Do You Trust Your Suppliers? Beware the Black Market

By Peter Hlavnicka

8:43 AM EST Fri. Feb. 02, 2007
Page 1 of 2

Do you know and trust the supplier you work with? IT resellers, solution providers and systems integrators that sell to the public sector certainly should, given strict federal acquisition requirements (FAR) and the expectation for all contracted goods to comply with rules set by the Trade Agreement Act.

But in a market where contracts are typically awarded to the lowest bidder, channel companies often seek out suppliers that will cut them the best deal -- with little consideration of where or how those suppliers acquire products.

Read about how the gray market stuck one VAR with a half-million dollars' worth of unsellable product.

During the past few years, globalization and outsourcing of manufacturing has contributed to an increase in counterfeiting and software piracy. Suddenly, gray market channels traditionally reserved for authentic but unauthorized goods are being used to traffic counterfeit, stolen or fraudulently obtained merchandise. Many gray marketers knowingly crossed over to this more lucrative business to effectively become black market dealers.

Given this change in landscape, "black market" should be redefined to include any products sold under false pretenses, constituting an act of fraud and deception. Consequently, dealers who engage in the following business practices should be classified as black market dealers:

Retrofitting second hand goods and selling them to buyers as new;

Selling counterfeit or stolen goods;

Materially altering products designed and authorized for sale in one region to enable sale in another region; and

Applying counterfeit labels to goods to make them appear genuine, new and compliant.

What's the Harm?

Unauthorized dealers often obtain gray market goods from auctions and overseas markets and, therefore, have no idea themselves whether the products procured are genuine or counterfeit, modified or damaged, new or used. Moreover, they generally can't license software, which poses liability to buyers and sellers alike.

At the same time, obtaining upgrades or original warranty and support entitlement on gray- or black-market goods will be near to impossible. At best, dealers will respond to DOA (dead on arrival) or RMA (return material authorization) requests by replacing one bad product with another, but more often post-sales support is nonexistent.

Beyond lack of support, black-market goods introduce quality and security concerns. Perhaps even more than the commercial market, government customers require products that can ensure business continuity and integrity of data. When solution providers work through unauthorized suppliers, meeting such requirements can be a crapshoot, with the worst-case scenario typically realized only when the equipment underperforms or fails entirely.

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