Small companies or mega companies?

I finished listening to the The Wal-Mart Effect this weekend. The author's main point is that Walmart has gotten too large – or at least larger than we ever planned for when we planned how companies should be regulated. He argues that Walmart with $375 billion worth of sales is beyond market capitalization and beyond the checks and balances that the market is supposed to have.

And this morning I read a Wired article in which an MIT professor named Tom Malone says that large companies will grow so large that they will fall apart and become small companies that can communicate more effectively among each other than a large company can within itself. The article goes on to say that we are seeing this right now. Walmart is closing stores, huge financial companies are falling apart and large corporations are being more regulated, encouraging a lot of smaller companies.

I don't know if I buy it since the Walmarts near me seem to be doing really well and I don't see a lot of new small businesses. But I personally would like to see a world with lots of small independent companies than a couple of megalithic companies.

14 Replies to “Small companies or mega companies?”

  1. Here in Canada, Wal Mart has closed stores (at least) because the employees got unionised and the company didn’t manage to successfully get the decision over-turned.
    Not sure it is a metric, but I believe store closing isn’t significant. A closing also can match an opening in the same area ; close the old one, open a new and bigger one.

  2. Stormy, what you are seeing that building auto-centric cities favours big companies, because only they can afford the rents associated with malls and big box stores. Cities built to ped/bike/transit scales tend to have thriving small businesses.
    Now, this only applied to retail companies but it looks like cyclical runs of consolidation and usurption happen all the time (IBM to MS, Linux to MS, etc.)

  3. Funny, I don’t mind large corporations so long as they don’t unfairly monopolize, but I do mind large governments since they always monopolize. The US originally had a system of smaller pieces called states, but now its really just one large federal government.
    There are a large number of alternatives to Walmart, but I can’t really choose to pay my income taxes to some alternative government unless I relocate.

  4. I live in a small town (5,000) people and small businesses are closing. We are getting a Walgreens and a Safeway … and the Walmart about 4 miles away is doing great.

  5. The book talked about a bunch of people that *hate* Walmart and still shop there because it’s cheapest. So I don’t think most people are voting with their feet. They’re voting with their wallets and Walmart’s single focus is “low prices”.

  6. Walmart squashed small retailers by efficiently distributing cheap “good enough” products. This severely impacted small retailers who couldn’t compete on cost of products alone.
    Technological advancements have meant that with little capital investment, small companies can produce unique or custom products and market, sell, and distribute them broadly.
    But this doesn’t necessarily equate to more store fronts in small towns. A lot of this efficiency is showing up in Web-front businesses, which may not have a physical store front, and are likely serving a geographically diverse audience.
    It’s really up to local governments to create an image for themselves that attracts these new innovative businesses to their towns, if it’s to be generally visible.
    While the advancement of technology has made more sectors available to small companies (and made things more healthy), the recent financial troubles as of late are really just shaking up the dinosaurs that were in bad need of change; this certainly does not spell the end to the large corporation (or even the mega corp). It will (hopefully) just evolve our understanding of how things fail, and hopefully our big company sophistication improves as well.

  7. Low prices sound good to me as a single focus! You’re going to have a very hard time convincing me that any of my regular purchases (groceries, a few household supplies) would give me better value if I bought them from a small store than if I bought them from a large one.
    Those people who don’t like Wal-Mart but shop there anyway aren’t a myth. Admittedly, tho, the situation where I ran into the people was rather esoteric: Appalachian Trail thru-hikers. Turns out Wal-Mart’s just having low prices rather than requiring you to shlep a member card around (*definitely* an esoteric shopping criterion, at least to the extent we cared!) and their guaranteed-vast selections make for a great buying experience for someone who knows exactly what he wants and might end up disappointed with some small store that just happens to miss the particular items he was looking to get.
    Frankly, I think the “Wal-Mart threat” is overblown. The Wal-Mart near where I grew up in Michigan didn’t seem to have much effect on the nearby Farmer Jack, Kroger, or Meijer stores. (I hear a second Farmer Jack store is no longer in business, but I have no evidence one way or the other that the Wal-Mart had anything to do with it.) Out in California now, there’s a Target right across from the Wal-Mart that seems to be doing fine, and there are two Safeways within a dozen or so minutes on bike that don’t seem particularly hurt either. I buy from Wal-Mart sometimes, I buy from the others sometimes, and all four nearby stores have received my patronage at one time or another — the market’s quite healthy. Now, maybe the argument goes that Wal-Mart only hurts really little stores, and none of these are actually little; if these aren’t little I don’t have much experience upon which to fully evaluate the tradeoffs. Even still, do you go to grocery stores to buy character or to buy groceries? I think most people go for the latter, and the few that don’t, well, the Rolling Stones had it right: you can’t always get what you want, but you can get what you need.
    The idea that small stores have greater claim on how I spend my money than larger ones is a very warped sense of entitlement. If you want people’s money, you have to earn it.

