Diversion is the trade of a genuinely branded product through channels of distribution that are unauthorised or unintended, and not supported by the original manufacturer or authorised distributors. Ross Bulla looks at how to deal with it.
Diversion (also known as gray market, parallel distribution or parallel importation) is generally a legal activity that is usually a civil contractual matter, and is intended to take advantage of available price differences. Diverted products are often imported from markets in which manufacturing costs or taxes are lower, or reimported (a process called the ‘U-boat’, after the u-turn that a ship makes after departing the dock) to evade taxes and tariffs altogether.
In fact, major retail chains and warehouse clubs are known to buy diverted product in order to satisfy consumer demand for lower prices, and the industry is represented by lawyers and lobbyists. Diversion is so profitable that one New York diverter earns over $2 billion in yearly revenues and won a copyright case that was heard by the US Supreme Court, which ruled that a manufacturer cannot prohibit the reimportation of its own product.
Diverters use deception and fraud to acquire products, and diversion harms everyone in the supply chain, from manufacturer to distributor, retailer and consumer.