Be aware of the pitfalls before you rush into buying cheap
hardware.
With budgets under remorseless pressure, containing IT spending is
a key item on all IT directors' agendas. But is buying imported kit
from the so-called grey market, estimated to be worth £24bn
worldwide, a wise option?
At first glance, it could look tempting. As Computer Weekly
reported earlier this month, prices for "grey" Cisco networking kit
could be up to 70% less than suppliers' list prices. And since grey
kit is not illegal, why pay more?
Industry experts have warned that buying hardware from the grey
market poses a variety of risks, ranging from variable quality to
counterfeit copies.
"The decision to buy grey goods can come back and bite you," said
Stephen Way, divisional IT manager at chemical company Johnson
Matthey and vice-chairman of the IBM Computer Users' Association.
"The problem is you never know exactly what you will get."
Cynics might argue that suppliers are keen to discourage users from
taking advantage of the grey market because it diminishes their
revenues. However, analysts also warn users to be careful when
buying from the grey market.
"It is the unknown," said analyst Andy Rolfe of Gartner. "You are
buying an unknown piece of equipment that may be what it appears
but may not - it may not be all there, it may be damaged. It could
be brand-new or a piece of junk. It is very difficult to tell old
from new kit visibly."
Packing boxes may look new but contain old kit, and some components
could be counterfeit. The most risky source of grey kit, according
to Rolfe, is the second-hand market. "Second-hand grey goods are
the most dangerous because they will be of unknown age and
configuration," he said.
Telecoms kit, for example, could have the wrong cards for the
chassis, old versions of software that do not work with the
hardware, or it could have been assembled by untrained
people.
Nevertheless, particularly in the telecoms sector, which has seen a
number of suppliers run into trouble recently, there is a lot of
surplus kit floating around. Some of this kit is even available on
online auction site eBay.
Any failure in a relatively minor piece of grey kit could have a
knock-on effect on other IT systems that are critical to an
organisation.
"The major issue is not the cost of grey imports," said Andy
Vickers, UK channel director at Hewlett-Packard. "You could have a
£200 grey or counterfeit disc drive that fails, but if it takes
down a mission-critical system for hours, you could be losing £2m
for the sake of £200."
User organisations should also bear in mind legal issues when
deciding whether to buy from the grey market. If the supplier has
not paid VAT on hardware, or PCs have tax-unpaid chips in them, you
could be liable for the VAT, and possibly subject to seizure of
goods and prosecution.
But perhaps the biggest headache that arises from buying grey goods
is the lack of support and warranties.
"Support is a big issue," said IBM Computer Users Association
council member Geoff Petherick. "Kit is so complex that if you have
no support contract, you have got a big problem."
This can affect users who buy kit from authorised resellers that
was intended for another customer. "The supplier could say it will
not support it because it was obtained fraudulently against the
spirit of the contract [between the reseller and supplier]," said
Rolfe.
Buying abroad and importing goods yourself can also be risky.
"Global purchasing can easily get you in hot water," said Way.
Suppliers can be loathe to honour warranties and offer support when
kit has been purchased in a low-cost region and brought into a
higher-cost region.
The UK Computer Measurement Group, an independent user group for IT
professionals, warned that manufacturers make parts that are
slightly different in different regions to cope with local power,
temperature etc. "In this way, they can deter people from shopping
abroad to save money," it said.
Companies should also check that the IT kit's licensing and
warranties are in order. "Warranty is very important for software
because it is the warranty that says software will do what it says
it will do," said Petherick. "If there is no warranty, you have no
claim against the supplier."
If you do buy second-hand, experts advise using a long-established,
specialist broker and getting all the guarantees and licensing
issues taken care of.
Cheaper prices
The main attraction of buying grey market IT goods is the cheaper
price. But here again appearances might be deceptive.
Initial cost savings can be eroded because users will have to buy
their own maintenance and support. Nevertheless, this will still
mean they save at least 20% by going through the grey market.
"Grey imports may seem to be a bargain in the short term, but in
the total cost of ownership stakes the grey import will always let
you down," said the UK Computer Measurement Group.
So can going grey ever be justified?
If you are in a short-term position, grey imports could be a good
move. However, a less-risky option would be to put pressure on
suppliers, particularly regarding regional price differences.
Despite the tempting savings, the variable quality of IT goods on
the grey market can be more trouble than it is worth. Licences,
warranties and VAT all need to be in order, and users should also
bear in mind the hidden costs of buying their own support and
maintenance. Going grey should not be rushed into.
Why is there a grey market?
Apart from speculation that suppliers rid themselves of excess
stock by feeding the grey market, grey kit has several recognised
routes on to the market:
Differential geographical pricing
Suppliers put different prices on the same kit, depending on what
part of the world they are selling it in. But if you buy kit in a
low-cost part of the world at local prices and import it to use at
a site in a high-cost part of the world, warranties and support may
not transfer.
Surplus stock
Authorised resellers can buy kit under "price support" (ie generous
discounts) to sell to a specific user. If the reseller orders more
kit at the high discount than the user wants, it has surplus to
sell to other users. The supplier may regard that surplus as grey
because it was not part of the original contract with the specified
user customer.
Second-hand kit
Financially troubled resellers or users make "distress sales" of
stock, which suppliers may regard as grey.