Incidents of gray market activity among US exporters: Occurrences, characteristics, and consequences

Each year, the value of gray market products sold throughout the world runs into the billions of dollars. Past research has stated that exporters of m anufactured goods can hardly afford to ignore the possibility of this pheno menon due to the often severe effects on their sales volume, margins, and r elationships with distributors and end-users. Through a survey of export ma nagers of manufacturing firms, coupled with a series of qualitative intervi ews, this study investigates how organizational specific, control specific, and market specific factors drive gray market activity, and in turn explor es the effects of unauthorized distribution on export performance. Several factors are shown to evaluate the potential of unauthorized distribution in their export markets, namely the centralization of decision making, the de gree to which the product is standardized, channel integration, and channel control. International experience market volatility, and the number of mar kets served were found to have no effect on gray market activity this contr ary to traditional thinking. Furthermore, the effects of gray market activi ty on strategic versus economic performance is shown to be significantly di fferent. Each of these issues is discussed in detail, along with the implic ations for export managers.