Thriving Grey Market A Concern For Vendors

One of the major downside risks to BMI's growth outlook for the IT and consumer electronics (CE) markets in most markets is the incidence of piracy and grey market sales. The UAE is particularly vulnerable to this threat owing to its large reseller market and status as a transport and distribution hub in the Middle East region. BMI welcomes recent steps taken by some vendors, with full support of the UAE government, to minimise this threat.

Significant Downside Risks
2011 - 2018

There are two prevalent forms of grey market activities in the region. The first is outright counterfeiting of IT and CE products, particularly consumables, such as printer ink cartridges, and low cost devices and accessories, including handsets. Although the majority of counterfeit products go through the UAE to other markets in the region, with the perpetuators utilising the country's large reseller market and port facilities, a considerable proportion of products still find their way into the local market. The second form of grey market activities involve the sale of authentic products that have not been officially launched in the local market. CE products such as high-end smartphones, game consoles and cameras often fall into this category. Some device manufacturers are tackling this problem by reducing the time lag between when products are released in developed and in emerging markets.

Unsurprisingly, vendors and distributors are concerned about the impact of grey market sales on their businesses. The biggest threat is to vendors whose products are susceptible to counterfeiting. The risks to their business range from a dent in customer satisfaction and loyalty to a reduction in the service levels achieved by authorised distributors. As a result, some vendors are partnering with the government to take a tougher stance against grey market operators. In early 2014, Xerox Emirates, a joint venture between Xerox Corporation and Mohamed Hareb Al Otaiba, initiated a UAE wide programme to counter the illegal importation of consumables. The initiative, which has the full support of the Dubai Economic Department, has recorded successful raids in Dubai and Abu Dhabi. For its part, HP said it recovered more than 1mn counterfeit printing products in a raid across five locations in Dubai and Ajman in April 2013.

The efforts of these vendors have the potential to curb the activities of grey market operators. However, a sustained effort is required to keep it at a minimum over the medium to long term amid an ever increasing value of the global grey market. Research firm Imaging Supplies Coalition estimates that the global grey market is worth USD3.5-4bn.

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Geography: United Arab Emirates

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