By Justin Sears, Head of Product Marketing for SaaS, Altium
Black and grey markets pose increasing challenges to supply chain integrity for hardware developers. From counterfeit components infiltrating production lines to unauthorised distribution channels bypassing traceability measures, illicit component markets pose the risk of financial loss, operational disruption, and reputational damage. As supply chains and electronic products both grow more complex, understanding these risks and deploying proactive strategies will be the only sustainable way to manage that complexity.
What are black and grey markets?
Black and grey markets operate outside authorised supply chain channels. They present unique challenges for procurement professionals and supply chain managers who must guarantee quality and predictability. The black market involves the illegal trade of counterfeit, stolen, or unauthorised components. For example, counterfeit microcontrollers might be manufactured using substandard materials and then disguised with fake markings to mimic authentic parts from reputable suppliers. These components are often sold covertly at suspiciously low prices, bypassing quality control processes and introducing significant risks to unsuspecting buyers. The use of such parts can lead to operational failures, legal issues, and damage to a company’s reputation.
In contrast, the grey market refers to the legal but unauthorised resale of goods through unofficial channels. For instance, a distributor may acquire surplus inventory from a manufacturer and resell it to third parties without proper authorisation. While these components might be genuine, they typically lack the necessary traceability and documentation to verify their origin. This creates uncertainty for buyers, as grey-market goods may not meet regulatory standards or include warranties, posing long-term risks to supporting products with embedded grey-market parts.
In 2024, a significant incident highlighted the dangers of greymarket components. Hezbollah acquired communication devices, including pagers and walkie-talkies, through unauthorised channels. These devices – believed to be genuine products from reputable manufacturers – were later found to contain embedded explosives. The compromised devices led to fatal explosions in Lebanon. Investigations revealed that the murky and often untraceable supply chains of some older electronics facilitated the infiltration of these weaponised components. This incident shows the critical importance of traceability and risks associated with grey market electronics.
By understanding the differences between grey and black markets for components, equipment manufacturers can better recognise the threats they pose and take steps to protect their operations from counterfeit or untraceable parts.
This article originally appeared in the Jan/Feb issue of Procurement Pro.
