Grey Markets: The China Case
Grey market goods - or “gray” market in the U.S. - are authentic branded products sold to consumers through unauthorized channels, either online or off. These sales are not necessarily illegal, and regulations governing their control vary by country.
In China, a history of high import tariffs and limited access to desirable Western brands has traditionally led wealthy Chinese consumers to make their luxury purchases while traveling in the world's fashion capitals.
A fear of purchasing counterfeits was another factor driving demand for grey market goods, Matthew Dresden, a U.S.-based IP attorney and China Law blogger, explains:
“[G]rey market goods exist because there’s a market for them, and that market exists because grey market goods are either cheaper or have better availability. But in China there’s a third driver of the grey market: quality.
It’s ironic because in the US, grey market goods have a strong whiff of caveat emptor; if you buy a product outside the normal channels you accept the risk that it might be lower quality. But in China, the calculus is flipped: because counterfeiting is so rampant, the chance of buying a fake is considered to be much lower if the goods come from overseas.'
The historical connection between counterfeits and grey market demand in China is creating exciting opportunities to protect brands and consumers with smartphone-based digital authentication technologies.
But before we get into those, let’s take a closer look at China’s unique history of grey market trading.