Is It Ethical for Distributors or Manufacturers to Own (or Partially Own) Their Resellers and Up-Channel Partners?

In many industries, the supply chain is assumed to be a meritocratic playing field: manufacturers create products, distributors move and stock them, and resellers deliver them to end customers with service and expertise layered on top. Each tier has its role, and competition is meant to be healthy and fair.

But what happens when those lines blur? When a distributor owns, or partly owns a reseller? Or when a manufacturer takes a stake in a distributor or reseller? In these cases, conflicts of interest, unfair advantages, and distorted competition can emerge. Unfortunately, this is not a theoretical concern, it’s already happening in the wireless and 5G industries today.

This article explores the ethical concerns, why the playing field becomes unbalanced, how the dynamics differ from natural “horizontal” acquisitions, and what the wireless industry can do to protect fairness.

1. Ethical Considerations: Why Ownership Raises Red Flags

The central ethical question is simple: does ownership across supply chain tiers create conflicts of interest that unfairly disadvantage others?

The risks are clear:

• Information asymmetry and self-dealing
  A distributor (or manufacturer) that also owns a reseller can access sensitive pricing, demand, or customer information and use it to benefit its own downstream entity at the expense of independent partners.
• Preferential treatment
  Ownership often translates to better pricing, looser credit terms, faster access to new products, or priority allocations for the internal reseller arm. Independents can’t compete on equal footing if rules are bent internally.
• Barriers to entry and crowding out
  Independent resellers, often smaller businesses, may find themselves squeezed out, not due to poor performance but because the deck is stacked against them.
• Conflict of interest in governance
  If the upstream entity sets channel policies, incentives, or rules, it can quietly design those frameworks to favor its own reseller.
• Trust and perception
  Even if the parent claims fair treatment, the perception of favoritism damages trust. Once independent resellers believe they’re second-tier partners, loyalty erodes.

From an ethical standpoint, ownership itself isn’t inherently “wrong.” But vertical ownership within the supply chain creates structural risks that are difficult to mitigate without strong guardrails.

2. Horizontal Growth vs. Vertical Channel Conflict

It’s crucial to separate horizontal growth from vertical ownership.

• Horizontal acquisitions, such as resellers acquiring other resellers, distributors acquiring other distributors, or manufacturers acquiring other manufacturers are generally natural steps in market evolution. They create larger, stronger players at the same level of the supply chain. This type of consolidation may reduce the number of competitors at that tier, but it doesn’t create channel conflict because no one is suddenly competing against their own customers. In fact, horizontal consolidation can bring efficiency, greater reach, and healthier competition overall.
• Vertical ownership, by contrast, is when an upstream entity acquires or invests in its downstream partners. For example, a manufacturer owning a distributor, or a distributor buying into a reseller. This scenario disrupts the channel’s balance because the parent entity now competes against its own customers. Instead of enabling a healthy channel ecosystem, it risks tilting the rules in favor of its own subsidiaries.

This distinction matters: growth itself is not the problem, it’s the direction of growth that determines whether fairness is preserved or undermined.

3. Why It Is Not a Level Playing Field

Even with the best intentions, once vertical ownership enters the picture, the game changes. Here’s how the playing field tilts:

• Leverage of upstream scale
  Manufacturers and distributors already hold significant scale advantages. If they funnel these advantages toward their owned resellers, independents simply can’t compete.
• Margin compression for independents
  A parent entity can afford to reduce margins in its reseller arm to gain market share. Independents, with thinner margins, cannot play that game for long.
• Preferential inventory and forecasting
  When product supplies are constrained (a common issue in the wireless and 5G space), internal resellers almost always get priority allocations. Independents face delays, which can cost them customers.
• Incentive misalignment
  Marketing funds, rebate programs, and “preferred partner” statuses often get skewed toward internal resellers. Independents have to fight harder to achieve the same benefits, if they even can.
• Internal conflict of strategy
  A distributor or manufacturer now plays two roles: wholesaler and retailer. Balancing those incentives is nearly impossible, and the natural temptation is to favor the owned reseller arm.

The result: independent resellers are not losing business because of poor customer service or weak sales, but because the playing field itself is tilted.

4. How This Is Playing Out in the Wireless / 5G Industry

The wireless and telecom sectors are particularly prone to these issues. The rollout of 5G equipment, antennas, routers, and services has created both supply shortages and fierce competition. Into this environment, vertical ownership creates powerful distortions:

• Distributors launching retail arms
  Some distributors have begun selling directly to end customers under their own retail brands, putting them in direct competition with their reseller partners.
• Manufacturers investing downstream
  Manufacturers are increasingly taking stakes in VARs and integrators, ensuring their products get preferential treatment in bundled solutions.
• Allocations and exclusives
  In times of supply constraints, these internal arms often get the first crack at allocations, beta units, or promotional campaigns.
• Regulatory and compliance advantage
  Larger upstream entities often provide compliance resources (e.g., telecom tax filings, certification support). Their owned resellers benefit from this, while independents bear those costs alone.

In the wireless ecosystem, where timing, pricing, and compliance are critical, these advantages are decisive. Independent resellers end up competing not just against the market, but against the very entities that control supply.

5. Guardrails for Ethical Channel Governance

So, what would ethical ownership look like?

• Transparency and disclosure
  All channel partners deserve to know if a distributor or manufacturer owns a reseller. Hidden ownership only deepens distrust.
• Independent auditing
  Pricing, allocation, and incentive programs should be reviewed by independent auditors to ensure fair treatment across partners.
• Separation of functions
  Even under one parent company, upstream and downstream entities should operate as independent businesses with clear firewalls around sensitive information.
• Equal access to resources
  Marketing funds, rebates, and product allocations must be available on equal terms based on objective performance, not ownership.
• Regulatory oversight
  In some cases, competition law or telecom regulation may be necessary to enforce non-discrimination principles and prevent abuse.
• Cultural commitment
  Beyond rules, the parent company must embrace a culture of fairness, avoiding even the appearance of favoritism that undermines trust in the channel.

6. Conclusion: Growth Is Good: If It’s the Right Kind

The wireless and 5G industry is entering one of the most competitive phases in its history. Healthy competition among resellers, distributors, and manufacturers drives innovation, service quality, and customer choice.

Horizontal growth, reseller with reseller, distributor with distributor, manufacturer with manufacturer, is a natural and healthy part of market evolution. It creates stronger competitors within each tier and often leads to efficiencies and improvements without undermining the structure of the channel.

Vertical ownership, however, crosses a line. When manufacturers, distributors, and resellers blur their roles through ownership, the risk of unfairness grows dramatically. Independent resellers are no longer competing on service or expertise, they’re competing against a stacked deck.

For the 5G ecosystem to thrive, we must draw the line clearly: growth is good, consolidation can be healthy, but fairness must remain the cornerstone. When upstream entities start competing with their own customers, the channel becomes distorted and in the long run, the entire industry suffers.

Thoughts? Reach out to Michael Ginsberg to discuss.