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Grey market benefits no-one

I get reminded of the grey economy and grey market every morning by the radio. This happens in the form of an advertising campaign that aims to shock us about the consequences of working “tax free” or paying someone without paying taxes.

In fact the Finnish government lists the fighting against grey economy as one of its major programs for the years 2011-2015. And why wouldn't it be, when it seems the country loses 4-6 billion Euros to black trade on a yearly basis. While most of the public debate concentrates on illegal workforce or companies avoiding tax payments by selling goods or services without receipt, we will see governments focusing on adding layers of bureaucracy. This will add costs to companies eventually leading to a loss in competitiveness - a phenomena that currently touches the whole Euro zone at least. I wish to consider this from the business perspective and challenge both businesses and authorities to start a conversation from a win-win point of view.

RFID against grey economy

Brands lose income

These days I find myself discussing IPR issues with brand owners more and more often. The discussions go far beyond easily identifiable fake products. The trend is to optimize production costs, meaning that production is often far from the product designers, often leading to lessened control. Many suspect that the manufacturer may sell the seconds to its own channel or manufacture items with the same exact design to their own channel. Technically these products are not counterfeit; they are legitimate products of the brand owner, just sold to a parallel channel. And every time a product ends up in such a channel, the brand owner loses visibility and control over the channel, not to mention money. Goods sold in the parallel channel do not necessarily ever bring profit to the brand owners, hence do not help to further develop products and markets. And from a governmental point of view, they never create jobs in the country.

Addressing grey market with the help of RFID

RFID technology is used to recognize individual items especially in the apparel industry. A trend envisages electronics and cosmetics to follow soon too. The ability to identify an individual item instead of a box of items would be valuable in preventing the grey market.

Here's a short listing of potential applications:

  • Controlling the amount of items manufactured: The brand owner provides the manufacturer RFID labels to be attached to goods ordered, the amount of the labels match that of ordered items. After this point the brand owner can state that any item sold in its own or a parallel channel not carrying RFID is counterfeit.
  • Controlling counterfeit products: All manufactured items are equipped with a special identifier carrying two different identification methods, one visual - the other RFID. A reliable third party holds the information about the combination of RFID and the visual element in its database. When the third party database is queried with the visual identifier, it returns the RFID information. If the two identifiers match the product is legitimate, otherwise it can be assumed as fake.
  • Controlling parallel trade: From the brand owner perspective, it should any time be able to check its resellers' stock to see if any items are sold without RFID.
  • Controlling parallel trade from the Customs point of view: When brand owners ship items carrying RFID, they would be able to define a destination country for the delivery (which includes individual RFID identifiers). Should the same RFID tags end up at Customs in a country not listed as the final destination, the Customs would be alerted by the RFID. I am not saying that we will see RFID at Customs tomorrow, but as RFID gets more common on all items, it would be worth considering of using the technology to all of our advantage.

Blog about grey market http://www.thegrayblog.com/

1 comment on “Grey market benefits no-one”

  1. Gravatar of Alexander AminoffAlexander Aminoff
    Posted 25 September 2012 at 10:03:31

    Spot on Jessica! Excellent that you bring some more light on this particular benefit of RFID!

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