Channel behaving badly

Would you hire a salesman from a competitor and urge him to bring over the accounts in his territory? How about underbidding a competitor on a big deal, promising the customer a service level you know very well cannot be met?

If that doesn’t bother you, would you undermine your own company by secretly working behind the scenes to move deals to a competitor? Would you ever pass off used or fake products as originals? These are not hypothetical questions but real-world examples of the channel behaving badly in the Middle East region. These deceitful actions have always been an issue in the channel where winning a sizable deal can mean the difference between survival or failure. But solution providers say they see a disturbing rise in their peers’ willingness to cross that ethical line to win business and make fast cash at the expense of the industry integrity.


In fact, recent HP commissioned research in the Middle East has confirmed that rampant use of counterfeit technology products finding their way into businesses in the region.


Many companies today continue to support their customers in honest transactions. Unfortunately, some resellers have tried to take advantage of unsuspecting customers and supply them with fake or grey products. Most customers end-up losing warranty because of buying grey or counterfeit products from such unscrupulous deeds.


Tarek Kuzbari, MD, Kaspersky Lab Middle East, says with the global increase in computer use, there is an equal or even bigger increase in computer crime in general and in piracy in particular. “In recent years, we have seen a tremendous rise in grey imports and counterfeit products in the Middle East region,” he says. “As normal market dynamics, once a brand rises in popularity, you would find the IT market coming up with various ideas to indulge in racketeering, and the easiest method used is the illegal import of grey products and counterfeit goods. Kuzbari says in the GCC Region the KSA has the majority of pirated products at about half of the availability IT products in the market followed by UAE and Kuwait. He adds that in Syria and the rest of the Levant region, about three quarters of IT products are either grey or pirated products.


Sidney Pereira, product manager at Canon Middle East concurs and points out that the presence of grey and counterfeits consumables is a pertinent issue that Canon deals with on a daily basis. Pereira says it is difficult to determine the extent of grey or fake products however the company’s estimate is that a combination of grey and counterfeits could account for as much as 40% of the consumables market in the Middle East. He adds that while the issue of grey imports is restricted to certain product lines, Canon suffers from counterfeiting of many of its products these include printer and copier consumables as well as batteries for cameras and camcorders.


Tarek Hassaniyeh, regional channel leader: emerging markets at Avaya adds that the company is policing grey and counterfeit activities in the channel in a very strict manner. Hassaniyeh says Avaya wants to make sure that its partners and distributors that have invested with it are protected from such unfair practices. “Our partners need to be fully certified on the technologies we offer in order to market our products,” he says. “It is in the best interest of our clients to source from authorised sources in the channel. We are more and more tracking serial numbers and will not hesitate to prosecute grey marketers. In an instance we have sought compensation and had the company repurchase products from the authorised channel.”


Cost to the economy


Dan Smith, GM for integrated marketing for the Middle East and Africa at Xerox says in terms of counterfeited or sub-standard toners this issue is not just a problem for the Middle East which suffers from this activity in the same way as the rest of the world. Smith points out that counterfeiting is a US$250B market worldwide, 25% of which is conducted on the Internet. “While grey marketing activity has a number of causes such as product availability and channel integration, its root cause is generally associated with large price differentials between markets,” he says.


Kuzbari adds that over the last few years, Kaspersky has seen an estimate of over $304mil as the value of piracy for KSA, followed by UAE which is at $155million. “The problem of software piracy and counterfeit IT goods is a tough one to tackle as the major factors behind the issue are ones of public attitudes rather than one of technology,” he says.


Tackling grey marketing


Smith says although grey marketing by itself is not illegal, the fact that it is labelled “grey’ and not “black” is the decisive factor. “A grey product does not mean it is a fake it just means you are buying the real thing but from an unauthorised dealer,” he says. Smith goes on to explain that despite the fact that it’s not illegal buying such products may result in the consumer ending up with a number of different problems one of them being warranty. “The UAE have an open policy toward importing products, companies can import products even if they are not the licence holders,” he notes.


Canon’s Pereira says many dealers in the channel resort to selling counterfeits mainly due to the lure of making a quick extra buck, so the problem has to be tackled there. He says Canon has been working closely with its authorised distributors to develop the second tier channel. “We have been able to support the channel in terms of anti-counterfeit awareness, rebates to counter grey products, sales incentives, etc,” he outlines.


Avaya’s Hassaniyeh is advocating for drastic measures that should name and shame grey importers and dealers of fake IT products in order to make an example of them. He believes this would encourage others to refrain from this activity. “Grey marketers not only hurt the authorised channel partners who invest in order to provide quality service and support, but are also deprive the end customer of value added services and warranty entitled to them,” he says.


Pereira adds that Canon has been fairly successful in combating grey imports thanks to the good relations developed with its distributors and the channel in general. “Timely feedback from the channel helps Canon take action against any grey imports,” he says.


He goes on to explain that counterfeiters on the other hand operate in a clandestine manner. “They are active at various levels within the channel IT dealer shops, corporate and tender suppliers, retail shops, etc. “We have instances of corporate suppliers mixing counterfeits with the originals when supplying a big order to make an extra margin, similarly retail shops sell counterfeits at a price very close to the original thus making huge margins and in the process cheating the customers.”

Kaspersky’s Kuzbari adds that in general from the government in KSA, has been very pro-active in ensuring that those involved in fake goods are punished. “Dealers in the KSA have been fined as high as 60 million riyals and between five to 10 years of imprisonment,” he remarks. He explains that from a Kaspersky perspective IP-filtration process is one of the effective methods successfully implemented to reduce the grey imports into the region.

Looking ahead, there is no doubt that grey marketing and fake products can only be addressed successfully if the channel works together. Kuzbari adds that having by having feet on the ground. This he says is one of the most effective methods that Kaspersky uses to educate channel partners.


Unscrupulous actions have always been an issue in the rough-and-tumble technology solution sales trenches, where winning a sizable deal can mean the difference between a big sales commission and losing your job. But resellers say they see a disturbing rise among their peers willingness to cross that ethical line to win business and make fast cash ? at the expense of those refusing to compromise their integrity.

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