Supply chain challenges and material shortages aren’t only slowing manufacturing and shipping. The global issue is also causing a rise in grey market activity, as well as something more nefarious: a surge in counterfeit IT products, according to Al Palladin, Cisco’s legal director of Global Brand protection.
The grey market, or products sold legally outside of the brand’s permission by unauthorised dealers, has always been a challenge for IT vendors. The disruption of global supply chains that have resulted from the COVID-19 pandemic has made lead times for procuring technology hardware substantially longer. Some customers -- and even channel partners -- are looking outside of Cisco’s authorised channels to get their hands on new products faster, resulting in a spike of counterfeit activity, Palladin said.
“Admittedly, the problem has increased because of increased time to market. Customers are impatient and sometimes, they don’t follow the guidance that our team provides,” he told CRN US.
Products sourced outside of Cisco’s authorised channels won’t come with a valid warranty or license from Cisco. This gear also runs the risk of being tampered with in a way to make it more vulnerable to security breaches. Not only could this cause damage to Cisco’s brand, it also could leave businesses open to attack or early failure of the product, Palladin said.
Palladin and his 50-person team of analysts, engineers, and forensic experts, are part of Cisco’s legal organisation. The Global Brand Protection group that has a presence in 15 countries was established to investigate leads on fake Cisco IT gear or grey market activity. The group is focused on product diversion crimes and counterfeiting, or illegally using Cisco’s trademark on fake or tampered-with products, a growing problem in recent years affecting Cisco’s switches and access points.
The problem isn’t only with customers buying counterfeit or grey market gear. Cisco is also grappling with partners making the same decision to purchase hardware from outside of the Cisco supply chain, which in turn, can take legitimate revenue away from other solution providers, Palladin said.
Cisco and its colleagues in the Alliance for Gray Market and Counterfeit Abatement (AGMA), which includes the likes of HPE, Juniper Networks, and Microsoft, have estimated the economic loss to channel partners exceeds US$100 billion a year. From a Cisco perspective alone, the company estimates US$1.2 billion a year in losses to Cisco partners that are displaced by other partners winning deals with counterfeit, or low-quality grey market gear or customers purchasing outside of the Cisco supply chain.
Cisco Channel Chief Oliver Tuszik is a “champion” of the work that Palladin and his team are doing to crack down on channel partners -- both those aware and unaware -- that are committing fraud, Palladin said.
Tuszik has introduced a consequences framework for partners procuring products outside of the Cisco supply chain. “We have a yellow card and red card type of an approach, where if you’re caught once, depending on the extent of the crime committed and the losses to Cisco, there are severe penalties and they are made to replace all of the illegitimate gear, especially the counterfeit or stolen goods, with customers that they cheated in the process,” Palladin said. “If caught twice, it’s a red card and [the partner] will never be welcomed back into our program.”
Cisco partners that may have encountered potentially counterfeit or questionable products can report this activity via a short intake form that is then addressed by the Cisco Brand Protection team. Palladin said the team receives about 100 new cases a week from around the globe.
“Our hearts always go out to those [partners] who are legitimate. We’re trying to educate and provide the best quality service, and these [partners] are being undercut by the bad guys who couldn’t care less,” Palladin said. “Partners are also the good guys. They’re a tremendous source of information and when they see others undercutting them or they suspect something, they work with us on cleaning up things.”
Palladin urges customers to purchase Cisco products through authorized partners only and for Cisco partners to be aware and careful during these challenging times.
“Temptation is out there,” he said. “There are many fraudsters out there that are trying to cheat you out of legitimate business, and if it’s too good to be true, it probably is. Don’t put your reputation at risk.”