Big Or Efficient?

The last few years have provided some insights into how large corporations are run worldwide. The strongest sense of ownership has been in the minds of the top management executives who are generally detached from the major workforce and stay out of reach of the shareholders.

The recent financial crisis shows us how big corporations have left themselves exposed to the extent that only government bailouts could save them. It is quite evident that internal monitoring and control systems did not work as efficiently as expected because the tell tale signs of a crisis did not trigger any responses.

In some cases, large corporations were knowingly exposed to financial risks by the top executives, in an effort for the executives to continue to enjoy affluent life styles. These signals have been echoed when management of bailed out corporations in the USA and the UK worked towards paying themselves bonuses out of tax payer’s money.

Essentially, the big corporations often become independent, non accountable entities that dance to the tune of the controlling management of the day. These companies become less efficient, they tend to focus on cutting costs in areas where production should be most encouraged, and there is an unclear sense of ownership by neither the general workforce nor the management. This development is similar to that of building a government with the pressures of political expediency and cronyism.

Even the best organized big corporations are not easy to manage during times of crisis. The successful investments in Dubai have shown the world how oil money in a desert country can build a vibrant trading economy. As the global crisis unfolded across the world, even Dubai could not stand alone. The end of 2009 saw Dubai reeling as large corporations began to crumble quite rapidly to the extent that a huge cash injection of USD 10 billion was solicited from Abu Dhabi to keep the Dubai trading haven afloat. Only time and good management will tell if Dubai will survive the credit crunch.

Small and Medium Enterprises (SME’s) across the world have undergone the same pressures to survive. Often there is not enough available cash to keep the businesses afloat. The businesses are generally too small and therefore have a low production output that renders them un-sustainable. Many SME’s do not follow any best practice standards and therefore capture very small markets. SME’s tend to find themselves quite remote from the suppliers of their raw materials because they are typically located in small industrial parks whilst suppliers usually operate in developed industrial estates. These and other reasons may be the basis on which the majority of SME’s collapse within three years of starting up business.

Medium Sized Companies (MSC’s) offer a model that can be both efficient and sustainably productive to levels above the minimum thresholds. MSC’s typically employ between 100 and 200 workers. In the most prolific economies of the world, MSC’s are usually owner run and managed with the husband taking care of operations and production, while the wife looks after finances and marketing.

The industrial city of Shenzhen in China takes full advantage of the value of MSC’s. Industrial parks housing about twenty MSC’s are normal. Some parks focus on production of inputs for other parks. Other parks produce the finished goods for the consumer. The close proximity of supplier and processor in addition to easy access to the mega port of Shenzhen provides the basis for a cost effective and efficient strategy for mass production for export.

The city of Shenzhen has even gone a step further. Many MSC’s have built worker’s dormitories within the vicinity of the factories to allow for cheap housing and to reduce the cost of worker’s transport to the factories. The vibrant high tech economy of Shenzhen has created an attraction for young people from all over China to move there in search of jobs, opportunities to develop, and to build their futures.

The reality is that even in the face of the global economic crisis Shenzhen is still rapidly growing and expanding every day. Businesses have had to tighten up somewhat, but trade, production, and exports are constantly and sustainably increasing.

Zambia’s new economic zones can offer options for large multinationals to invest. Alongside these large investors MSC’s and SME’s must be supported, facilitated, and encouraged.

The focus on big companies often costs the country much more than to develop MSC’s that are more stable, more efficient, better run, better managed, more productive, and above all, are locally owned.

The MSC for many developed economies is the backbone of the country. The Asian Tigers, the successful economies of Korea, Japan, China, and India, are all strongly founded on a vibrant and aggressive MSC base.

Developing countries must re-address the question of attracting big businesses or efficient companies to develop a sustainable growing economy.

Published 22 December 2009