Rethinking the Role of Middlemen

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Table of Contents

Introduction
Middlemen worries
Roles of the middleman
Middlemen in different industries
Conclusion
References

Introduction

Middlemen always play the intermediary role in whichever industry they participate in by meditating on the channel of distribution and making it either smooth for the seller or buyer involved. Many roles played by the middlemen are still controversial and have formed a subject of argument that they should be eliminated because their purpose can be served with or without them. Middlemen can either be merchants or agents. Merchants are involved in taking the title of the products and selling them while agents do not take the title of the products but are the brokers and sales agents.

The debate of the elimination of the middleman is immense and tricky putting into consideration the channels of distributions and the functions that the middlemen played when technology was not much developed. Others have suggested the substitution of the middlemen. It seems that the advancement of technology is destined to replace the middlemen out, but their roles must be reassigned so that the channel of distribution remains intact and ensure that no loopholes are left to make both the seller and buyer suffer.

Middlemen worries

With technological advancements, middlemen are becoming more and more redundant. The roles they used to play have now been simplified. Indeed, the presence of online trading has made the role of simplifying the chains of distribution for a middleman disappear; However, with technology, some middlemen have reaped maximally especially in the hotel and hospitality industry due to online bookings (Mullaney, 2004).

Instances, where the middleman was seen as a means to increase profit margins, are now translated to exploitation on the side of the manufacturers, and a cost of purchase increase on the consumers. The middlemen sometimes prove to be indispensable since they must earn their livelihoods through these sales. Therefore, whenever they broker any deal, they reap handsomely which makes them want to remain in business.

Roles of the middleman

Gadde & Snehota (2001) describe the three roles that a middleman plays in the market system as being a trader, distributor, and provider. As a trader, the middleman will offer different goods that are available to the consumer hence giving the consumer a range of products of the same genre to choose from as opposed to having the consumer exposed to one company’s products. He acts as the link of the consumer too many products, and the suppliers to many customers. Historically, the middleman had the roles of packing, sorting, advertising e.t.c, but currently, the roles are performed by the producer.

As a distributor, the middleman often deals with companies that produce on large scale. They incur the costs of distributing the commodities to the consumers since the producer has the cost of mass production. The middleman deals mostly with one large producer when he is a distributor. Middlemen as providers now change the supply chain as they are responsible to link other suppliers with the consumers. This makes them exploit the knowledge of the markets hence exploiting the consumers (Gadde & Snehota, 2001). They become an independent market thus gaining an opportunity for forming a cartel.

Once the roles of a middleman have been eliminated, they can be easily replaced by the current technology. Online trading has been a major threat to middlemen since most individuals are paying bills online. Mullaney (2004) describes the expected fall in prices as a consequence of online trading which eliminates middlemen who exploit the systems. Indeed, buyers will be able to consider what they need without having to be brokered.

Middlemen in different industries

Major online companies are going to benefit from digital processing technology which eliminates paper banking thus eliminating the process of payment that is always crowded with middlemen. Eliminating such middlemen will be countered with the introduction of antifraud units which must be strict and watchful in scrutinizing any payments. Ultimately, the costs involved will be equal to one-third that of involving middlemen (Park, Elgin & Mullaney, 2004).

Travis (2008) describes the amounts of duties that could be saved on the US government in terms of duties if the first sale rule was enforced. He explains that when middlemen are involved they take the goods, and every time the goods receive a higher mark up which raises the duty paid.

The exploitation of middlemen is seen mostly in hotels and travel agencies. The middlemen who are the agencies have used online bookings to book customers to rooms, therefore, earning a commission which is huge and exploitative to the hotel owners. They get profits of approximately $ 5.8 billion in a year and rise every year at the expense of the owners (Mullaney, 2004). Initially, they are responsible for the advertisement of the rooms but they should not reap as much as they do since they are given discounts for bulk bookings. The middleman, if eliminated, the costs will reduce to the customers and profits increase for the hoteliers, but the question still lies about what happens to the risks that middlemen take if the customers change hotels without notice.

In the real estates market, brokerage fees are the cause for the elimination of middlemen. The majority of home shoppers (approximately 70%) do it online. This makes them have enough information on what they want to purchase instead of going through a broker. This will help eliminate the brokerage fee paid to the middlemen in this industry. Even in the software and programming industry, enough information is on the internet so that software can be improved; the software companies need not employ middlemen to source for what the consumer wants and make changes (Hamm, 2004).

Conclusion

With the age of the internet, information has become readily available. This has led to the chain of distribution being simplified since people know what is available and what they need. Information has become core in this age and this may, in the long run, eliminate the middleman from the chain of distribution.

References

Gadde, E. L. & Snehota, I. (2001). Rethinking the Role of Middlemen. Stockholm, Stockholm School of Economics. Web.

Hamm, S. (2004). Software Shift. Open-source developers are looking beyond Linux to databases, e-mail, search even desktop PCs. Business Week. New York. Web.

Mullaney, T. (2004). E-Biz Strikes Again! The Internet has rewritten the rules for books, music, and travel. Which industries are next? Here are six. Business Week. New York: Web.

Mullaney, T. J. (2004). Hotel Crunch, Online bookers are getting better rates by offering hotels volume. That has the chains scrambling. Business Week. New York. Web.

Mullaney, Timothy J. (2004). Real Estate’s New Reality. Speed and heft will let Net players drive down brokerage fees and gain share. Business Week. New York. Web.

Park, A. et al. (2004). Checks Check Out. With online bill payment and processing, use of paper checks is headed for a steep decline. Business Week. New York: Web.

Travis, T. (2008). Eliminate Middlemen and Save on US custom duties. Entrepreneur. Web.

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