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LX Group Discuses Grey Market Components: Is It Worth It?

7th July 2012
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grey marketToday’s global economy has allowed the easy flow of goods from one country to another. However, with this free movement of goods also comes other consequences, and one such repercussion is the grey market economy. The grey market is defined as “the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorised, or unintended by the original manufacturer.” Basically, these are goods purchased by people outside the normal channels authorised by the manufacturer. For example, if a visitor purchased a dozen of Converse shoes in the US and sold them to friends or acquaintances in Australia, that would be considered “grey market.” Of course, this is a simplistic view of grey market items, and it’s not always this straightforward. As companies become more and more watchful of their bottom line, many have to make sacrifices to protect themselves. Many firms turn to the grey market to cut on costs, but are grey market components really worth it?

Increased Fail Rate
It would be great if buying grey market electronics components and equipment was as straightforward as buying those Converse shoes. After all, it’s all the same in the end, right? Not always. Grey market doesn’t just mean buying goods that are cheaper in another country and smuggling them inside suitcases. It’s not just about ‘greedy’ suppliers wanting to monopolise prices or governments wanting their slice of the pie. Grey market goods can mean poorly assembled electronic components, or old chipsets used on new bodies. They can be hardware with older software (that can’t be upgraded) or they can even be stolen goods. Grey market goods can’t be vetted by the electronics manufacturers or OEMs, and therefore one can never be sure of the quality of the products. Also, various countries may have different safety standards, so purchasing hardware meant for another country could mean legal and safety ramifications for the company using the equipment.

Impact on the Bottom Line
Many companies are feeling the pinch of higher prices or increased costs of operating expenses. It’s only natural that before trying to cut back on staff or other expenses, they start looking at where they can decrease costs on electronic equipment and components. However, lower costs of purchase don’t always mean low costs in the long run. Manufacturer prices have other things built in. Aside from marketing, promotions and advertising, there’s also customer support, service and warranties. Purchasing from grey markets mean that the price you pay don’t contribute to these things and that means higher costs, not just on the costs of purchasing goods, but it can mean higher costs for the buyer. Grey market goods rarely carry warranties and support, and they must often rely on the grey market suppliers or third parties for the support. Repairs and services can run companies much more than if they were to purchase the equipment from the manufacturer or authorised suppliers.

Prevalence of Fake Goods
Grey market goods aren’t necessarily counterfeit, but they do pave the way for counterfeit goods to flood the market. That’s because in many cases, testing equipment and inspections just cost too much money. With such lax standards of testing, makers of fake goods can be confident when they flood the market with their products. And, in the bigger picture, counterfeit goods amount to worldwide losses, from the electronics manufacturers or OEMs to the end business consumers themselves. The overall economic, not to mention social costs could cripple the market.
The allure of “going grey” is strong, especially when companies all over the world face such tough economic times. Yes, grey market components are cheap, but they, in the long run, aren’t very reliable and can end up costing more. For electronics designers and electronic manufacturers, the incentive of grey market parts may be tempting. But why would you spoil a beautifully designed and crafted product with inferior quality components?

LX is an award-winning electronics design company based in Sydney, Australia. LX services include full turnkey design, electronics, hardware, software and firmware design. LX specialises in embedded systems and wireless technologies design. www.lx-group.com.au



Published by LX Pty Ltd for itself and the LX Group of companies, including LX Design House, LX Solutions and LX Consulting, LX Innovations.

LX GroupLX Group Discuses Grey Market Components: Is It Worth It?

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