tHe pIcA repOrt: trAcKInG prOFItS
“tHIrd pArtIeS UndercUt A
of authorised corporate channels don’t even have to leave their homes to
cOmpAnY’S prIce FOr A prOdUct
do it.
And tHen HArVeSt GIGAntIc
This state of affairs in grey market enterprise is also about much more than
prOFItS In tHe prOceSS. It’S GOInG
lost profit and loss of trust from angry customers who may question why
your company’s goods can be found cheaper elsewhere. It can be downright
On eVerYWHere, FrOm tHe LOcAL
perilous, too.
AUtO pArtS deALer tO tHe
These illicit trades have no pedigree or traceability history because they are
SUperStOre cHAIn dOWn tHe bLOcK,
unauthorised sales outside of the manufacturer’s supply chain. As products
And It IncLUdeS ALL mAnner OF GOOdS,
move around the world, they are often stored in unsanitary and dangerous
FrOm brAnd-nAme bAtterIeS tO
environments. The products’ use-by dates may have expired or may even
be counterfeit. In several instances, cell phones and laptop computers
bAnd InStrUmentS.”
have exploded or burst into flames due to counterfeit batteries purchased
through grey markets. And for medical patients, bogus medicines can be,
and have been, deadly.
But manufacturers are by no means helpless in the battle to stop the theft
of their merchandise from their supply chains. The best practices for your
business to adopt include:
• Identifying weaknesses through a review of your channels from the
point of manufacture to the point of loss of visibility
• Conducting due diligence investigations on new and existing customers
• Analysing incoterms being used and requiring proof of export on all
ex works shipments
planted internally within an organisation. In other words, the perception is
• Training key staff members to identify warning signs and to report
that the problem is due more to a manufacturer’s carelessness in terms of
them when apparent
who they sell to, rather than “bad people doing bad things out there”. That
• Investigating diverters to identify their supply chains and to cut off the
can be a tough pill for company executives to swallow.
sources of goods
Also, because this practice may have been going on for so long, many
• Implementing a strong anti-diversion programme and getting buy-in
manufactures view the problem as a cost of doing business.
from the entire enterprise.
Another reason why corporates can be sluggish to react is the fact that
With the current economic conditions, the practice of product diversion
product diversion is often not illegal, unless fraud is present. For instance, a
has an eager multitude of distributors and retailers looking for ways to
retailer may sell off to a third party discounted products that it was unable
save money. Customers want brand names and quality products, and this
to move from its store, without a manufacturer’s knowledge. But doing that
feeds into the value that grey marketers can offer.
does not break any laws.
That’s why all businesses must be more diligent than ever to ferret out
One area where fraud can often be found, however, is where ‘ex works’
and stop the diversion of products from the supply chain. In the long
shipments are used. This is an agreement whereby the seller fulfills its
run, the money saved will more than pay for the implementation of an
contractual obligations when it delivers the goods to the buyer at its
anti-diversion strategy and the return on investment will be reflected in
premises. Ex works basically relieves a seller of all other responsibilities.
the bottom line.
This agreement, however, does not necessarily serve the seller’s best
interests, because it eliminates any control over the final destination of the
merchandise.
Many diverters take advantage of the loopholes in ex works agreements. Richard Bergner is senior director for North America at Professional
Goods meant for overseas emerging markets never leave the US, but Investigating & Consulting Agency. He can be contacted at:
instead, disappear into the ever-willing grey market. rbergner@pica.net
Illicit traders have polished their practices since the old days of building
networks through trade shows, word of mouth and ‘fax blast’ advertisements.
The modus operandi for many diverters now is 21st century state-of-the art, Richard Bergner is the senior director for North America
high-tech and computer-driven. at Professional Investigating & Consulting Agency (PICA).
He is a security and loss prevention professional with more
With the ease of a mouse click, dozens of business-to-business online
than 27 years’ experience in all aspects corporate security
trading platforms provide instantaneous access to global commerce. These
and brand protection.
are legitimate websites, which can be, and are, easily used by counterfeiters,
grey marketers or scam artists. Those seeking to sell merchandise outside
54 World Intellectual property review September/October 2009 www.worldipreview.com
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