Cutting Room: Shades of grey – an industry taboo

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Jasper Jackson argues that grey trading cannot be eliminated unless the manufacturers adopt extreme measures

The grey market is taboo in the mobile industry, and manufacturers and distributors don’t like to talk about it – at least not on the record.

And you can understand why. Distributors, in particular, have been stung hard by the trade in the past, some having their licences terminated as a result.

20:20 Mobile was axed by Samsung three years ago, and there have been numerous reports of distributors getting slaps on the wrist from the likes of RIM and Nokia over the number of devices that leave their warehouses with an international stamp.

A decade ago, this wasn’t an issue. Manufacturers didn’t care where stock ended up as long as whoever bought it paid up on time.

This made distribution an incredibly lucrative business. It also made it far easier for distributors to achieve targets, with the market stretching across the world rather than confined to the barriers of the UK. Some suggest this attitude remains today.

But times have changed. Manufacturers need an accurate understanding of the markets in where their devices are being used. They need to be able to predict where to place future stock based on demand and budget for areas such as marketing  and repair costs which inevitably arise.

Measures have been taken to try to reduce the problem of course. BlackBerry manufacturer RIM, in particular, is known to record exactly which markets each of its devices is meant for, who sold it and where it was first switched on.

Apple, which has been at the centre of numerous stories regarding its ability to track its customers’ movements, unsurprisingly adopts a similar method.

Distributors and manufacturers have been forced to gain a better understanding of their customers to ensure that the handsets they sell to them are not destined for places such as Dubai.

Contracts between distributors and manufacturers are also understood to include clauses based on the number of handsets distributed and used in the country they were intended for, with rewards paid out should they achieve specific KPIs.

But it’s not just distributors faced with the task.

Operators have for years harped on how they too have done their upmost to reduce the problem with tougher rules to get rid of box breakers and reduced contract fraud.

But as our box breaking investigation showed last June, staff are more than willing to assist grey traders in a bid to hit targets and earn commissions – mirroring distribution.

Regardless of their efforts, however, many still slip through the net and are sold through unofficial channels to unauthorised markets.

Full article in Mobile News issue 510 (March 26, 2012).

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