50.techpartner.news
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