UNEDA: Cisco secondary market is not the Cisco gray market

United Network Equipment Dealer Association
Yours truly asked Mike Sheldon - the President of UNEDA (United Network Equipment Dealer Association) for a UNEDA response to the recent ChannelWeb slide show feature: Gray's Anatomy: Dissecting A $58 Billion Market In their official response below, UNEDA takes issue with lumping the Cisco secondary market into the Cisco gray market:

Mike Sheldon
UNEDA is pleased to see AGMA’s most recent KPMG white paper addressing counterfeit in the IT industry, but based on the data shown on ChannelWeb and the executive summary posted on AGMA’s site, UNEDA feels the white paper would be more comprehensive and meaningful if “gray market” and “counterfeit” were treated separately. To begin, it is important to distinguish the gray market from the secondary market—the two markets are not the same, no matter what AGMA (aka Cisco) would want everyone to think.

For anyone who takes exception to this, you only have to look as far as seeing the data from this white paper which offers no separation between the two markets. Furthermore, AGMA defines the gray market as:

"The Gray Market is the unauthorized sale of new, branded products diverted from authorized distribution channels or imported into a country for sale without the consent or knowledge of the manufacturer." "It is the unauthorized sale or improper diversion of new products obtained under deceptive circumstances."

Clearly, the deceptive resale of new products described above is not the same as the ethical resale of pre-owned equipment as is the raison d’etre of the secondary market. It is unclear whether the KMPG white paper distinguished the resale of used equipment from that of unused equipment. The majority of secondary market sales involve used and/or refurbished equipment, and top-tier independent resellers openly proclaim the status of products to avoid any confusion. Secondary market resellers do on occasion receive new-surplus inventory from channel partners and end-users, but, again, leading independent resellers market this equipment openly as new-surplus and clearly claim no support from the manufacturer. To lump ethical secondary market sales in with deceptive gray- and black- market activities clouds a much-needed analysis on the serious issues surrounding counterfeit abatement. Where is counterfeit coming from? UNEDA members have been vocal critics of IT hardware manufacturers letting suspicious resellers routinely post wares for sale on auction sites such as eBay and Alibaba. Of the 17 percent of vendors that have received counterfeit products from a gray market source, according to the KPMG white paper, it would be interesting to learn where they found the equipment. Search for Cisco equipment on any online auction and you will quickly find many “new” items at huge discounts available from “Cisco partners” in China, often with dubious packaging notes such as “bulk packaging.” All signs point to counterfeit, but these providers are as plentiful as ever, and, no doubt, the source of much of the 17 percent in question. Sixty-three percent of channel partners, identified as resellers, system integrators, retailers and distributors in the white paper, receive offers for gray market products... UNEDA members sell to many manufacturer channel partners, so we aren’t surprised to learn that 63-percent receive offers for “gray market” products. Many UNEDA members have long relationships with channel partners and become trusted resources for used equipment. An integrator’s primary business is to provide IT solutions for its customers. When a customer needs end-of-life equipment, inexpensive spares or affordable maintenance to support their IT infrastructure, integrators need alternate sources. The secondary market will never replace an OEM, but there are times that it is the right solution for the client. To protect the end customer, UNEDA does encourage channel partners to research secondary market providers and develop relationships with established companies. Like any market, and even the channel itself, the secondary market is populated by companies of varying quality, so taking the time to research and evaluate a source is always a smart course of action. Missing the bigger issue... What is largely missing in this white paper--and often is obscured by talk of margins and brand protection--is the customer. Slide No. 3 notes that vendors feel the gray market’s biggest impact is customer satisfaction and profit. The white paper offers many conclusions about channel partner policy, tightening procedures and enforcing guidelines, but it misses the larger issue: What do customers want and how can the market best satisfy that demand? Market forces demand a secondary market – companies want to buy at a lower cost and recoup value in surplus equipment. For manufacturers to be truly effective in protecting their brand, they must respond to this demand rather than ask customers to abstain from a practice that is beneficial to them. Manufacturers need to engage the secondary market with more than halfhearted marketing and begrudging relicensing policies designed more to deter than encourage participation. Continuing to focus on the elimination of the “gray” market through restrictive channel policies and propagating fear against outside resellers has been proven ineffective. Recently, Operation Cisco Raider highlighted this issue as Cisco channel partners were found to have purchased and resold counterfeit equipment to the Department of Defense. OEMs must understand that their partners are driven by the customers’ needs. Ignoring online counterfeit sources and the need for education on counterfeit detection, in favor of tighter channel policies, ultimately hurts the customer. Some statistics seem deflated... According to KPMG, the data was collected from a relatively small group of 198 respondents, representing OEMs, channel partners and brokers. Given this sample, data could easily be skewed, but we would have expected different results in terms of delivery and price. We would expect to see more next-day delivery (Slide No. 15), if respondents were buying from top-tier secondary market sources. Leading providers typically inventory as many unique products as Cisco’s own refurbished program, so next-day delivery is not uncommon. We would also expect discount ranges to regularly exceed 50 percent (Slide No. 14) for refurbished equipment, assuming that is included in this white paper.

Do YOU agree with UNEDA that the ethical resale of pre-owned equipment (Cisco secondary market) is not the same as the deceptive resale of new products (Cisco gray market)?

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