International Law

Beware of Grey Market/Parallel Imports to Korea if You Want Warranty Service

One of the fun things about living in Korea is the opportunity to pay more for just about everything one might purchase. Prices here are higher for food (much higher for food), clothing, electronics, and cars than just about anywhere else in the world.

Much of the cost is attributable to the scarcity of land. Anything that has to be warehoused or stored for any period of time will have built into its price the much higher cost of the space in which it has been warehoused. But some of the price differential is attributable to good old fashioned price gouging — Ripoff Britain has nothing on Korea.

An example: Recently I’ve given some thought to outfitting a studio for podcasting. Those of you who like reading old Brendon’s thoughts on the Intertubes may enjoy my mellifluous tones. Podcasting also allows for the voice to show inflection, which may help soften some of the edge that can be perceived in my writing.

So I’ve looked at purchasing a Joemeek ThreeQ pre-amp and a Shure SM7B microphone, both of which appear to be state-of-the-art for the well-equipped small voice studio.

On Amazon.com the ThreeQ sells for US$249, the SM7B for US$349. Total cost in Korean won, then, is about W660,000 depending on the exchange-rate fluctuations. Add an 8% import duty for electronic goods and 10% VAT and these two items should cost W790,000 if similar pricing were available to Korean consumers.

Unfortunately, such pricing is not available. The cheapest I can find the ThreeQ in Korea is W380,000, and the lowest price I’ve found for the SM7B alone is W630,000 — total W1,010,000. If purchased from a Korean discounter, even after equalizing for import duty and VAT, one would have to pay a 25% premium to purchase these goods. And, looking at the delivery time for such purchases, I strongly suspect that they are not held in inventory anyway, but rather special-ordered — this is pure price gouging by the Korean importer.

A consequence of this is a rather healthy grey market for imports from markets with more reasonable prices. I know that my summer vacation plans probably include picking up a box from Amazon.com at Dad’s house in St. Louis.

However, what about warranty service? In our law firm, we’re handling a litigation matter right now that underscores how the individual parallel importer, or the purchaser of parallel-imported “grey market” goods, takes on the risk that the products don’t work, or need warranty service. Unless the product is sold with a “worldwide warranty”, one won’t be able to demand service from the local subsidiary of the manufacturer. Instead one would have to look to the importer for service — and if you carried the goods in your suitcase, you’re the importer.

In our case, we’re defending the automaker’s Korean sales arm against a claim from a customer who bought from a parallel importer in Seoul. The sales arm has an informal policy of providing warranty service as a courtesy, provided that the service records are complete and show the owner has faithfully maintained the vehicle according to manufacturer’s recommendations, but the car itself is not covered by a global warranty. The warranty is good only for the market where the car was originally sold. There are a bunch of reasons for this, but chief among them is the differing conditions in each market where the car company has to, among other things, warehouse the warranty service parts inventory. Korea imposes quite significant parts-inventory requirements on car companies.

What the plaintiff is asking for, then, is to be allowed to be a free rider. He didn’t want to pay the Korean price for the car which includes all the costs imposed by Korean regulations and higher land costs, but still demands that the Korean sales arm of the manufacturer provide him free service as if he had bought from them. Hey, it’s natural — I have the same feeling about paying more for everything — but in this case we can’t let him.

So do your due diligence before purchase. Ask to see the warranty for the product you’re thinking of buying, and then, if there is indeed a global warranty, find out where you should look for service in Korea. (Oh, and if it’s an electronic product, make sure it’s 220V or multi-voltage. I once watched a small color laser printer I bought at Fry’s on a Stateside trip explode after I plugged it in here in Seoul.)

In this regard, I’d like to single out Apple for its admirable practices. Setting aside for the moment any emotional arguments about whether Apple products are “good value” when compared to a Frankenstein Windows box assembled from parts (Apple is good value), Apple offers both a global warranty for most of its products and prices its products in Korea almost exactly the same as the prices one would pay in the United States. One can very easily compare the price by applying the formula [US Price in Dollars] × [Exchange Rate at Product Introduction in Korea] × 1.08 (for import duty) x 1.10 (for VAT) — in almost all cases there is little to no difference. As a customer, I appreciate that, because as I’ve explained above, for other imported electronic products Apple’s Korean peers and competitors aren’t doing me many favors.

Full post as published by Korea Law Blog on April 15, 2010 (boomark / email).