The universal law of supply and demand and the grey market

The price pressures we see in today’s market are not driven by the manufacturing segment. Lower costs are being driven by a grey market that has failed to add value in any other way (see “Identity crisis in the grey market”).

It could be predicted that an unregulated market with demands for lower prices would result in counterfeit supply. As the counterfeit industry grows, so do the risks, and as the risks grow, so do the chances of being affected by counterfeit product. It’s this swing in the balance that might finally prevent companies from sustaining profitability and encounter losses. However, as the balance remains in the favor of profit, we have a problem to solve.

Having government and commercial interests join in a concerted effort to insure that rats don’t get through the back door is a pipedream. We are talking about thousands of companies. And although counterfeiting is a global epidemic, on a localized level it may be a once a week or once a month occurrence. Are we are asking thousands of companies to join in a concerted effort for something that is merely an interference to them? Who would organize and manage the joining of these thousands of companies?  Compounded by the additional problem that many of these companies are competitors, it would be an unparalleled undertaking.

A concerted effort would need to be more than ensuring quality suppliers, traceability, certifications of origin and test data. Much of these safeguards and policies are in place today and appear to be proving no match for counterfeit supply. The electronic component counterfeit problem is commonly agreed to be in excess of $1 billion. The current general counterfeit problem in the US is said to be in excess of $250 billion every year. Government gatekeepers are already experienced in dealing with counterfeit goods. They are also particularly experienced in counterfeit products from China. Government initiatives targeting counterfeit and piracy are already failing. The war on counterfeit goods, and more specifically, the war on electronic component counterfeiting is not likely going to find solutions from government gatekeepers.

It’s a growing problem, but more practical solutions need to be developed. China may be responsible for 90% of counterfeit supply, but each one of us sat a desk is responsible for the demand. As the universal law states, there is no supply without demand. We cannot blame the supply or expect the gatekeepers to keep us safe. Accept product discontinuation as a reason to redesign. If it doesn’t exist, don’t allow counterfeiters the opportunity to create it. Seek alternative supply chain solutions.

What does remain true is as long as there are profits to be made, companies and markets up and down the electronics supply chain will take a risk so long as there isn’t a better alternative.

What do you think about the grey market and the laws of supply and demand? Share your thoughts below.

About the author
Richard Tapping spent the majority of his career at the Abacus Group Plc in business management. Moving to the United States in 2004, he experienced the grey market for a short while before creating Semicentral.com, a Web-based system that aims to facilitate business-to-business trade of inventory. For more on Richard, click here.