Panel discussion: Are grey products a problem?

September 19th, 2016, Published in Articles: EE Publishers, Articles: EngineerIT

 

The subject of grey products appears to be low on the media radar. There was a time when newspapers were full of stories about popular bands of illegally-imported HiFi equipment which carried no guarantees. They were the grey imports. In recent times the problem seems to have reared its ugly head in the electronic components and manufacturing sector. We invited industry to take part in a virtual panel discussion and comment on the status of grey imports into South Africa and the effects thereof on the industry and indeed the country.

The first question for comment related to the different interpretations of grey imports, also referred to as parallel imports, and the impact on different industries.

Hannes Taute, MD, Avnet South Africa: “In my opinion grey imports with regards to our industry are components supplied into South Africa that have not been procured by the official distributor from the official manufacturer of the parts. If these parts don’t come through the channel directly from the OEM then the parts are grey. I can’t comment on other industries but my guess is that whenever there is a ‘middle man’ in the supply process the parts would be labelled as grey.”

Hannes Taute,MD, Avnet South Africa; Petrus Booyens, country manager, Osram Opto Semiconductors South Africa and Warren Muir, director, Muirlenium Technology.

Hannes Taute, MD, Avnet South Africa; Petrus Booyens, country manager, Osram Opto Semiconductors South Africa and Warren Muir, director, Muirlenium Technology.

Petrus Booyens, country manager: South Africa, Osram Opto Semiconductors said that a grey import is a product that is brought in through unofficial channels and not through the channels approved by the manufacturer of the goods. “I believe this applies to all industries. Any decent manufacturer has a specified import channel. That is how they maintain warranties and traceability.”

While not disagreeing, Warren Muir, director, Muirlenium Technology said, “I believe the definition should be “branded products that are imported via channels that have not been authenticated by the original equipment manufacturer (OEM). I do not believe that the definition should differ between industries.”

In the electronic component supply industry would you consider a branded component imported from a third party and not directly from the manufacturer or the official distributor as a grey import?

Hannes Taute: “Yes, definitely considered grey.”

Warren Muir: “Yes – in general, OEMs will not support their products if they have not been distributed through their appointed channels. This is done to ensure that products are handled appropriately. Products that are sourced through unauthorised channels may have been subjected to conditions which would affect the performance or lifecycle of the product.”

Petrus Booyens: “Yes. This can very easily be counterfeit.”

If electronic components are imported into South Africa from a supplier who buys unbranded components, are they classed as grey imports? What guarantee is there that these components meet the specifications of the original manufacturer?

Warren Muir: “I believe that ‘unbranded’ products should be classified as ‘counterfeit’ to distinguish them from ‘grey’ imports. Products that do not have branding, are generally copies of OEM products and may not perform according to the OEM specifications.”

Petrus Booyens agrees with Warren Muir. “This is definitely a grey import and might even go as far as plainly selling fake components. There is absolutely no guarantee that these product will meet the manufacturer’s specifications. In some cases these suppliers would supply golden/original samples for testing and then supply counterfeit or failed products upon final delivery.”

Hannes Taute said he would not classify these parts as grey. “As long as the parts meet the customer’s specification and the customer is happy with the quality then I don’t see a problem. If the distributor sells the parts under the brand of the original parts then he is selling counterfeit parts which could create all sorts of problems for the customer. There is absolutely no guarantee of quality of these parts. No question that the selling of counterfeit parts should be stamped out where possible.”

What impact does grey imports have on the electronic supply industry and electronic manufacturing industry in South Africa?

Warren Muir: “Grey imports have a disruptive effect on the supply industry – interestingly, sourcing is done through third party to reduce cost, yet problems are identified through the legitimate channels, and time and money are consumed trying to apportion and defend blame. Manufacturing costs escalate exponentially if there are any issues with the products, and since grey Imports may be subjected to uncontrolled handling, “paying cheap prices upfront may end up with you paying more in the long run.”

Hannes Taute: “The biggest problem relates to quality and product failures. Should a grey product fail, the customer has no recourse to the OEM to get support. Product recalls from the field can be very costly. Under the Consumer Protection Act the distributor is responsible for supplying a quality product to the customer. If the parts are supplied grey and the parts fail – the distributor could face legal action and might have to answer to the consumer protection council.”

Petrus Booyens says that it has a very large impact. “It causes line stoppages, product failures and an overall degradation of the quality of South African products. It also negatively affects good distributors that invest capital in employing good engineers to assist the end user to design quality products only to lose the sale when it goes to purchasing.”

Should the Department of Trade and Industry (DTI) protect South African industry against grey imports? Or should industry organisations such as the Association of Representatives for the Electronics Industry (AREI) be involved in protection against grey imports?

Hannes Taute: “The DTI should protect the country against grey imports as is the case in a number of European countries. It is very difficult for an organisation such as AREI to protect the entire country against grey imports. Even though AREI takes a tough stance against grey imports it needs the support of government, having the necessary resource and control mechanisms such as customs, controlling imports to manage this.”

Warren Muir: “I believe this is a monster that needs to be addressed by all stakeholders, and not necessarily by one or two institutions. The South African electronics industry is unique in many ways, one salient characteristic being the low volumes. In general, we cannot capitalise on the volume pricing from the OEMs that international competitors get, and therefore have had to try find alternatives to remain competitive. I believe a collective association such as AREI could be a catalyst to connecting the designers, OEMs, distributors and the manufacturers to finding solutions to grey and counterfeit imports.”

Petrus Booyens: “I believe the responsibility of combating grey imports in our industry should not fall upon one organisation but any company or individual involved in the industry. If people do not support this industry or report any companies involved in grey imports, the market for grey imports will eventually die down. This is about educating the end user as to the negative effects of grey imports.”

Additional comments:

Hannes Taute: “ Buying grey product is a choice usually based on price only. The long term implications of a possible product failure are ignored at the point of purchase. Distributors are appointed by official manufacturers because they have the right resources and processes in place to support customers should something go wrong. There needs to be a level of value added to a product that comes with a high level of after sales service and support. Nothing is ever perfect and even the big manufacturers get it wrong from time to time but at least the customer has recourse if the product is supplied through the correct channel.”

Some interesting views. Thank you to the participants in our panel discussion. How do you, our readers, feel about grey imports? Do you think that is a problem? Share your views in our letters  page by sending your comments to annette.thompson@ee.co.za

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