The Gray Factor

Vendors are willing to curb parallel imports or the gray market business
in India. But the channel does not find anything wrong in buying or selling gray
products. Infact, they feel that vendors are persecuting them nonetheless

When buying a product, a buyer looks for lowest prices, good post-sales
services and also, geniune products.

As long as all these criteria are met, does it really matter whether the
dealer, who is selling the product has sourced it from an authorized Indian
distributor or has bought it from the gray market? In all likelihood, your
answer will be 'no'.

This is precisely the argument that the channel is offering to vendors who
are penalizing them for buying from the parallel market. And their preferred
mode of penalization is by not offering any warranty support to the product.

This stand is rankling the channel that argues that since the vendor has
manufactured the product, the latter is duty bound to support it. Each of these
parties is stuck to their stance, and at the end it is often the customer who
suffers due to this confrontation.

Partners believe that as long as the product is genuine, the source of purchase is not important, nor does this make the transaction illegal

Who's right anyway?

Do vendors have any right to refuse support for a product merely because it
has not been sourced through the authorized channel partner of that geography?

Pavan Duggal, an advocate with the Supreme Court of India, informed that a
manufacturer cannot deny services to genuine products on the ground that it has
been purchased from any other territory. He further stated that any individual
or dealer can file a case against that company in the court for deficiency of
service on authorized product and even seek Rs 1 crore as compensation.

Of late, it looks like the channel is waking up to this fact. “There are no
legal grounds on which a company can take action against dealers for importing
products on their own,” commented Saket Kapur, Secretary, Progressive Channel
Association of Information Technology.

Some recent actions

Partners have given examples of cases where vendors have taken a very tough
stance when it came to buying from the parallel market. One such instance is of
MSI, which had issued a circular stating that channels have to return the goods
back to the company if they had purchased its products from any unauthorized
source.

But Frank Seraph, Country Manager, MSI India defended this move saying that
it is MSI's responsibility to safeguard the interest of its authorized
distributors as well as its partners. “We had circulated this notice to the
channel partners, and our main objective was to spread the message that partners
should stick to the ethics of business,” Seraph claimed.

The idea behind the circular was that channels should avoid indulging in
parallel market buying. But he stated that MSI had no intentions to take any
action against those who might have bought gray market products. “We cannot
force anybody to return the products or to do business from any other front. But
that source should be authorized and genuine,” he reaffirmed.

However, is it ethical to ask partners to return goods they have bought from
other sources as long as it is not a fake product? MSI had even said that it
would block the warranty on these products.

Seraph defended this move and said, “By this circular we just want to let our
partners know that there are elements in the market who are indulging in
smuggling and selling the material in the market. This is not beneficial for the
resellers who are thinking of a long-term business with us.”

He further added that after this circulation, MSI got excellent response and
support from its resellers. “Anyone cannot go out, bring the material and dump
it in the market at a price that does not match ours,” he stated indignantly.

“We have also decided not to support those resellers who don't care for this
message and continue with such activities. If partners do not support us then
MSI would also not support them in business as well, and besides warranty, they
won't qualify for any schemes also,” he further added.

MSI is not the only one that had sent out such a strong message. Samsung too
had sent out a similar notice a while ago. In response, partners questioned the
illegal aspect in parallel importing. Delhi-based Computer Media Dealers
Association (CMDA) even sent a legal notice asking the company to withdraw the
alert. Other associations might not have taken such an aggressive step, but one
thing they were not convinced of was to accept gray market or parallel import as
an unauthorized business.

R Zutshi, Deputy MD, Samsung India had then commented that a manufacturer has
various legal remedies. It is not only limited to trademark law, and hence a
company can take action against such dealers who are involved in buying and
selling gray products.

Vendors feel that distribution of a product is dependent on the discretion of
a manufacturer and only he can decide how and by which route to trade. They also
stated that one reason they discourage gray market purchases is to control the
menace of counterfeit products that could otherwise easily float in the market.

Channel cries foul

Whatever the vendor reasoning might be, the channel is in no mood to accept
it. Partners stick to the point that as long as the product is genuine, the
source of purchase is not important, nor does this make the transaction illegal.
Importers are the first to offer this argument. They questioned that if they are
abiding by the duties and taxes, how can the vendor refuse to offer support for
a gray product.

Bharat Bhushan, MD,RR Systems put forward his thought that a vendor harasses
dealers on the name of gray import just to show their power. “Government of
India has authorized every individual to import genuine products from any part
of the world, then why should a manufacturer try to stop them. They do this only
because this threatens their business and it slows down their sale. To safeguard
their interest, they find creating problem for channel to be the best option,”
commented Bhushan.

A set of dealers in Jaipur stated that when a channel partner imports a
product from other source, by paying all the duties, it is called parallel
import and there is nothing wrong in that.

“Manufacturers very well know that they cannot take any action against
someone who is importing products on his own. It is just a way to mark their
presence and power in the market, otherwise, they will loose control over the
dealers. The most effective way is to stop giving service on that product, which
is not the right way,” said a dealer from Jaipur.

So why does a partner opt for parallel imports than buying from the vendor's
authorized distributor, knowing very well that the vendor might not offer
warranty support? Is pricing the sole reason behind this issue?

According to Kapur, this could very well be the reason. “If a company is
actually concerned about the channel partners and customers, then it should
better go for uniform pricing rather than raising issue in the market.”

Other vendors unperturbed

Dushyant Mehta, MD, Mediaman Infotech, which is also a distributor for
Transcend does not defend parallel import but he is not overtly against it. He
felt that neither the vendor nor the partner is directly affected by indulging
in the gray business. It is the customer who is most affected and then loses
faith in the vendor and the partner.

This is precisely why other vendors like Canon India and Sony India do not
give much weightage to the issue of gray market. They would ultimately like to
retain their customers so they don't want to cause any inconvenience to them.

Masaru Tamagawa, MD, Sony India said, “We provide service to all Sony
products in all geographies, irrespective of where they have been purchased
from. Sony gives importance to its customers and make sure that they are
satisfied with the brand.”

Similarly, a representative from Canon India commented that when a product
floats in the market (due to gray market business), the brands gets popularity
among the customers, and the benefit goes to the vendor ultimately. Therefore,
in other words it is the vendor who gets the profit due to gray market business.

So should the other dissenting vendors take a leaf out of Sony and Canon's
books and emulate them? That is what the channel would like them to do. In a
century, when the concept of global village is taking root, it is imperative
that vendors also dilute their geographical boundaries and put a full stop to
the ongoing conflict over gray market products.

Amrita Tejasvi

amritat@cybermedia.co.in