Money Matters

A grey market

By Magazine Desk
Mon, 03, 15

‘Kit’ – a smartphone with a brief firsthand use – is attracting discount seekers in an annual 2.2 million mobile phone import market of Pakistan.

‘Kit’ – a smartphone with a brief firsthand use – is attracting discount seekers in an annual 2.2 million mobile phone import market of Pakistan.

It is comparatively cheap and yet original. Sometimes, a kit becomes an unavoidable choice with its price nearly half the price of a new gadget depending on one’s bargaining skill. The strongly a customer haggles the weak the price is.

Barring India, Bangladesh and Pakistan, in many other countries mobile phone manufacturers provide their customers with an opportunity to return their phones within 14 days of buying if they would change their mind.

A customer in those countries is also given a top-up option to replace his handset with the latest model within six months at a nominal extra price.

All the relinquished mobile phones, divided into different categories according to their condition, are then auctioned and find their way into developing economies, like Pakistan having customers with low buying power.

Industry officials have divergent views on kit, which, according to an estimate, accounts for nearly 30 percent of a total sale of mobile phones across the country.

Pakistan spent $610 million on import of mobile phones in 2013/14 fiscal year as compared to $613 million in 2012/13, an official data showed. Some say kits are smuggled and therefore their sale is illegal and their import is unrecorded. 

 “The smuggled phones are coming in the market in connivance with the customs officials,” alleged Hamza Rasheed, head of Telecom Division at Muller and Phipps, a marketer of Samsung and Huawei in Pakistan. 

Rasheed said popularity of such handheld devices is gaining traction as they are price competitive.

“Visit Hall Road in Lahore or Raja Bazar in Rawalpindi and you’ll notice these phones brazenly displayed,” he told The News over telephone.  A Karachi-based marketer criticised an open sale of smuggled mobile phones in local bazaar and mall.

“This is not a good trend,” said Salman Wadiwala, marketing manager at United Mobile, which is a country’s leading mobile phones distributor.  “Smuggling should be curbed,” he added.

  A top handset dealer, however, doesn’t see any oddity in selling kits as far as they are not smuggled.

“We buy stocks (of kits in auction) and sell them at local markets,” said Muhammad Idrees of ZBH International.

A kit comes without accessories. “But, that is not a big issue as Chinese charger, pouch and other low-priced accessories are available at markets,” he added, while showing a Sony kit in his use. Rasheed said high taxes are encouraging people to buy smuggled handsets.

Idrees, who has served as president of Karachi Electronics Dealers Association, agreed that telecom policies are promoting grey market.  “Regulatory duty and levies lift up the price,” he said, making an appliance unaffordable for the public at large.

Early this year, the government slapped an import duty of Rs200 per handset, which increased its retail price.

The duty is a latest addition to a series of taxes, including Rs150 to 500 sales tax plus income tax on import of 5.5 percent, on mobile phones.   The cost is usually transferred to end customer.

A Deloitte study found that taxes account for more than 30 percent of total cost of owning and using mobile phone in Pakistan as compared to the global average of 18.14 percent. 

“This (Pakistan’s tax base) is the third highest among 111 countries in the world,” said the study.

Besides restricting advancement and penetration of telecom services, regressive taxes are also giving a way to a loathsome business of counterfeiting.  As soon as a new handset is unveiled its replicas inundate shopping centres and shops.

Sometimes, a duplicate version creeps into showcases prior to the official launch of a new model.

High-end Samsung and Apple, which are costly and beyond the reach of a thrifty gizmo-lover, are vulnerable to copycatting.

“For example, on the eve of Note 6 launch, fake phones are poised to give customers a highly price competitive substitute,” predicted the dealer.  A conservative estimate puts the market share of replicas at 15 to 20 percent.

“You will find them in plenty especially at sparsely located shops in rural and suburban areas where regulations are not strict as compared to bustling urban markets,” he added.

Duplicate handsets, mainly coming from China, don’t have a brand name. A sticker can be pasted on it later on to let it look like an original set.  They look and operate so originally that an unsuspecting commoner doesn’t feel an inkling of their duplicity.

However, if you are looking for a good deal, “It is better if you go for a kit,” suggested Faizan, who was seen engrossed in handiwork at his mobile repair shop amid the hurly-burly of Abdullah Haroon Road. “Though replica is not that pricey you will be troubled to find its spare parts when it breaks down,” he added. “A kit doesn’t bear warranty, but at the time of buying you can at least be assured of its proper operation.” 

Nonetheless, people still want to choose a cheap me-too phone as its price is even much below a kit’s rate. A copy of iPhone or Samsung is an attractive bargain at its price, giving a shopper a sense of achievement.

Social experts said people are pleased to be associated with a popular brand name no matter if it is fake.

Local surveys, probing into the reasons of popularity of counterfeit mobile phones, found that hedonic shopping behaviour and economic factors are the causes of ‘consumers’ complicity towards counterfeiting’. A desire to have social recognition is undamaging until grey market doesn’t thrive on it.

Interplay of industry and government can preempt the move by a society in wrong direction to satisfy an urge by ensuring a competitive price structure.

Suitable pricing is important to transfer the benefits of modern technologies far and wide. 

The writer is a staff member