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UK ‘grey’ market for bearings puts end users and distributors at risk

Tuesday, November 6th, 2007

In the UK, current estimates indicate that the grey market for bearings accounts for between 12 and 15 per cent of total UK bearing sales. Not only does a growing grey market open up routes for more counterfeit products to enter the market, it also puts end users and distributors at greater risk of costly breakdowns, litigation and void warranties.
How do purchasers of bearings actually know that the products they are buying are genuine and will perform as well as they say on the datasheet? Most don’t have to worry because they purchase these products either direct from the bearings manufacturer or through an authorised distributor. This method guarantees that the manufacturer meets any product warranties associated with the bearing and that any technical problems with the product are resolved quickly and efficiently.
So it’s worrying that in the UK, 15 per cent of all bearings are currently purchased via the ‘grey’ market, which refers to any purchase of a bearing that is not direct from the manufacturer or via an authorised distributor. The Internet, for example, has opened up more opportunities (and dangers!) for purchasers to buy bearings manufactured in India, the Far East and Africa but sold through unauthorised traders across the world, including a growing number of European outlets. Cross-border trading is commonplace and manufacturers often sell off their surplus obsolete and out-of-date bearings to unauthorised traders.
Although buying on the grey market doesn’t necessarily mean that the product is not genuine, it certainly increases the risk of customers ending up with counterfeit products. The grey market becomes an easier route for traders to supply counterfeit bearings into the UK.
So why do companies purchase through the grey market? Cost is obviously the overriding factor here. However, as Des Pattinson, National Sales Manager at precision bearings manufacturer Schaeffler UK, points out: “Although the offer price for the bearings may initially look attractive, buyers on the grey market have to ask themselves what are the potential hidden costs in terms of product liability and credibility with their customers if the product turns out to be counterfeit and things inevitably start to go wrong. These could, for example, be critical bearings on high value machinery in a manufacturing plant. The buyer therefore needs to take into account the cost of any production downtime if the bearing fails early.”
Purchasers also run the risk of not knowing how the bearings have been stored, in what conditions and for how long. So, even if the bearing is a genuine product, the manufacturer of the bearing may not support product liability and the warranty becomes void. Pattinson offers a recent example: “A distributor bought some bearings from the grey market and asked us to analyse the products. Schaeffler discovered that the bearings were indeed genuine product but were more than six years old. This meant that the customer of these bearings would most likely have experienced lubrication problems that in turn could have caused costly machine breakdowns. There could also be other performance-related problems due to incorrect storage and handling of the bearings during that six-year period. Under these risky circumstances, the distributor or end user of the bearing would be left totally isolated with no support from the manufacturer of the bearing.”
Buying from the grey market increases the likelihood of receiving counterfeit bearings, whether deliberately or accidentally. Earlier this year, Schaeffler destroyed more than 40 tonnes of counterfeit rolling bearings with a nominal value of around €8 million at its FAG site in Schweinfurt, Germany.
The bearings, which were INA, FAG and SKF-branded products, were seized at a Franconian rolling bearing dealer. “The financial damage resulting from such counterfeits is difficult to quantify, even for our companies alone,” commented Ingrid Bichelmeir-Böhm, lawyer and anti-piracy coordinator for Schaeffler Group.
In addition to lost sales and significant loss of image through inferior-quality goods that may affect future business, there have been enormous costs arising from the investigation, seizure and professional disposal of the bearings. The disposal requires tight security, for only the full destruction of the counterfeits will eliminate the danger for the consumer.
But the damage affects not only those companies that produce brand-name goods and invest heavily in research, development and quality assurance. It also affects those companies that install these components. Rolling bearings are used in virtually every piece of rotating plant and safety-critical machinery and vehicles, from machine tools, wind turbines and X-ray apparatus, through to automotive, aircraft and rail vehicles.
The Association of the German Tool Manufacturing Industry estimates that an annual 3,500 industrial accidents in Germany alone are due to counterfeit products. According to the German Engineering Federation (VDMA), the economic damage to the capital goods industry amounts to some €4.5 billion per year. “If it weren’t for brand and product piracy, there would be about 70,000 more jobs in Germany,” said Doris Moller, Acting Board Member of the German Business Action Group against Product and Trademark Counterfeiting.
In conclusion, buyers can protect themselves and their customers from fake bearings only by purchasing from a 100% reliable source – by sourcing direct from the manufacturer or via an authorised distributor.
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