There are two leading trends in the business world. On the one side is the notion that business needs to grow, to export, to take advantage of new emerging markets and especially, to lower productions costs through amortization of larger volumes. On the other side is the idea that a business must find an unoccupied niche and focus on the product’s local character and the quasi-personal relationships built with its clientele. Which notion is best?
When considering which concept best suits one’s entrepreneurial spirit, one would be well-served to read The Small-Mart Revolution, a book that raises a lot of questions about the many advantages usually associated with large multinationals. The author, economist Michael Shuman, was once the Director of the Institute of Policy Studies in Washington, and he is now leaning toward small businesses with local ownership – such as cooperatives, which he fails to mention. Let’s see how he goes about to disprove these myths about multinationals.
First, Shuman submits that mass production is not as effective as we are led to think. He further states that people forget that mass products are intended for a variety of different markets, and end-users (consumers) have different habits and tastes. These products are manufactured to take into consideration such differences, which essentially segments mass production into lots of specialized niche markets. Which undermines the level of efficiency we take for granted.
Furthermore, Shuman maintains that mass distribution is just as inefficient. He mentions the food industry as an example, noting that in the United States back in 1910, for every dollar spent on food, 40 cents went back into the farmer’s pocket and the rest was used up and down the production line. Nowadays, the farmer only gets 8 cents, 19 goes to suppliers of input and the remaining 73 goes to distributors. That’s because distributors take on the cost of packaging, refrigeration and transportation, – in a context where the cost of energy is constantly rising – advertising, supermarket and because the chain is so long and products are perishable, huge losses.
Besides, Shuman reports that employees’ relative contribution is not as good in large corporations: More absenteeism, ineffective communications, lack of loyalty, lower productivity… and even fewer innovations. Research has shown that research efficiency is inversely proportional to the size of the group in which it is conducted. Ultimately, as a view to the future, Shuman notes the tendency of modern economies to manufacture fewer products and focus increasingly on services. In terms of services, a large corporation managed from the outside is at a clear disadvantage: it is the proximity of the relationship, made possible through local administration, that builds consumer confidence and trust.
In my opinion, this simply confirms the extraordinary potential of Chrysalide: Proximity is ensured by maintaining relatively small units with local ownership and governance, yet without sacrificing economies of scale, and by pooling back-store assets. Shuman would approve! Because he recognizes that, big or small, each model has its advantages and there is no ideal concept. He further cautions that reducing costs through expansion has its limits and beyond these limits, complications ensue, inefficiency begins and costs start to rise again. That’s why Shuman suggests finding the most favourable concept for one’s business and then seek innovation, instead of expansion, to reduce costs and increase profits. Not a bad idea! Long live innovation!