Is it really THAT bad to work with a middleman trader?
Updated: Sep 25, 2021
Will you call Apple a middleman between consumer and Foxconn? No. It is the value which make middleman worth.
A capable middleman worth no less than a professional sourcing staff, just make sure he work hard enough to earn his place
We've been discussed the impossibility of having a promised way to find a direct manufacturer in my previous article. Now I want to state my another point: is it really so bad to work with a trader, especially for smaller size business?
Almost everyone wants to work directly with factory, from multinational giant to small trader, for a common reason: cut the middle man. It became a common strategy and argument for B2C to advertise their advantage over their branded competitors ever since the very beginning of it. Being a middleman seems to be the last thing you want to admit in a business relationship. But think about this: Would you like to skip Apple and buy the same "iPhone" from Foxconn(if it was possible)? Probably not. Why? Isn't Apple just a middle man? What is different?
By definition of the theory of "M2C" (Manufacturer to consumer), everything between a consumer and a factory is considered middleman and evil - they just speculating for chance to sell you at higher price. So Apple seems to fit well in this definition as they don't manufacture the iPhone for sure. But pretty obvious Apple IS NOT just a middleman. They innovate and market the product, invest in technology and so on. The cost involves all these could possibly (and very likely) be even higher than the traditional product material+labour+overhead cost. Apple adds a lot of unique value to the iPhone you got, which is far more than just some metal and electronic circuits board. Value-adding is the key to justify a "middleman."
If we go to the classic 4P marketing theory, it is pretty clear that the 3rd P, "Position" or sales channeling is part of the value. There are costs and value to let customers aware of the existent and the value of the product. That's what sales guys do. In our familiar trading business, they are hired to close the deal by fitting in the product to your needs. Is the factory sales guy a middleman? No, probably no one would consider it. However, as sales guy get their commission from a deal which is taken from the profit of either or both sides of the deal, why don't you consider him/her be "unnecessary"? You would appreciate a sales guy's hard work, his knowledge to the subject matter and his professional to solve a problem for you, and you perfectly accept that the better he serves you, the more his company should reward him for his excellent work.
And the story goes on. Now the sales guy is doing so well that he decided to start his business and work as an independent trader. Everything remains the same to the customer, but he is becoming a real middleman now. He doesn't have a commission from his boss anymore. Instead, he has profited from the price difference between factory and customer. Will you, as a customer, start to feel uncomfortable, even if he offers the same price for the same product and probably even better service? I leave this question to my reader. :)
Yes, middlemen take many forms, and not all of them are harmful. Back to the case of my previous article, the old Japanese man did actually contribute to the success of the project. He understood the requirement of the end customer deeply, gave his advice, pay attention to every minor detail, and promoted the relationship of both sides. We can survive without him, of course. However, having him in the middle saves us a lot of energy and risk. The same applies for the end customer, who had minimal experience working with a supplier from China. He demonstrated his value to us and earned our respect, and of course, profit too.
What is the take-away of the story? Middleman is good? No, that not what I mean. Rather I would conclude that, instead of questioning whether your supplier is a middleman or not, questions his/her value. What he does, how he gets rewarded, his skill and contribution, and so on. As a sourcing professional, I could live with a middleman, but make sure he work hard enough to earn his place. Keeping a good middleman is a smarter choice than having an incapable sourcing staff.