  8. The book did have a lot of examples of how Walmart hurts us, other countries and the environment. By forcing low prices they encourage very bad working conditions in other countries factories, they encourage poor environmental standards (the example used was salmon farms and it sounded terrible for our oceans), and they hurt the counties they move into. There was a study that showed that poverty levels in a county actually go *up* when a Walmart moves in. And tons of Walmart employees and their kids have their insurance paid for by government programs for people living in poverty. Their CEO’s response? He can’t compete with the government programs! A multibillion dollar company can’t afford health care for its employees!
    And they do cause small businesses to close. Maybe not in your immediate vicinity but by offering supercheap lawnmowers, lawnmowing companies go out of business. By offering supercheap toys, toy companies go out of business, etc.
    So it might be good on your wallet but it’s not good for the world. The author’s solution was not to encourage people not to shop there but to have government regulations on how they can act. For example, they should be required to keep the same factory conditions worldwide and meet good environmental standards worldwide.

  9. Around by me, quite rural southwertern Wisconsin, they are popping up new Walmarts all the time. We now have a Super Walmart ever 20 minutes down the highway no matter which way you go and one in our town. I can name 5 within 20 minutes. All opened within the last 1-4 years and none looking to shut down.

  10. I think you are absolutely right. Walmart may be closing stores in some areas, but that is because the economy is in tatters and people are buying less junk^H^H^H^Hstuff. There is no economic gap for hopeful small business owners to fill, and as soon as there is one, Walmart will likely reopen in the same building.
    The very rural area where I live has fought hard to keep the box stores out for this very reason. We rely heavily on tourism, so a large percentage of the residents own small businesses. In other words, I agree with you completely. 🙂

  11. Don’t be so sure that the lower quality of working conditions in those places isn’t a step up from what they otherwise might have, or what they might have if low conditions were forbidden:
    Regarding this:
    “And tons of Walmart employees and their kids have their insurance paid for by government programs for people living in poverty. Their CEO’s response? He can’t compete with the government programs! A multibillion dollar company can’t afford health care for its employees!”
    Realistically, what do you expect? A non-market-based solution can take advantage of opportunities (subsidies, operating with a persistent deficit, cf. the Medicare and social security programs) not available to privately-owned businesses — and that ignores the costs of each. The privately-owned business decides it’s not going to provide what its employees can otherwise get for free. In that sort of market, how is it rational behavior to compete?
    Businesses that meet their customers’ needs survive, businesses that do so to a lesser extent die. That’s the reality of the market. If a smaller, more inefficient business wants to live, it must find a suitably large market for its more expensive products. Lawnmowing and toy companies have no right to stay in business if consumers decide they don’t want their more expensive products. Why are GM and Chrysler going into bankruptcy? Because they didn’t make what people wanted. It takes two to tango: the customers to want something enough to buy it for up to some price, and the businesses to be willing to sell it for no more than that price. Small businesses that ignore customer desires are only half the equation, and they shouldn’t be surprised at the result.
    Last, government regulations reflect the desires of the people. Factory conditions and environmental standards are luxury goods primarily desired by the affluent Western world; forcing them on the rest of the world will lower business in those areas and provide less of what they need — jobs and income — to be willing to demand of their employers increases in their own standard of living. We can certainly wish for the bad things not to happen, but outlawing them doesn’t necessarily mean they’ll be replaced by better things.

  12. Actually, when a Walmart comes into a county, the percentage of citizens living in poverty *goes up*.
    I think we have the right to decide what businesses should provide, health care, good working conditions, etc and if they are replaced by worse things, then that means we didn’t do a good job thinking it out and we need to reconsider it, not just say “oh well”.
    People want low prices, but they also want to know that the people that made the products had decent working conditions and they count on our regulations to ensure that happens.
    You shouldn’t have to do homework before you go shopping to know which stores treat employees and the environment around the world well. We shouldn’t accept businesses that don’t.

  13. Interesting post, Stormy.
    Some time ago, I read a book titled “Small is Beautiful”:
    Many of the things discussed in that book resonated with me.
    The author was E. F._Schumacher:
    who was “an internationally influential economic thinker” according to the Wikipedia article on him.
    I googled the book and the author just now to get those links, and saw in the Wikipedia article for the book, that “The Times Literary Supplement ranked Small Is Beautiful among the 100 most influential books published since World War II”.
    I really liked that book. I don’t think we can turn the clock back and all go back to nature (and small companies, organizations and businesses), but maybe, with a lot more progress in not just technology, but also in people’s ways of thinking, we may be able to attain, some day, in more geographical pockets (meaning areas, but hopefully large ones :), that kind of way of living; we could always still have cities, etc. Having lived for a lot of my life in both rural / natural areas as well as in large cities, I see some pros and cons in both.
    – Vasudev

  14. Thanks, Vasudev, to the pointer to the interesting looking book and the information about it.
    I don’t think progress always means bigger – it might mean more consultants and smaller companies – so it is possible!

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