General

Who are the founding members of AGMA?
What are the goals of the organization?
Who should join AGMA?
Do member companies pay a fee to join AGMA?
How often do members of AGMA meet?
Who do I contact to join AGMA?
What programs and initiatives has AGMA accomplished to date?
Why is there a need for AGMA?

Gray Market

What is gray marketing or illegal brokering?
What is the size of the gray market for the technology industry?
How does gray marketing work?
How is this different from items that are auctioned from defunct businesses like dot-com companies or items on a website auction?
Isn't the gray market fueled by internal sales program and policies at the manufacturers?

Where does the gray market happen in the distribution cycle?

Counterfeit Product

What is counterfeiting?
How does counterfeit product get sold?
How do I know if I am at risk for purchasing counterfeit product?
Where do counterfeit products occur in the distribution cycle?

Impact of Gray Market and Counterfeit Product

Why is it important for customers to buy from an authorized channel?
How does gray marketing increase the risk of counterfeit product being sold to end customers?
What is the impact of the gray market on authorized distribution partners?
What is the impact of counterfeit products on authorized distribution partners?

What is the overall impact of the Gray Market and counterfeit products on Manufacturers?

Importance of AGMA

What is the importance of fighting gray market goods and counterfeit products?
What steps can be taken to address the issue of gray marketing?
What steps can be taken to address the issue of counterfeit goods?
Why is there a need for AGMA?

 

General

Q. Who are the founding members of AGMA?

The Alliance for Gray Market and Counterfeit Abatement (AGMA) is a non-profit organization incorporated in 2001 and is comprised of leading technology companies committed to addressing the global impact of the gray marketing and counterfeiting of technology products. Founding members of the group are 3Com, Cisco Systems, Hewlett-Packard and Nortel.

AGMA is a 501(c)6 not-for-profit corporation.

Q. What are the goals of the organization?

The goals of AGMA are to protect the authorized distribution channels and intellectual property of authorized goods in order to improve customer satisfaction and preserve brand integrity.

In order to achieve these goals, AGMA will engage in the following activities:

• Promote channel compliance and risk assurance
• Develop and encourage industry best practices for brand protection and related issues
• Investigate all legal avenues to deter criminal activities that feed gray market and counterfeit goods
• Educate the industry, customers, investors and other stakeholders
• Enlist domestic and foreign governments, state and local law enforcement

Q. Who should join AGMA?

Alliance participants are executives and senior managers involved in brand protection, quality assurance, customer satisfaction, operations, finance, security, channel management, sales, marketing, law and other fields.

Q. Do member companies pay a fee to join AGMA?

Yes, AGMA members fund the organization to insure that the planned initiatives are fully attainable.

Q. How often do members of AGMA meet?

The members of AGMA meet on a quarterly basis in North America. As appropriate, special guests and speakers of interest that specialize in the area of anti-gray market fraud and anti-counterfeit products, services and solutions are invited to present at member meetings. Contact Joanne Cooke at jcooke@agmaglobal.org if you would like to make a proposal or presentation to the alliance and its members.

Q: Who do I contact to join AGMA?

For more information on AGMA and necessary qualification requirements to join the alliance, please contact Joanne Cooke at jcooke@agmaglobal.org.

Q: What programs and initiatives has AGMA accomplished to date?

The AGMA program consists of educational initiatives, a hotline and email link for reporting gray market and counterfeit activities, benchmark studies, formulation of non-binding best practices and, as appropriate, public policy advocacy in areas such as law enforcement and customs.

Q: Why is there a need for AGMA?

Reducing counterfeiting and improper gray marketing activity is important for maintaining the highest possible standards of product quality and reliability and ensuring that customers' service and support requirements are met.

The financial impact and customer satisfaction issues resulting from the gray and counterfeit market could be significant.

The inherent value of IT brands is strengthened when products are delivered through approved distribution partners, ensuring the highest quality product and the best possible service and support for our customers.

In addition, by addressing unauthorized gray market activity, a level playing field is created for authorized distribution partners.

Once products become diverted, they are often misrepresented and unsuspecting customers have no assurance that the products they're buying are new, genuine and have not been tampered with.



Gray Market FAQ:

Q: What is gray marketing or illegal brokering?

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. This would mean new, branded products being diverted from authorized distribution channels or imported into another country without permission of the original manufacturer.



Q. What is the size of the gray market for the technology industry?

Industry research released in February 2003 from KPMG and AGMA shows that gray market sales of IT products account for over $40 billion in revenue each year, collectively costing IT manufacturers up to $5 billion annually in lost profits.

