As a channel seller this topic comes up on a regular basis and the right or wrong information can be the difference in damaging your IT department and company. This is not however, another tirade against the evils of the “gray market” in B2B technology. I’ve read plenty of those articles and found a lot lacking, so I decided to cover it myself.
As Webster defines gray market: a market employing irregular but not illegal methods; especially: a market that legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer.
I think this definition makes a critical first point that is often glossed over, gray market is not illegal. You are not breaking laws as a consumer. If that was your main concern, you can stop here, you’re covered.
Although it’s not illegal, it may not be a good choice for your company or department depending on your given circumstances. Gray market technology is purchased in an overseas market and imported into the US to be resold by non-authorized distributors. These holes in the market exist because products are priced differently in different markets.
When you purchase this resold gray market technology, it’s usually the same thing. There can be differences on more complex technology such as chip-set performance and power as the quality assurance and requirements are sometimes lower overseas. Power consumption and ratings may also be different however, many large gray market providers will change out the power to be US compliant.
The problems I’ve seen mainly arise from warranty claims, service support, and returns. The returns can be mitigated by buying from a company that provides their own return policy, such as the Amazon 30-day return window. If you’re past the return window, that’s when you can get into trouble. A manufacturer will not provide tech support, warranty claim, or service contracts on hardware purchased through the gray market. If you buy gray market Cisco for example then attempt to apply US SMARTnet to it, Cisco will deny your order due to it being gray market hardware.
I often use a basic consumer commodities example when describing the gray market; monitors and hard drives. A monitor is a basic commodity with low failure rate. They rarely need service calls or warranty support, or additional protection. If you purchase a basic monitor on the gray market at 40% less than manufacturer price, you have little risk of a problem and a good chance that you’ll save money. Same goes for hard drives, unless you’re using them on critical systems. If you’re using them on critical systems where you may need manufacturer support or drive data recovery, you won’t receive support in an emergency, and you could lose your critical data. That could pose a major problem.
In my experience, it’s really circumstances that dictate which route to go. If you will get no warranty, no support, and no return capabilities after the sellers return window, will it still be worth it? That’s what you need to think about.
I’ve seen arguments for and against buying gray market regarding the reduced profit margins to manufacturers which reduces their ability to provide great support and fund advanced R&D for future technology, as well as many other market factors. There may be some validity to that argument but, I’ll let you decide on that one. If you want some more in-depth information about the market variables, here’s a good Harvard article about them. It’s older but, still accurate.