The rate of birth of US startups has almost halved in three decades while in
the US and elsewhere, the number of big firms that dominate global business
sectors has fallen to a low level in recent times.
Business dynamism - - the process by which firms continually are born, fail,
expand, and contract, as some jobs are created, others are destroyed, and others
still are turned over - - is crucial to an economy and according to
paper [pdf] published by the Brookings Institution, a Washington DC-based think-tank, research has firmly established that this dynamic process is vital to
productivity and sustained economic growth. Entrepreneurs play a critical role
in this process, and in net job creation.
Business churning and new firm formations in the
US have been on a persistent decline
during the last few decades, and the pace of net job creation has been subdued.
This decline has been documented across a broad range of sectors in the US
economy, even in high-tech.
Ian Hathaway and Robert E. Litan, the authors say: "Here, the geographic
aspects of business dynamism are analyzed. In particular, we look at how these
trends have applied to the states and metropolitan areas throughout the United
States. In short, we confirm that the previously documented declines in business
dynamism in the U.S. overall are a pervasive force throughout the country
In fact, we show that dynamism has declined in all fifty states and in all
but a handful of the more than three hundred and sixty US metropolitan areas
during the last three decades. Moreover, the performance of business dynamism
across the states and metros has become increasingly similar over time. In other
words, the national decline in business dynamism has been a widely shared
The authors say that while the reasons explaining this decline are still
unknown, if it persists, it implies a continuation of slow growth for the
indefinite future, unless for equally unknown reasons or by virtue of
entrepreneurship enhancing policies (such as liberalized entry of high-skilled
immigrants), these trends are reversed.
I have previously written that in many global business sectors, there are
just a few dominant players: Industrial chemicals: BASF and Bayer of Germany
compete against themselves and their main global rivals are Dow Chemical and
DuPont of the US; Smartphones are dominated by Samsung and Apple; Flat screen
TVs by Korean and Japanese companies; SAP of Germany, Europe’s only significant
software firm competes against Oracle of the US; