Tech Giants Are Feeling Gray

By SmallBusinessComputing Staff | Posted December 01, 2001
By William C. Gillis

You've probably heard plenty of jokes about computers that never work and computer manuals that seem to be written in Japanese. But consumers who purchase "gray market" products have actually had these experiences, and it's no laughing matter.

The gray market is a legal, multi-billion dollar industry in which independent distributors purchase excess inventory from technology makers and re-sell it to the public. Sometimes these products are produced for a foreign market but sold in the U.S. On occasion, the products may be refitted or refurbished and placed back in their original packaging.

In September, Apple, Compaq, Hewlett-Packard, Nortel, Xerox, and 3Com formed the Anti-Gray Market Alliance (AGMA) to combat gray-market activity involving "the unauthorized transfer of brand-name computer hardware and software outside of authorized channels."

According to David Colton, acting executive director of AGMA, gray-market products often don't perform to specifications because they weren't designed for use in this country. In extreme cases, the product may not work at all. And those who purchase a gray-market product may eventually realize that the product isn't covered by warranty.

Compaq Computers, while an AGMA member, runs its own anti-gray market program through a worldwide "cross border office." Marie Myers, the office's director, says gray-market products are strong sellers because they are usually less expensive than those sold by authorized dealers. "People buy gray because of price - that's the driving motivation," Myers says. "But I think a lot of times they don't understand the aftereffects of doing so. We want people to understand the risks."

Colton says that the AGMA is also concerned that the gray market has a damaging long-term effect on the reputation of the computer industry. "We're trying to restore confidence in the integrity of the product when it is purchased, both in terms of its internal components, but also in the ability of warranty and service," Colton says. "We stand to lose a customer forever if they receive faulty equipment or service."

Like the AGMA, Compaq is very concerned with the impact of the gray market on consumers. "It's all driven by customer satisfaction," Myers says. "When you buy outside the authorized distribution network - in other words the gray market - you have no guarantees that there will be a warranty or on-site service support."

Kristal Snider is president of the Electronics Associations International, Inc., a group that describes itself as "the high-tech electronics distributor's ally." She disagrees that consumers should avoid independent distributors or brokers. "More often than not the product that is procured from the independent distribution marketplace is a quality product," Snider says. "The brokers and distributors have strenuous quality-control standards that they follow to make sure the goods that come into their facilities are high-quality. The gray market is a very important part of the distribution chain."

So what should the end-user do to protect themselves? The old adage "let the buyer beware" is always good advice. Before purchasing any product, find out exactly what you're purchasing, what warranty and service is offered, and who provides it. Buying gray's not a black-and-white issue.


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THE NEW CYBER GENERATION

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- Pew Internet and American Life Project

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