The sale of grey products is weakening the IT industry, says the ITA (Information Technology Association). Every time an honest dealer loses a bid to a competitor who is dealing in grey products, the damaging consequences snowball across the entire industry.
According to ITA president Teryl Schroen, the situation in which the channel - vendors, distributors, resellers and end-users - finds itself, is not only costing the industry billions of rands annually, but smaller players are being forced out of business and end-users are having to put up with poor service.
"The so-called `grey market` consists of two types of products," she explains. "Those which the dealer imports legally but directly from the manufacturer and not through an officially appointed local agent; and those which are imported illegally - either as smuggled or pirated products, or as goods on which VAT and other import duties have not been paid.
"Although the former, also known as parallel importation, is not illegal, it does have a detrimental effect on the market," says Schroen. "Because the parallel importer has an unfair price advantage, smaller dealers are forced to lower their margins which, in an industry as competitive as IT, are already tight. Eventually, the small businessman can no longer compete effectively, and is forced to either quit the market altogether, or worse, become parallel or grey importer himself. Consequently, opportunities to create sustainable, ethical growing businesses are severely hampered and the industry`s reputation of ethics and honesty is threatened."
"The failure to create a viable SME sector in the industry will drive out responsible players and encourage the growth of a thriving `black market` supply chain," says ITA member Meg Fox of Graham, Fox and Associates. "In the end, the `black market` supply chain could become the de facto in certain market sectors.
"It`s time for the IT industry to put its act in order and regulate itself," she declares. "One way to do that is through adherence to the ITA`s Code of Ethics. The only way to ensure the success of this initiative, however, is if all industry players to work together, despite the competitive nature of the industry."
"Additionally, associations such as Trade Compliance South Africa will help to drastically improve the situation to a satisfactory level," adds Schroen.
The ITA`s recently launched Channel Division, which is specifically geared towards improving ethics and standards across the IT industry, is to base its campaign on its `Code of Ethics` brand. By being a signatory to the `Code of Ethics`, a company undertakes to abide by the code in all respects.
"Our objective is to make the Code of Ethics brand as well recognised and highly regarded as the SABS stamp of approval," says Schroen. "Consumers and dealers who see the SABS stamp know that the product they are buying is of the highest quality. Similarly, the same should be said of the ITA Code of Ethics logo. Consumers and channel players should come to recognise carriers of the logo as being reputable, honest players in the market.
"Those who are found to break the `Code of Ethics` will be summarily expelled from the ITA and branded as such," Schroen continues. "By collecting industry talk, and in partnership with Trade Compliance we will be able to uncover the culprits and expose them."
According to Fox, the ITA also plans to negotiate with government to include compliance with the Code of Ethics in its tender rules and regulations. "Many large corporate companies have already made this a prerequisite, and some refuse to employ an IT contractor unless they are an Code of Ethics signatory," she says.
Lee Dutton, executive director of Trade Compliance South Africa (TCSA), is very excited about the ITA`s efforts to "clean up" the industry. "In other industries, it`s very easy to tell a counterfeit product from the real thing," he says. "When it comes to PC components, however, the majority of the general public don`t know the difference. The Code of Ethics will provide a reliable means to determine who is a legitimate player and who is not."
Although TCSA is slowly winning the war against fraudulent players, Dutton says the battle is far from over. "Next to textiles, the electronics industry (of which IT components forms a sub-group) is the hardest hit by fraud and tax avoidance because the goods are subject to high import tariffs and are easily smuggled. The good news, however, is that most of these products are traceable, which makes our job much easier.
"Although it`s virtually impossible to weed out all the criminal elements, we can force them out of the market by educating the public. Through the Code of Ethics, consumers can choose who they want to deal with. The question they need to ask is, should I pay a few hundred rand more for a product that is legitimately acquired, or buy the cheaper version that also comes with a question mark attached to it?"
Schroen urges all vendors, distributors and resellers who are not yet ITA members and signatories to the Code of Ethics to join. "We have declared war on the grey market, and we don`t intend to stop fighting until we have won," she concludes.
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