DEALING WITH DISINTERMEDIATION : A TRANSACTION COST VIEW FOR SME DISTRIBUTORS

Abstract

Towards the end of the 20th century, developments in information, computing and communication technologies resulted in the erosion of entry and trading barriers, fundamentally altering relationships across industry supply chains. The topic of “disintermediation” was thus brought to the fore of academic research. This paper understands disintermediation as the removal or weakening of an intermediary within a supply chain. A review of the literature on disintermediation reveals that despite the recognition that certain traditional physical distributors stay relevant and continue to succeed in the changing business environment, there is little discussion on the reasons behind their resillience. The objective of this study is thus to provide a fresh perspective on the issue of disintermediation, examining it from the point of view of small and medium sized distributing firms. Four case studies are analysed in order to identify elements that contribute to a distributor’s disintermediation, or its resilience against it. The lens of transaction cost analysis is applied to gain a richer understanding of the empirical findings and sift out the potential managerial implications. While it is true that SME distributors can do little to control such industry-wide changes, this paper suggests that it is possible for SME distributors to mitigate the effects of environmental changes on transaction cost structure by making strategic investments at the onset and throughout the course of manufacturerdistributor relationships.