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Strategies & Market Trends : ahhaha's ahs
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To: ahhaha who wrote (7673)3/13/2006 1:12:49 PM
From: GraceZRead Replies (2) of 24758
 
On another subject, I've been spending a lot of time trying to figure out whether there has been a fundamental shift away from big having an advantage to being a liability in the US. In theory, no company has to have employees or divisions if they can contract with some outside firm to do what needs to be done. Companies have been using outside firms to do the most risky stuff for many years and now it seems all low return aspects of normal production are also going to be contracted out as well. It seems to me that the large US corporation is moving towards a shell whose only function is to allocate capital between small independent firms.

Coase did some writing on the subject with his "Nature of the Firm".

Basically the gist is that the environment that favors large firms ceterus paribus are:

* low costs of organizing and a slow ramp up in those costs as the number of transactions scales.

It seems to me, in the US we're moving in the other direction from this. Much of the higher cost is coming from government regs.

* situations where it is less likely for the entrepreneur to make large mistakes (known business models)

So many business models have been rendered obsolete in the last five years I've lost track. Has it always been this way or is there a higher entrepreneurial risk now than there was say ten years ago?

* better pricing of production factors with scale, economies of scale.

With electronic markets and greatly reduced costs to do small transactions it seems that price models for materials are flatter than they've ever been.

It seems to me we entered another cycle where it is better to contract out to small than it is to have these functions in house. What I can't really discern is if this is a cyclical change or a structural one.
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