Q. How does gray marketing work?

Products on the gray market are shopped globally and usually move through multiple tiers before reaching an end user, often supported by worldwide broker networks. Some elements include abuse of discount programs, fraudulent or falsified contracts or end user information, other gray market practices include over-ordering on valid accounts with discounts, and selling those products in a manner not permitted by contracts or program terms and conditions. Inappropriate disposal of end of life/excess or obsolete inventories may also feed the gray market.

Q. How is this different from items that are auctioned from defunct businesses
like dot-com companies or items on a website auction?


AGMA companies are focused on articulating what it means to buy "new" products from authorized distribution channels. When you buy outside the authorized channel, there is enormous downside potential. Products are often represented as "new" when that is clearly not the case. AGMA is not concerned with auctions or other sales of used product that clearly represent the products as used, and not new, or that do not make other misrepresentations about the products.

Q. Isn't the gray market fueled by internal sales program and policies at the
manufacturers?

Gray market goods are shopped globally for best prices. They can move from multiple tiers before they actually reach the end-customers. Often times a shadow inventory will exist inside and outside of authorized distribution channels making it difficult to forecast true demand. Resellers may abuse discount programs that are legitimately crafted by manufacturers to compete in the global marketplace. These sales programs can be exploited and targeted for weaknesses that exist inherently in some of these programs.

Individual manufacturers need to look internally to understand how products are moving through legitimate channels and if possible to verify legitimate customers. Manufacturers can look at the terms and condition of contracts with their channel partners, put discipline around internal business practices to close loopholes that may be exploited, and pursue litigation against companies that willfully abuse practices, breach contracts and provide fraudulent information.

Q. Where does the gray market happen in the distribution cycle?

Gray marketing can occur anywhere in the distribution cycle. It can occur when a broker poses as a reseller, when a reseller who acts as both a broker and a value-added reseller acts outside terms and conditions of distribution contracts or special discount programs. It can occur in every touch point in the distribution model.



Counterfeit Product FAQ:

Q. What is counterfeiting?

Counterfeit product is the making or selling of unauthorized copies of merchandise. The counterfeit goods are marked with a "counterfeit mark" made to appear like the genuine trademark of the good. A counterfeit mark is a false mark that is used in connection with the trafficking in goods or services that is identical with or indistinguishable from a genuine mark. In the case of high technology, counterfeit products can be comprised of individual components, whole parts, finished product, packaging, documentation, software and even the cartons and boxes that finished goods are shipped in.

Q. How does counterfeit product get sold?

Counterfeit product initially will be sold through tightly held broker networks established by the counterfeiter. Beyond those brokers, counterfeit product many times will then enter the gray market infrastructure thus causing confusion and a higher risk that the channel and end users may be subject to purchasing and receiving non-genuine goods.

Q. How do I know if I am at risk for purchasing counterfeit product?

By purchasing through authorized channels or other means of distribution established by the original equipment manufacturer or directly from the manufacturer you greatly increase your assurance that you are receiving genuine, new and factory warranted product. Most manufacturers have listing of authorized dealers available on their websites.

Q. Where do counterfeit products occur in the distribution cycle?

The entrance of counterfeit goods can occur anywhere in the distribution cycle. For example, it can occur when a broker selling counterfeit goods claims they are legitimate goods and sells them to another broker or even directly to a distributor or reseller. It can occur in every touch point in the distribution model. Thus, eventually counterfeit products can become co-mingled with genuine products and sold through the gray market thus making distinguishing between genuine and counterfeit extremely difficult.

This illustrates the importance of manufacturers controlling the flow of products through strict contract compliance. As long as resellers and distributors follow the guidelines agreed to with manufacturers, no counterfeit product would enter the distribution system.



Impact of Gray Market and Counterfeit Product FAQ:

Q: Why is it important for customers to buy from an authorized channel?

It is important for customers to purchase from legitimate distribution channels as authorized by the manufacturer in order to maintain the highest possible standards of product quality and reliability and to ensure that customers' service and support requirements are met.

Also, anytime products are purchased outside the authorized distribution channel, there is risk that the customer is buying counterfeit or substandard products, including products that may have been altered in some way, or used products represented as new.

Further, gray market products can be mishandled or damaged during multiple shipments all around the world, which would cause additional customer satisfaction issues. Manufacturers cannot protect against mishandling when the product leaves the authorized channel.

In certain instances, this may also void the manufacturer’s warranty, thus disappointing consumers and hurting the manufacturer's reputation.

