Bye bye grey the AGMA way

by Stuart Wilson, Monday 21 April 2008

The Alliance for Grey Market and Counterfeit Abatement (AGMA) – an independent body that includes vendors 3Com, Cisco, HP and Nortel as founding members – has told vendors the three steps needed to effectively address the unauthorised reseller market. AGMA’s advice makes interesting reading, but it is tempting to accuse the organisation of stating the obvious. After all, identifying grey trade is one thing; having the guts to actually deal with it and stop it is something completely different.

So what’s AGMA’s advice to vendors to tackle the unauthorised reseller market? Well it all boils down to three major areas of focus: corporate awareness; review of entities in the company’s distribution channels, and effective serial number tracking.

“The first key is to build corporate awareness,” advised AGMA. “It is important to educate all employees to recognise the unauthorised market issue and develop strategies in response.”

AGMA issued the following tips on building corporate awareness of this issue:

1. Understand the scope of the issue and its root causes by mapping how products go to market and review channel distribution structures, partner contracts, and reseller programmes

2. Train employees, especially those in customer services, sales, product marketing and management, to recognise the signs indicating unauthorised reselling may be occurring

3. Create compliance guidelines that detail a code of conduct, red flags, escalation process, internal and external deterrents, and important contact information

Channel screening

The second part of AGMA’s three-step get rid of grey advice was centred on the screening of new reseller and distributors looking to establish partnerships. “Manufacturers should review individual companies prior to authorisation as a reseller or distributor,” declared AGMA and offered the following tips for reviewing resellers and distributors:

1. Verify corporate status and business license

2. Check for subsidiaries and understand their business relationships to the parent

3. Check for other entities associated with principals

4. Locate UCC filings

5. Conduct a civil litigation check

6. Inspect the Restricted Parties List (Government RPL)

7. Check against known terrorist organisations and governmental de-barred lists

8. Verify criminal history of company and its principals

9. Perform physical address verifications to confirm the business legitimacy of the applicant

The final part of AGMA’s three-step programme centres on developing an effective serial number tracking programme. “Implement a serial number tracking program that increases visibility of the flow of products throughout the distribution channel – from the manufacturer to the end user,” AGMA advised vendors accompanied by some essential tips for establishing best practice guidelines for product tracking:

1. Understand how the product flows through the entire distribution channel

2. Develop best practices including product returns and replacements, discount and warranty claims, and any other logistical scenarios

3. Conduct interviews and audits of distributors or resellers to address compliance with contractual and programme terms and conditions

4. Summarise the output and findings of the compliance audit in a final report together with recommendations for improvement

5. Keep accurate records for serial number verification.

CE ANALYSIS: AGMA’s advice makes sense but any half-decent vendor would already follow the best practice principles explained above. The real problems related to grey revolve around a vendor’s appetite to fight it and the actions of the individuals within the company.

The channel is a place where personal relationships and business partnerships collide. The pressure to hit targets and demonstrate sales growth can cause some vendors to cut corners in certain regions and turn a blind eye to what is actually going on in the market.

Many vendors, distributors and resellers believe that grey is a necessary evil in the globalised market for IT markets. Some also contend that grey market flow is an important factor in the development of fair global pricing policies. Whether you are grey trade or against it, this is a channel issue that is destines to run and run.

If vendors wanted to stop grey they could. It would cost money in terms of monitoring, deal registration policies and serial number tracking, but it would be possible. The fact is that many vendors – and the distributors and resellers they work through – view the grey market as an alternative channel that can be utilised when necessary. Grey’s here to stay whatever AGMA may say.

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