Is this the end of middle-men and middle-women?

Hi Dien,

Earlier this year, I used to work for an IT distributor for 5 years, here in Australia, so I'm aware of the difficulties facing the "middle-man".

The company specialized in hardware and software for the niche markets of digital video editing and multimedia applications. It had sole distribution rights for several large US, European and Asian manufacturers for Australia and New Zealand., It sold it’s products as a “middle-man” to around 600 retailers in these countries.

They would import and warehouse the products, and distribute them to chain stores, value added retailers and specialist computer dealers.

A trend we noticed that is gaining momentum is that the end users themselves can effectively by-pass the local retailers and often buy the same products cheaper on the Internet through overseas retailers.
Even after taking import duty, insurance and freight into the equation, the consumer could still end up with a better deal than buying locally, by not having to pay the distributor or middleman’s margin.

As more and more people start to do this, the retailers themselves end up ordering less stock from the local distributors. The irony of the situation is the consumer could get the product to his door quicker from the USA by ordering direct using 3-day FEDEX delivery, than ordering from his local computer store!

If the retailer did not have it in stock, he would have to place an order with the local distributor. By the time the distributor did the paperwork, sent the goods interstate to the dealer, and the dealer in turn forwarding it on to his client, it could take longer than the 3 day international delivery!

If the distributor themselves did not have the stock on hand, the whole process could blow out to several weeks, waiting for the container to arrive, clear customs, etc.

The manufacturers themselves, have wised up to this, and are beginning to realize the potential of dealing directly with retailers internationally.
Not only can they make more money by taking the distributor’s profit share and mark up, but they can also in many cases cut their overheads in having less local overseas branches and representation, etc.

Will middle-men become obsolete?
Well actually, the distributor is a hard link in the chain to replace completely, because there are other functions that require this ‘go-between”. For example local technical and after sales support, warranty claims, retailer training, co-ordination of local advertising, trade shows, promotions, credit accounts with retailers, etc.

Many of the bigger computer dealers and chain stores, also feel they can do a better deal if they get their buyers to deal direct with the international manufacturers or suppliers. In New Zealand for example, the government passed a law that allowed anyone to import goods and resell them, even though their may be a local distributor with sole distribution rights in place.
This is legalizing what is termed “Grey” marketing in the distribution business.

The government have allowed this “parallel importing” of goods to take place, as they feel, that the consumer is the one who benefits from the increased competition. There has also been some talk of Australia going down the same road in the near future.

What this means is that a small business or even an individual could import say Panasonic or Sony products into Australia and legally sell them to retailers and end users at a lower price, with their lower overheads. As long as you support the warranties on what you sell, etc. Sony or Panasonic in Australia could not legally stop you.

In the future, with products, which don’t require much technical support, warranty or maintenance, we could well see a downsizing in the number of local distributors because of the greater acceptance of buying online

Warmest Regards

Ricky Higgs




Sell Your Brain On The Net

Thanks Ricky, for sharing your experiences.... You seem to know a lot about this topic.... :)

It sounds like there are probably still opportunities, but that it would pay to be prudent, and that the opportunities which are there may also be changing....

As you said....

> In the future, with products, which don’t
> require much technical support, warranty or
> maintenance, we could well see a downsizing
> in the number of local distributors because
> of the greater acceptance of buying online

This makes it sound like it's important to choose the products you deal in carefully....

Thanks a lot Ricky. :) I think import/export sounds like quite an exciting area in general....

By the way, here's a true story that just came to my mind....

In 1995-1996, in Melbourne, Australia (in the suburb of Elwood), I used to share an apartment with a guy, Sean, who tried exporting once, though he did it in quite an usual way.... Here's the story....

Sean had a very good friend who was from Malawi (a country in southern Africa). Apparently, there was a need for more shoes in Malawi... Together, the two of them started a business exporting second-hand shoes to Malawi.... Sean's friend's brother-in-law was their agent in Malawi.

Anyway, what they did was they went around to the various opportunity shops in Melbourne -- charity stores that sell donated second-hand items, and use the money for charity. They went to these shops and bought second-hand shoes by the kilogram.... They got them very cheaply.

They stuck their cargo of shoes on a container ship and shipped it off to Malawi, for their agent there to sell....

Unfortunately, they heard back from their Malawi agent (the brother-in-law) that the shoes weren't selling.... After a few months of hearing this, they decided to check it out for themselves, because they felt that the demand was there.... So they hopped on a plane and flew to Malawi.

Upon getting there, they discovered that the shoes *were* selling -- just the guy hadn't been telling them the truth. He was living it up on the money, and by the time they got there the profits were mostly gone....

As far as I know, they never tried this again. I guess it shows the usefulness of doing your homework, and dealing with reputable people.... And also the usefulness of using some of the "safety" tools of international trade, like letters of credit (which my apartment-mate wasn't using)....

I thought it was an interesting story, though, when I heard it....

Thanks Ricky for sharing your experiences... :)

Dien Rice