Disintermediation (Strategy) - Explained
What is an Disintermediation Strategy?
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Table of ContentsWhat is a Disintermediation Strategy?Disintermediation in Distribution ChannelsAcademic Research on Disintermediation
What is a Disintermediation Strategy?
In simple words, disintermediation means removal of the intermediaries or middlemen from a supply chain (sales) or transaction (finance). These intermediaries include brokers, agents, wholesaler, distributor, banks and other finance houses.
Disintermediation in Distribution Channels
In a disintermediated system, the consumer directly deals with the producer, thus removing the intermediaries or middlemen from the supply chain. There may be more than one level of intermediaries in a supply chain. In a traditional retail system, the retail stores work as the intermediaries. They purchase the products from the producers and sell those to the end customers. In other situations, buyers can directly buy the products from the producer. When these middlemen are removed from this supply chain and the manufacturers directly deal with the customers, it is an example of disintermediation.
Disintermediation often results in lowering the prices of the products as the middlemen are removed from the distribution channel. Customers often share in the lower cost structure. It also helps in increasing the profit margin of the producing company in long run. Unfortunately for consumers, all companies do not opt for disintermediation as it involves more investment in resources for distributing the products.
Academic Research on Disintermediation
- Disintermediation and the role of banks in Europe: An international comparison, Schmidt, R. H., Hackethal, A., & Tyrell, M. (1999). Journal of Financial Intermediation, 8(1-2), 36-67. This research seeks to find out if the banking systems of France, Germany, and the UK are becoming less relevant as individual consumers have the ability to directly participate in capital markets. Using data created from national account statistics, the authors show that while banks arent becoming less important in the European markets, non-bank entities are beginning to play a larger role. Specific market effects in each country are discussed, and future financial pressures are predicted.
- Credit derivatives, disintermediation, and investment decisions, Morrison, A. D. (2005). The Journal of Business, 78(2), 621-648. This article shows that the existence of a credit derivatives market might cause banks to engage in risky behavior and issue low-grade bonds. Credit derivatives might reduce the importance of traditional banking entities and standards. The author argues that stronger reporting requirements can help prevent the side-effects of these markets.
- Disintermediation, disintegration and risk in the SME global supply chain, Ritchie, B., & Brindley, C. (2000). Management Decision, 38(8), 575-583. This research shows that the models currently used to examine supply chain relationships will be replaced by more modern, adaptive models. These quick-changing models will respond to a more dynamic workplace where good managers will be able to quickly create flexible alliances. This paper focuses on small to medium-sized enterprises and highlights potential opportunities and provides guidelines for strategic management, relationship marketing, and risk management in such organizations.
- Deregulation, disintermediation, and agency costs of debt: evidence from Japan1, Anderson, C. W., & Makhija, A. K. (1999). Journal of Financial Economics, 51(2), 309-339. This research uses stock price and accounting data to show that many Japanese fims in the 1980s relied less on traditional banks after widespread deregulation. The authors show that companies with more bond debt had lower growth opportunities while firms with more bank debt were more likely to experience positive growth.
- Disintermediation in question: new economy, new networks, new middlemen, Jallat, F., & Capek, M. J. (2001). Business Horizons, 44(2), 55-60. At the beginning of the internet revolution we were promised that consumers would interact directly with producers, and this paper examines the reality of these predictions. By examining real-life players like Amazon and Dell, modern chains of communication and customer interaction are examined. The assumptions about an information-driven marketplace are challenged with the recognition of cyber-intermediaries and the truth about the willingness of customers to devote their time to these new markets.
- Supply management under high goal incongruence: An empirical examination of disintermediation in the aerospace supply chain, Rossetti, C. L., & Choi, T. Y. (2008). Decision Sciences, 39(3), 507-540. This research shows that if there is going to be a separation between the original equipment manufacturers (OEM) and the firms that produce the after-market parts for that original equipment, the best-case solution is for both parties to have aligned goals. Using archival date and an internet-based survey, these hypotheses are examined in the aerospace industry. The lucrative after-market parts segment of the market is analyzed and insights about these new relationships are offered.
- Financial disintermediation and policy, Hester, D. D. (1969). Journal of Money, Credit and Banking, 1(3), 600-617. This research shows that past research on credit flows wasnt entirely successful because they fail to recognize the decreasing importance of traditional financial institutions in the credit markets. In light of these new assumptions, this paper also analyzes the effectiveness of monetary policy on the financial markets.
- Agentbased supply chain disintermediation versus reintermediation: economic and technological perspectives, Nissen, M. (2000). Intelligent Systems in Accounting, Finance & Management, 9(4), 237-256. This research examines the real-world application of information technology as it changes the connection between the consumer and the supplier. It questions if emerging technologies are actually bring suppliers and consumers closer together as we were promised, and if so, will these conditions always be the case? Economics literature is used to create the foundation for the discussion, then supply chain models that use these new connections are created and examined.
- Disintermediation through policy loans at life insurance companies, Schott, F. H. (1971). The Journal of finance, 26(3), 719-729. This research uses an examination of the rise of policy loans at life insurance companies to shed some light on the decrease of importance in traditional financial institutions and the conditions that leading to this situation. The rapid growth of such loans have serious underpinnings for the predictability of the financial markets at large.
- The disintermediation of financial markets: Direct investing in private equity, Fang, L., Ivashina, V., & Lerner, J. (2015). Journal of Financial Economics, 116(1), 160-178. By comparing the results of solo transactions versus similar transactions undertaken by large funds, this research examines disintermediation in the equity markets. 20 years worth of transaction data by large institutions is also used to establish a benchmark for comparing public transactions in buyouts as compared to those transactions undertaken by seven large institutions.