Mr. R. Zutshi Deputy Managing Director, Samsung India

Mr. R. Zutshi  Deputy Managing Director, Samsung India

Gray market has become a major concern for all the vendors across the globe. Even Samsung India, which is an established leader in the display and ODD products, is not immune to it. In an effort to discourage the partners, Samsung India has recently issued an advisory note to the channel fraternity. But, on the other hand, this notice has left many channel partners disgruntled about it. Rushed on a fact-finding mission, VARIndia spoke to Mr. R. Zutshi, Deputy Managing Director, Samsung India. Excerpts…

What is the real concern of Samsung about gray marketing, which means that fly-by-night operators are making quick pennies at the cost of the genuine manufacturers and importers without paying government duties and levies? 
The gray-market products destabilize/disturb/harm the legitimate market of a manufacturer.

The gray-market products could enter an unauthorized territory through smuggling and/or through import route.

When smuggled, they evade all the government duties and taxes and cause loss to the government, while committing an illegal act. When they are importing, they may underinvoice the product to evade payment of full duties, thereby causing loss to the government. 

Both the activities are harmful for the customers and the manufacturers.

What is the difference between gray marketing and parallel importing? 

Both the phrases are used interchangeably in common parlance and are meant to refer to those products which are not part of the manufacturer’s authorized channel of trade, distribution and sales. But the gray market products could also include smuggled products. Manufacturers earmark their product distribution and sales for each territory through various authorized channels of trade. For each territory, products are manufactured or customized and packaged to comply with the local rules and regulations and, thus, one product meant for territory X may be considered violating a particular rule/regulation in the terriroty Y. 

What is the reason behind gray marketing because it is against the profitability because the product is not covered under warranty and similarly does not provide any price protection? 

First, for the dealers of gray-market products, it is a profitable business because they are not affected by the lack of any warranty and after-sales service. For them, it is profit from sales – the ultimate loser is the customer who is sold these gray-market products, which lack complete support from the manufacturer. All the IT products require prompt after-sales service and support from the manufacturer. For customers, any malfunction or technical issue in the gray-market product may amount to a total loss of the entire value of the product. They could also cause loss of the ancillary/compatible products as well. 

Secondly, all authorized product sales contribute a small portion to the marketing and promotional expenses as well as after-sales service expenses of the manufacturer. The gray-market dealers do not contribute to the said expenses and overheads of the manufacturer, while they are able to make their sales at the complete cost to the manufacturer and its reputation and goodwill in the market. While the manufacturer has to maintain a huge infrastructure for after sales-service, the gray-market dealers have to maintain none. 

To what extent can it affect the business of Samsung India? 

It is already affecting Samsung’s business and has a huge potential to cause further losses. The sales, revenue, reputation, goodwill, loyal customers – everything is at stake. It has also been noticed that the counterfeiters (making duplicate illegal products) are taking advantage of the situation and are mixing the gray-market products with the counterfeits, leaving the customer at total loss and deception. Samsung is sensitive towards protecting its customers from such dubious activities. 

It is also highly likely that the gray-market importers do not take the same precaution or follow the authorized procedure of transportation method and mode plus storage of the manufacturer’s goods. This is done to save operating costs, with total disregard to maintaining the quality and condition of the goods. 

Whether the Indian law for trade and commerce speaks equivocally with Samsung as far as its trade is concerned? If so, then how come the dealers pay duties and get the products imported in the Indian market? 

It is not necessary for the dealers to indulge in parallel importation per se. The situation could be understandable when there is a lack of supply in a market from the manufacturer and the demand is high. But when the manufacturer is able to cater to all kinds of demands and supply of the market with all after-sales support to the customer, the dealers should not indulge in such a trade, where they cause huge losses to the customers at the manufacturer’s expense and loss of reputation.

The gray-market dealers indulge in these activities since they are least sensitive to the losses which the customers incur. The sole objective of the gray-market importers and dealers is to make profits at the expense of the manufacturer and the customer. The said profits could also be made with selling authorized products of the manufacturer, which gives a sense of confidence to the customer. Such gray-market activities are also carried out without proper documentation and invoicing, which leads to evasion of duties and taxes, causing huge losses to the government. 

Which are the products normally getting into the gray market or parallel importing? 

All the IT products as far as Samsung India is concerned. 

Which are the geographies that are involved rampantly in such activities? 

Mainly dealers from Singapore, Dubai, Thailand, Taiwan, etc. indulge in flooding other unauthorized markets with gray-market products. 

If Samsung India initiates any legal actions, what will be the contour of the action? 

We do not wish to comment on this aspect at this stage as we are trying to educate the channel community and work hand-in-hand with them to root out gray-market products for the ultimate benefit of the consumers and the government. 

How are you making the channel communities aware of the effects? 

We are sending educational-cum-advisory letters with an objective to sensitise the market about the perils of parallel importation/gray-market importation, to the benefit of the consumer and the government.