The grey market economy is a major consequence of a global economy that allows free movement of goods from one country to another.
Defined as ‘the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorised, or unintended by the original manufacturer’, the grey market basically consists of goods purchased by people outside the normal channels authorised by the manufacturer.
Many firms turn to the grey market to cut on costs, but are grey market components really worth it?
Increased Fail Rate
The grey market concept isn’t as straightforward as buying cheaper goods in another country and smuggling them in or ‘greedy’ suppliers wanting to monopolise prices or governments wanting their slice of the pie. The grey market can mean poorly assembled electronic components, or old chipsets used on new bodies. They can be hardware with older software (that can’t be upgraded) or they can even be stolen goods.
Since grey market goods cannot be vetted by electronics manufacturers or OEMs, one can never be sure of the quality of the products. Additionally, with varying levels of safety standards applied in different countries, one can never be sure about the legal and safety ramifications for the company using the equipment.
Impact on the Bottom Line
Grey market components are bought by companies that are trying to cut back on operating expenses, especially in their electronic equipment. However, lower costs of purchase don’t always mean low costs in the long run.
Features such as customer support, service and warranties that one takes for granted with regular products cannot be expected in grey markets. While the initial purchase cost may be low, the absence of support and warranties translates into higher costs for the buyer down the line as they will have to rely on grey market suppliers or third parties for the support.
Prevalence of Fake Goods
While grey market goods aren’t necessarily counterfeit, they do provide a platform for counterfeit goods to flood the market. Thanks to lax standards of testing in the grey market, makers of fake goods can confidently flood the market with their products, leading to tremendous losses for electronics manufacturers, OEMs and the end business consumers themselves.
Companies in the current global economy may find the allure of ‘going grey’ strong but the long-term costs of maintaining such components can even exceed the actual cost of an original product.
Electronics designers and electronic manufacturers, tempted by cheaper grey market parts may want to reconsider their choices given that they would only be spoiling their beautifully designed and crafted products with inferior quality components.
is an award-winning electronics design company based in Sydney, Australia specialising in embedded systems and wireless technology design.