“Grey import”. Risks for final consumers

03/ 10/ 2016

Sergej Maximov, General Director at BSH Pobutova Technika I’ve been working in the consumer electronics industry for over 20 years. Thus, I cantalk about this sphere due to my professional knowledge and experience. Ukraine has a very favorable geographical position, having direct borders with many EU countries. During this years both smuggled goods imported without paying of any taxes and fees, also called as the black import, and goods imported to Ukraine at a lower cost as a result of what Ukraine received only a small part of required taxes and fees, also known as the grey import were present on the Ukrainian market. About 10 years ago consumer electronics industry moved to the DDP business model. In particular, all the major international players opened the full Ukrainian trade companies instead of representative offices in Ukraine and started themselves to import equipment under their brands. It was a point of no return, after which a fundamentally different situation emerged on our market. Now we, the representatives of big international companies, sometimes, hear accusations from high governmental officials saying that we are still practicing the offshore business schemes, corrupt our clients by marketing credit notes that are set somewhere in the headquarters of other countries, in other currencies, etc. However, in the framework of Ukrainian companies with foreign investments it is impossible in principle. I would like to convey to the high state officials two main ideas. Firstly, the business practice of 90s become impossible in our headquarters and elsewhere, such as the European and international understanding of these issues have changed as well as the anticorruption and antimonopoly legislation. Secondly, Ukraine harmonised its national legislation in this regard, and we, as the national operators, for the last 10 years from the beginning of our operational activities, follow these established rules. So, if we talk about the consumer electronics industry, more than 80% of our market has passed to the DDP model. Why I decided to highlight this particular moment? Unfortunately, sometimes we see that not only ordinary citizens, but also high officials believe that the abovementioned reasons lead to the price difference between the grey import and goods offered by offices of big international companies. Accordingly, they believe that the grey import price is fair for the end customer. But it is not. Subsequent articles in this series will explain in details on how and why the “value chain” is destructed. With the move to the DDP model, the term grey import mostly lost its relevance. The phenomenon has disappeared, however the word has left. Now only small amount of operators, mostly not producers but Ukrainian dealers authorised by some producers to distribute their products, practice the lowering of invoice prices during customs clearance. Today, all we have the habit to call the grey import is a pure smuggling or black import. Our company registered a trademark of Bosch at the customs office three years ago. According to the procedure, this means that every time someone other than our company is importing to Ukraine appliances under the brand Bosch, we have to get the message from the customs office. For three years, the following message we received only once - when one orphanage imported the already used washing machine. However, the GfK shows us that a significant amount of goods under our brand were imported not by our company. According to their survey the amount of smuggled products on the Ukrainian market is the following: 9-10% for TVs, 10-15%, for refrigerators and washing machines, 16-18% for vacuum cleaners, 15-20% for smartphones and laptops; 20% for tablets and 20-25% for camera. What risks consumers face in case of buying smuggled goods? Of course, first of all, it’s a risk to stay alone in case of problems with the device that was designed and certified for other markets. Some important parameters that are not always visible to the buyer at first glance, may adversely affect the device. For example, the power supply indicators and the device’s plug may differ from those used in Ukraine. And their change can lead to the breakdown of the device or short circuit. Thus, such device could be dangerous for the consumer. Improper setting of water hardness in the washing machine greatly reduces the life of the equipment. In smuggled electronics the software may not work properly. Moreover, the choice of language settings is often limited to the languages of the countries for which this particular device was designed. A consumer may face no warranty repair. Furthermore, even the paid repair may not be possible because the spare parts for this device are not supplied to Ukraine and/or the documentation required for its repair is missed. It is necessary to note that smuggled products often may have significant / hidden flaws caused, for example, by inappropriate storage conditions or such goods even were not intended for sale for technical reasons. In some cases, possible match of lineup, when the smuggler delivers a model that was certified by the official representative of the manufacturer. In this case, it is more appropriate to say that the consumer in a global sense encourages a corruption in the country. Each sold smuggled device means unpaid pensions and wages for social workers, unfinished roads, unpaid loans and broken chain of added value. The Inform Agency TSN in its article from 06.07.2016 indicated that the “grey import” level in 2015 was 15%, in monetary terms, the figure was 1.2 billion USD. How to verify whether the bought device was imported legally and whether it has the necessary certification? For example, BSH Pobutova Technika provides such an opportunity. To get the details about the product you have to enter the unique product’s LSS code, which is affixed to the original packaging, at a special site www.code-check.com.ua I believe that the business community should take some measures to raise the awareness of our customers. Perhaps we should think of some media budgets for additional PR-activities. At the same time, the state ought to strengthen the customs control, improve Ukrainian legislation on protection of domestic market from illegal import and to introduce significant fines for violations of the law.

