Middlemen and women are everywhere!
You would think that a “developed” country would not require the services of such “agents” to transact any kind of business, due to total transparency and technological aids available to do so. But was I surprised!
Even Western countries make use of agents to sell aircraft, ships, and any kind of equipment. They also have brokers who operate at the consumer level, to sell houses to buyers in a knowledgeable manner. Agents bring localized knowledge and expertise to the sales process. Or, they know how things work in the buyer’s country when big ticket items are transacted. Generally, agents operate on behalf of sellers and favour them as their commission is paid by the sellers, not by the buyers. However, commission is paid on the final sale price, which the buyer agrees to pay the seller, so the agent derives his commission money ultimately from what the buyer pays the seller.
Buyers need to understand and know well in advance that agents do not have their requirements and best interests in their hearts, and are focused on fulfilling the sale as quickly as they can so that they can earn a handsome return on the time and effort invested. Agents meet and / or exceed sellers’ criteria which may or may not meet the buyers’ needs.
Coming back to my original point on anticipated reduction in broking or agency fees in developed countries, unfortunately that is not the case. On the contrary, agency fees actually increase both in absolute terms and as percentage of sales revenues. If advancement in transparency and technology can eliminate middlemen and ensure fair market price discovery and fair competition, then sellers and buyers would be able to conclude sales transactions without the aid of sales agents, right?
The practical reality in the world today is that agents dominate big transactions – even those involving government purchases of military equipment. This is probably because there is some need for certain level of lack of transparency in such dealings.
Transparency decreases when agents are involved. When an agent is assigned the task of a messenger of sensitive price data on a critical transaction, he or she is bound to misquote or misinterpret such data to the detriment of the buyer.
I have interacted with agents in both a developed country and a developing country. I found smart people in the agency profession, most of them quite knowledgeable in their area of competency. If I am transacting a property sale, I found that my own online analysis of the market is inadequate to directly interact with the market and I would be better served by a dedicated agent at a specified fee. I found that he or she could do a much better job in price discovery and advising on the right kind of price at which I should sell my property. The difference between India and Singapore is not on competency or sales aids that a typical agent employs, but more on the emphasis on personalized relationships prevalent in India as compared to more officialized attitudes prevalent in Singapore.
So, what are my conclusions?
I do not support engagement or involvement of sales agents in business transactions, whether involving two businesses or two countries. As we have seen in multiple military procurement scandals, involvement of agents shields corrupt players. Violation of procurement rules is only possible if agents are misused to hide corruption.
However, when it comes to home or car sales, agents’ role is critical in ensuring the seller is not shortchanged due to inadequate market knowledge. Agents also become important to secure interest of qualified buyers, and I was surprised to note that online ads do not produce the same effect because of lack of qualification of potential buyers. Further, attracting potential buyers to online ads does not seem to be working out well anymore.
In a nutshell therefore, middlemen and women do have a place and role in the consumer society – whether it be in a developed or a developing country, though I believe in the not too distant future, robots will take over their role. However, for B2B transactions, it is best if the seller and buyer interact with each other directly, or via an electronic marketplace with safeguards. The dependence on middlemen in such situations will only exacerbate potential conflicts of interest and accentuate corrupt practices.
How is an agent different from a lobbyist?
That is for another blog post I guess!
Have a great weekend folks.
2nd February 2019