The Decline of the Big Corporation

The era of big corporations started during the industrial revolution. The past couple of centuries have witnessed the rise of these mega-corporations, particularly in the developed western world. In many cases, these corporations have become extremely powerful and have behaved aggressively with weaker nation-states as well. The idea that some private individuals can amass more wealth or wield more power than a nation is still relatively new. However, it already seems like this is about to end. There are many studies which show that the mega-corporation that we know of may be about to end.

The idea that American corporations may be about to decline has been discussed in detail in Prof. Davis’ book “The Vanishing American Corporation.” Some of the important ideas from the book will be discussed in detail in this article.

The Rise of Pop Up Companies

Mega companies, which existed in the 19th and 20th century no longer exist! This argument requires no proof if one looks at the companies which are now worth billions of dollars. Consider the fact that companies like Uber, Snapchat, Airbnb, Facebook, etc. did not require any significant outlay. This means that unlike the steel plants or automobile plants of the 20th century, these companies could have been opened by anyone who has a working internet connection and can accept payments by credit cards.

The internet has revolutionized the way we live as well as perform business activities. Companies are now able to leverage technology to do more with fewer resources. Mega-corporations are, therefore, no longer required. For instance, a small start-up company named Vizio, which has only about 200 employees was able to match the number of television sets sold by Sony, which has over 150,000 employees.

The mega companies are, in fact, obsolete. They have high overhead costs and as a result, are not able to manage economic downturns as well as these pop-up companies. This is the reason why the decline of the mega-corporation seems imminent.

No Economies of Scale

Economies of the scale were the main reason that mega-corporations existed. For instance, companies like Ford and Wal-Mart were able to procure materials for a lower cost since they would buy in bulk. With the advent of the internet and high-speed connectivity, the cost savings generated by bulk buying have become obsolete.

Instead of building businesses which would only operate on a large scale, the new businesses are highly scalable. This means that the businesses can rapidly adapt to a changing user base without having a huge impact on the operations. For instance, new age companies like Uber and Airbnb are able to roll up and scale down their operations without having a major impact on their operations.

Higher Regulatory Costs

Mega-corporations, on the other hand, have a huge disadvantage. Governments all over the world have started regulating every aspect of their business. This means that these companies have to spend millions of dollars to ensure that they are in compliance with local as well as international laws which can be extremely complex. Most of these laws are not applicable to limited liability partnerships. This is the reason why many start-ups prefer to remain limited liability partnerships even when they have billions of dollars in revenue. As per the current governance model, the odds are stacked against the publically listed corporations.

The Problem with the Decline of the Big Corporation

It might seem like the decline of the mega-corporation is a boon for the majority of the workforce. However, that is not the case. The entire ecosystem of mega-corporations has been providing employment and health benefits for a large chunk of the population. These corporations and their army of middle-rung executives have been responsible for the creation of the middle class and the spending boom that it has brought along. The decline of these mega-corporations will, therefore, be a painful change that might decimate the middle class as we know it.

What the Future Holds for the Workforce

According to Prof. Davis, the future of the workforce does not seem very bright. During the era or mega-corporations, workers had careers. However, with the rise of the pop-up companies, these careers have been reduced to tasks and gigs.

  • Uberization of Tasks: It is likely that the tasks will be uberized in the near future. This means that instead of hiring full-time employees, companies will use mobile networks to allocate the task to freelance workers. Stable jobs and careers are likely to be replaced by daily gigs which bring about uncertainty.
  • Small Scale Manufacturing: On the other hand, where goods manufacturing is required, companies will not set up their own plants. Since the economies of scale will be non-existent, they will prefer to outsource their jobs to small scale manufacturers. This will help small businesses to thrive. However, the problem is that the pop-up corporations will still hold an inordinate amount of influence on these companies.

The bottom line is that the era of the internet will end up creating an ecosystem of companies which will have very little capital investment or employees. However, these companies will control the entire business making managers and mid-level workers redundant.


❮   Previous  Article Next  Article   ❯

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


Corporate Finance