Sergej Maximov, General Director at BSH Pobutova Technika

I’ve been working in the consumer electronics industry for over 20 years. Thus, I cantalk about this sphere due to my professional knowledge and experience. Ukraine has a very favorable geographical position, having direct borders with many EU countries. During this years both smuggled goods imported without paying of any taxes and fees, also called as the “black import”, and goods imported to Ukraine at a lower cost as a result of what Ukraine received only a small part of required taxes and fees, also known as the “grey import” were present on the Ukrainian market.

About 10 years ago consumer electronics industry moved to the DDP business model. In particular, all the major international players opened the full Ukrainian trade companies instead of representative offices in Ukraine and started themselves to import equipment under their brands.

It was a point of no return, after which a fundamentally different situation emerged on our market. Now we, the representatives of big international companies, sometimes, hear accusations from high governmental officials saying that we are still practicing the offshore business schemes, corrupt our clients’ by marketing credit notes that are set somewhere in the headquarters of other countries, in other currencies, etc. However, in the framework of Ukrainian companies with foreign investments it is impossible in principle. I would like to convey to the high state officials two main ideas. Firstly, the business practice of 90’s become impossible in our headquarters and elsewhere, such as the European and international understanding of these issues have changed as well as the anticorruption and antimonopoly legislation. Secondly, Ukraine harmonised its national legislation in this regard, and we, as the national operators, for the last 10 years from the beginning of our operational activities, follow these established rules. So, if we talk about the consumer electronics industry, more than 80% of our market has passed to the DDP model. Why I decided to highlight this particular moment? Unfortunately, sometimes we see that not only ordinary citizens, but also high officials believe that the abovementioned reasons lead to the price difference between the “grey import” and goods offered by offices of big international companies. Accordingly, they believe that the “grey import” price is “fair” for the end customer. But it is not. Subsequent articles in this series will explain in details on how and why the “value chain” is destructed. With the move to the DDP model, the term “grey import” mostly lost its relevance. The phenomenon has disappeared, however the word has left. Now only small amount of operators, mostly not producers but Ukrainian dealers authorised by some producers to distribute their products, practice the lowering of invoice prices during customs clearance.

Today, all we have the habit to call the “grey import” is a pure smuggling or “black import”. Our company registered a trademark of Bosch at the customs office three years ago. According to the procedure, this means that every time someone other than our company is importing to Ukraine appliances under the brand Bosch, we have to get the message from the customs office. For three years, the following message we received only once – when one orphanage imported the already used washing machine. However, the GfK shows us that a significant amount of goods under our brand were imported not by our company. According to their survey the amount of smuggled products on the Ukrainian market is the following: 9-10% for TVs, 10-15%, for refrigerators and washing machines, 16-18% for vacuum cleaners, 15-20% for smartphones and laptops; 20% for tablets and 20-25% for camera.

What risks consumers face in case of buying smuggled goods? Of course, first of all, it’s a risk to stay alone in case of problems with the device that was designed and certified for other markets. Some important parameters that are not always visible to the buyer at first glance, may adversely affect the device. For example, the power supply indicators and the device’s plug may differ from those used in Ukraine. And their change can lead to the breakdown of the device or short circuit. Thus, such device could be dangerous for the consumer. Improper setting of water hardness in the washing machine greatly reduces the life of the equipment. In smuggled electronics the software may not work properly. Moreover, the choice of language settings is often limited to the languages of the countries for which this particular device was designed. A consumer may face no warranty repair. Furthermore, even the paid repair may not be possible because the spare parts for this device are not supplied to Ukraine and/or the documentation required for its repair is missed. It is necessary to note that smuggled products often may have significant / hidden flaws caused, for example, by inappropriate storage conditions or such goods even were not intended for sale for technical reasons.

In some cases, possible match of lineup, when the smuggler delivers a model that was certified by the official representative of the manufacturer. In this case, it is more appropriate to say that the consumer in a global sense encourages a corruption in the country. Each sold smuggled device means unpaid pensions and wages for social workers, unfinished roads, unpaid loans and broken chain of added value. The Inform Agency TSN in its article from 06.07.2016 indicated that the “grey import” level in 2015 was 15%, in monetary terms, the figure was 1.2 billion USD.

How to verify whether the bought device was imported legally and whether it has the necessary certification? For example, “BSH Pobutova Technika” provides such an opportunity. To get the details about the product you have to enter the unique product’s LSS code, which is affixed to the original packaging, at a special site www.code-check.com.ua

I believe that the business community should take some measures to raise the awareness of our customers. Perhaps we should think of some media budgets for additional PR-activities. At the same time, the state ought to strengthen the customs control, improve Ukrainian legislation on protection of domestic market from illegal import and to introduce significant fines for violations of the law.