Hollywood Could Be a Role Model for Industry
McRae, Hamish, The Independent (London, England)
So evidently there is only room in the world for two manufacturers of large civil aircraft. Had it not been for European government subsidies for the Airbus consortium we might have been down to one. The Boeing takeover of McDonnell Douglas seems the demonstration of one powerful trend in international business taken nearly to its ultimate conclusion: concentration of an industry into a global duopoly.
If this is the most extreme example there are many other industries heading in the same direction of cross-border mergers. In international airlines there is the proposed code-sharing, or joint marketing agreement, between British Airways and American Airlines. That is a concentration of power rather than of ownership, but cross-border mergers seem close. Just yesterday a possible merger between Lufthansa and SAS was reported. In telecommunications there is the proposed takeover of MCI by BT; in pharmaceuticals the merger between SmithKline and Beecham; and in finance most of the London merchant banks have been taken over by large commercial banks, usually continental.
But parallel to this is another, equally pervasive trend: downsizing. In just about every industry in the developed world large companies are shedding labour. They are outsourcing an increasing proportion of their activities, farming large amounts of management out to consultancies, getting rid of non-core activities, and all the while driving down the costs of their core business by sacking people. Boeing and McDonnell Douglas are good examples, too, of this second trend, for both downsized their workforces through the early 1990s, although Boeing has recently been hiring again. MCI is one of America's most enthusiastic downsizers and, in actual numbers of jobs shed, BT is probably the largest downsizer in the UK. Vast screeds have been written by the management gurus about the rights and wrongs of downsizing, with some of the early enthusiasts now recanting; other management scribes have examined the process of concentration. But it is hard to find a synthesis: something that pulls together these apparently conflicting aspects of global business into a coherent explanation. I suspect we will have to wait a few more years before we really understand what has happened and why, but it is worth setting out some ideas at this stage, for the twin trends seem to have some way to run. There is, for a start, the blunt explanation offered by a colleague: concentration stems from the fact that companies that can establish something approaching a global monopoly will go out and do so; everyone else has to cut costs to stay in business. It is a perceptive comment. You can see the twin trends clearly in a company such as BT, for it faces increasing competition at home and hence has to cut costs here, but would like to establish dominance (or at least parity with AT&T) globally, hence the merger with MCI. But that does not really explain what has changed, or rather how change interacts with the existing situation of a company to force it to behave in these ways. There are at least three big changes taking place which alter the optimal size of a company. …