Bigger isn’t always better
Date posted: July 16, 2013
There’s an accepted notion that big everything – TV screens, food portions and companies – is better. One such belief is that larger firms are more efficient and can, therefore, offer lower prices to garner more sales. But is this bigger is better belief always true? N.C. State University economist Mike Walden responds.
“Well, there (are) certainly examples of where it is true. In some industries, for example (without naming names), the companies there are many … so-called big box retailers that people know of that have really made their name by becoming bigger, being able to get better prices out of their suppliers, control the so-called supply chain, et cetera.
“But there was a recent study of one U.S. industry, a traditional U.S. industry, where it was really going in the opposite direction. It was … getting smaller that many say really saved this industry, and this is the U.S. steel industry. Now, of course, the U.S. steel industry was a colossal industry in the U.S. in the 19th and early 20th centuries, and it was really one of the first examples of an industry where they did get very big so that the company could really control everything from the resource level, in mining the iron ore, all the way to shipping the final steel products to buyers. And around the turn of the century, if not before, they began to lose out. Our steel industry began to lose out again to foreign competitors.
“Many experts say that it was the move of that industry in the U.S. to getting smaller, so-called mini-mills, where they focus just on production. They bought things the old-fashioned way from other companies. They didn’t try to control those companies.
“And many argue that these mini-mills have become more adaptable. They’ve been able to change quickly to fast-changing international conditions. And many argue that these mini-mills really saved the U.S. steel industry from entirely disappearing from the U.S. economy.
“So, I think the answer to your question, ‘Is bigger always better?,’ at least in economics, … is not necessarily.”
Category: Economic Perspective