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Parallel Trading

By diminishing the impact of third degree price discrimination, parallel trading errodes profits.

What is it all about?

Goods being bought and sold wholesale by third parties between markets and customer groups where third degree price discrimination normally exists.

Why is it important?

The practice of parallel trading is a significant threat to revenue for many multifunctional companies who sell their goods at different prices to different markets. By trading between these various markets, parallel importers offer customers a way to circumvent pricing policies, reducing profitability for the manufacturer.

Importing branded goods into a market where the local trademark owner has not given consent leaves the importer of these so-called ‘grey goods’ liable to injunctions, claims for damages and stock seizure.

The Problem

Parallel trading has traditionally been a major problem for the pharmaceuticals industry but the practice now affects any manufacturer of goods who supplies to multiple markets.

Through the sale of grey imports, manufacturers lose out but the practice of imposing market supply quotas has so far proved ineffective. Even the most diligent companies experience difficulties in identifying genuine cases of parallel trading. It is true that a price difference between the source and destination markets is a necessary condition but the issue is complicated by factors such as product availability, ease of establishing a stable supply line and the magnitude of the price difference.

Predicting the flow of grey goods isn’t always straightforward. The assumption that goods will pass from traditionally ‘low cost’ markets to ‘high cost’ ones in an oversimplification. There is documented evidence of pharmaceuticals, for example, being exported from Country A to Country B despite being more expensive on paper in Country A. In this case, the drug involved was supplied to hospitals in Country A at a discount and it was this hospital stock which was being exported.

Consumers are increasingly aware that grey goods are not necessarily of inferior quality and attempts by manufacturers to restrict long-term support for their goods to originating markets only (for example, vehicle servicing) has fuelled the growth of an industry dedicated to the support of grey imports.

The Symptoms

Unexplained fluctuation in demand for a product in a specific market is a common symptom of parallel trading.

Foreign packaging, poorly translated instruction booklets and batch modifications can also indicate that goods have been imported from a different market.

The Solution

TKM can identify trends in product supply to determine the likely source and destination markets for parallel trading, before conducting enquiries into regional distributors.

Once the likelihood of parallel trading has been established, TKM will monitor the physical shipping of sample batches of goods to identify their exact route from supplier to consumer. Using sophisticated tracking technology and supply line analysis, TKM can work across geographic boundaries to determine the extent of the problem and identify the parties involved.

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