Q. How does gray marketing increase the risk of counterfeit product being sold to end customers?

When product leaves the authorized channel, manufacturers lose the ability to ensure through its contracts with channel partners that the highest possible standards of product quality and reliability are maintained. Thus, products moving through the gray market are at risk for modification use in counterfeit products. Also, there is a risk that the product may be tampered with. For example, component parts are removed and sold separately, then replaced with counterfeit parts that could fail.

Q. What is the impact of the gray market on authorized distribution partners?

The illegal brokering of products represents a competitive drain on both the manufacturer and authorized distribution channel. This practice threatens to undermine the integrity of the legitimate sales channels, leads to customer satisfaction issues, and violates the contractual agreements between IT companies and their distribution partners.

Q. What is the impact of counterfeit products on authorized distribution partners?

When counterfeit products enter the market place, they compete with legitimate product and could result in a competitive drain on authorized distribution partners. Furthermore, those who choose to purchase from unauthorized sources could unknowingly resell counterfeit products, which would
result in negative customer experiences and question of the manufacturer's integrity by their resellers and end customers.

By sharing information about counterfeiting issues, AGMA's members can increase customer confidence in branded product and protect valued channel partners.

Q: What is the overall impact of the Gray Market and counterfeit products on Manufacturers?

First, there are the multiple customer satisfaction issues resulting from counterfeit products and gray marketing. Anytime products are purchased outside the authorized distribution channel, there is risk that the customer is buying counterfeit or substandard products, including products that may have been altered in some way, or used products represented as new. Further, gray market products can be mishandled or damaged during multiple shipments all around the world, which would cause additional customer satisfaction issues. Manufacturers cannot protect against mishandling when the product leaves the authorized channel.

Second, gray market and counterfeit products entering the market place result in shadow inventory that is not visible to manufacturers, thus making it difficult to forecast accurately.

Third, the existence of counterfeit products can cause a decrease in the demand for your genuine product as customers and the channel are unsure of ways to guarantee they are purchasing quality authentic goods.

Fourth, when products move through multiple tiers there can be a drain on overall revenues for the manufacturers and their channel partners.

Fifth, in certain instances, this may also void the manufacturer’s warranty, thus disappointing consumers and hurting the manufacturer's reputation.



Importance of AGMA and the Mitigation of Gray Market and Counterfeit Product FAQ:

Q. What is the importance of fighting gray market goods and counterfeit products?

Overall losses to manufacturers, channel partners and consumers are immense. It is estimated that over $40 billion in legitimate products move through the gray market each year, resulting in $5 billion in lost profits annually to manufacturers. However, more important is the impact to channel partners and consumers. When counterfeit and gray market goods enter the market place, channel partners not only compete with heavily discounted products, they are also dealing with the associated customer satisfaction issues that arise.

These are large issues and lost productivity as much as revenue loss and customer satisfaction require AGMA members to address these issues and support our channel partners and end customers.

Q: What steps can be taken to address the issue of gray marketing?

Individually, companies can take several actions:

• Implement controls to prevent products from leaking to the gray market
• Educate sales personnel to look for red flags when making initial sales
• Educate personnel on what to look for in substandard products
• Educate distribution channels about the impact of gray market practices

Working together, we can analyze the global gray market network, educate the industry about the impact of gray marketing on the industry's financials, develop best practices and improve customer satisfaction.

Q: What steps can be taken to address the issue of counterfeit goods?

Individually companies can take several actions:

• Implement controls to prevent excess components from entering the gray market
• Implement rigorous disposition and destruction of excess components and inventory
• Ensure adequate inventory controls of all materials, components and proprietary information
• Educate personnel on what to look for in substandard products and packaging
• Educate your channel about the impact of counterfeit goods

Q: Why is there a need for AGMA?

Reducing the counterfeiting of product and improper gray marketing activity is important for maintaining the highest possible standards of product quality and reliability and ensuring that customers' service and support requirements are met.

By working in cooperation, member companies create, recommend and can choose to implement practical and effective deterrents to both the gray marketing and counterfeiting of high technology products in order to protect intellectual property, trademarks and copyrights and preserve brand equity.

The financial impact and customer satisfaction issues are significant. The inherent value of the brand is strengthened when products are delivered through approved distribution partners, ensuring the highest quality product and the best possible service and support for our customers. Also, by addressing unauthorized gray market activity, a level playing field is created for authorized distribution partners.

Once products become diverted, they are often misrepresented and unsuspecting customers have no assurance that the products they're buying are new, genuine and have not been tampered with. Contact Joanne Cooke at jcooke@agmaglobal.org for more information.

Contact

Debbie Corr, Operations Manager
1-252-500-0123
debbie@agmaglobal.org