Transcript The Size Distribution Of Firms: Geographical Perspectives

The Size Distribution Of
Firms: Geographical
Perspectives
Melody Shekari
Scott Szarka
Introduction
►
►
►
Size distribution of firms: Why do small, medium, and large
firms exist?
Geographic scope of large firms  Mainly employment
geographies.
Spatial Division of Labor (SDL)  Implications from
employment distributions of large firms.
Size Distribution of Firms
Capitalist economies have large range in sizes of firms
► Typically few large firms, many small firms
► Suggested that increase in size of firm, number of firms
declines steadily
►
Economies of Scale
► Traditional
explanation is Economies/
Diseconomies of Scale
► When
average cost of production decreases
and size of activity increases
► Diseconomies
of Scale  Increasing avg.
production costs with increasing size of
activity
Economies of Scale
► Large,
multi-plant firms more efficient than small
ones  Implied by possible reductions in avg.
costs with increasing firm size
► Diseconomies
of Scale – Increasing size may
become inefficient
► Small
firms exist because the economies of scale
for firms is very limited or market is too small
Economies of Scale
► Large,
multi-plant firms spread out fixed
costs (ex. Marketing, R&D) exploiting
economies of scale
► Act
as ‘barriers to entry’ for medium-sized
firms trying to enter same market
Dual Economy Argument
►
Economies comprised of:
 Large corporations – ‘Planning System Firms’
 Small firms – ‘Market System Firms’
►
Act as different institutions
►
Planning system firms growth not just for efficiency, for
access to resources, reduce uncertainty, gain bargaining
power
Dual Economy Argument
► ‘Satellites’
– have direct business contact
with large firms
 Planning system firms control market
► ‘Loyal
Opposition Firms’ – Directly compete
with core firms
► Dynamic
small firms – manufacture new
products, potentially acquired by large firms
International Size Distribution
► Economies
of scale not sole reason for size
distribution.
► Small
firms more important in Japanese and
German markets than UK or US
► Includes
► Japan
national or cultural factors, choice
and Germany have ‘chosen’ to priority to
SME’s (small and medium-sized firm)
International Size Distribution
► Japan
has favored highly-specialized strategies,
firms rely on other firms’ specialties
► Evidence
► In
that small firms playing a greater role
US, largest 500 firms:
 Sales decreased from 55% to 42% of total sales
 Share of national employment down 17% to 11%
 Number of new, smaller firms rising
Geographic Distribution of
Employment
► Size
distribution parallel to geographic view
of firms
► Hakanson’s
model attempts to generalize
long-term growth paths of corporations
► Firms
establish local base, grow nationally,
then internationally
Geographic Distribution of
Employment
► Sales
offices and
agents help gain
knowledge of other
sites
► Firms
become larger,
merger and acquisition
become important
Geographical Distribution of
Employment
► Since
1970’s employment geographies have
been volatile
► Largest job-shedding in iron and steel,
autos, and ship-building
► Volatility high in Europe and North America
in manufacturing technologically
sophisticated products and products with
high consumer demand
► Foreign
Foreign Ownership
Development
 large firms in manufacturing
sector invest as they grow
by exporting and investing in
foreign-based facilities.
►
Extent of
Internationalization
Varies
 evident in size of workforce
that is international.
Foreign Ownership
► Foreign
operations integrated with
domestic operations

this process has been made easier with
improvements in communication and
technology and declining tariff barriers.
► Companies
originating from
“periphery” countries
 Changed operating environment of “periphery”
country plants of other Multi-National
Corporations.
Mergers and Acquisitions
► Mergers
and Acquisitions are a
significant growth tool
 Is a type of investment that meets long term
strategic motivations and aids in corporate
systems development
► Advantages
 Provide faster, larger-scale, and less risk growth
 Reduce competition and increase economic and
geographic concentration in power
Mergers and Acquisitions
► Considerations
 Spatial and Aspatial factors are important
criteria in the assesment of mergers and
acquisitions
 Mergers provide a way to obtain previously
owned land, rights, etc. that may otherwise be
unavailable
 Many companies use Mergers, Acquisitions, and
Joint Ventures to increase growth in their
company
Spatial Distribution of Labor
(SDL)
Two Types
► Sectoral
Division- Region specializes in
particular industries and skills
 19th century- Cotton, Iron and Steel, etc. Regions
with skills organized by regional populations of
firms and vertically distributed.
Spatial Distribution of Labor
(SDL)
► Intra-sectoral
Division- Firms in individual
industries choose to specialize tasks and
occupations by location.
 20th century- with growth of interregional and
international corporations, different functions and
occupations are horizontally distributed among
different regions
 Research and Development and Decision-making
spatially separated from basic work processes.
 Few control centers within cities with many
peripheral basic work processes locations.
Spatial Distribution of Labor
(SDL)
► New
International Division of Labor
(NIDL)- geographical shifts of basic work
processes from core to peripheral and semiperipheral countries
 Implies that capital more mobile and not
necessarily tied to location.
Locational Hierarchies
► New
SDL vs. NIDL
 Within company, has different theory on dispersal
of basic work processes but agrees that control
functions are at the top of the urban hierarchy.
► Evidence
of Locational Hierarchy
 Example- Cadbury Schweppes
►Main
office- London
►Research and Development- Reading
►Operating locations- around the UK
►Though within the same country, these facilities are
not close to one another.
Locational Hierarchies
► Control
Center characteristics
 Central business districts for person to person
contact between decision-makers, as well as
proximity to networks of information
 US has some in peripheral regions, indicating
city problems
► Research
and Development Locational
Characteristics
 Not concentrated in centers; separate from
manufacturing centers and sometimes from
head offices.
Locational Hierarchies
► Core
 area usually with head offices, research and
development and control functions; decision making
done for periphery, more stable and higher paid
jobs as well as spin-off jobs (legal, etc), generates
wealth in the area
► Peripheral
 Area with branches of the corporation; in rural
places with lower paid jobs and corporate policy
establishes rules.
► Locational
Strategies vary
Conclusion
► Geography
of firms and development
implications vary
 Hakanson model- geography
 SDL/NIDL- local development implications
►Explains
► There
tendencies and over-simplifies realities
is need to investigate other segments
of firms