In an effort to crack down on the illicit grey market that can undermine vendors, the channel, and consumers alike, the Information Technology Association of America (ITAA) and six major IT vendors Wednesday spearheaded the formation of the Anti-Gray Market Alliance (AGMA).

The grey market involves the unauthorized transfer or sale of brand name computer hardware and/or software through illegal channels to the public.

With the ITAA scoring the management role, AGMA was collectively founded by 3Com Corp., Compaq Computer, Apple Inc., Nortel Networks, Hewlett-Packard, and Xerox. The Alliance aims to benchmark the industry and develop guidelines to assist each company’s individual efforts in mitigating the unauthorized transfer and selling of computer hardware and software. KMPG estimates this market costs the industry about US$20 billion annually. The AGMA will also seek to create a legislative and public policy agenda stateside and in Canada.

“The grey market erodes the customer relationship and satisfaction with

IT products,” explained Harris Miller, president of the ITAA. “Our mission is to analyze the global market networking strategies . . . and improve our relationships with our partners and clients.

“We will initialize an outreach education program aimed at manufacturers, distributors, resellers, and customers about the damage inflicted by grey market activities.”

Miller added that a toll-free hotline and an anonymous e-mail address would be established in the near future to encourage the public’s assistance in identifying those who partake in the illegal activity.

“We hope to encourage legislative reform and to establish an ongoing dialogue with law enforcement and customs agencies,” Miller said. “Frankly, our focus initially is on people trying to make a buck (illegally). An open dialogue won’t work with people out to break the law.”

What became clear during the press conference was AGMA’s concern that the grey market is flourishing at all levels of the supply chain due to a lack of discouragement from vendors.

“Studies that we’ve seen that were conducted by KPMG suggest that this type of activity can occur anywhere within the cycle,” explained Tom Gerstenberger, vice-president of business development operations for 3Com Corp. “The (grey market) broker could be posing as a VAR or as a customer. It’s difficult to pinpoint exactly where it occurs, but it’s safe to say it does happen at every point within the distribution channel.”

Bo McBee, vice-president of corporate and customer satisfaction for Compaq Computer Inc., agreed with Gerstenberger. He added that some resellers might be partaking in grey market activities out of desperation rather than evil intent.

“Part of the problem is if people think you’re doing it, then it becomes common practice; it spreads like cholera,” he said. “This is why we’re developing best practices for everyone to adopt and adhere to . . . it’ll then be up to that individual manufacturer and through their relationship with their distribution channel to determine what action should be taken (against a discovered grey marketer) if necessary.”

Consumers who partake in the cheap deals the grey market can provide forego the security of a legal sale. Damaged goods rebuilt with counterfeit parts and delivered without a warranty and support is only part of the potential pitfalls customers are chancing, executives said.

“There is no price benefit for the customer, the profit extracted from the sale is usually at the expense of the channel,” Gerstenberger said.

“Customers will benefit (from AGMA’s existence) by having confidence in the products they’re purchasing and they will experience a reduced cost of ownership over the life of that product.

“Manufactures will benefit from AGMA as the integrity of their brands will be protected and it will reinforce their relationships with their resellers. It will also build great customer satisfaction, and it’ll be a great benefit to resellers by offering them a level playing field.”

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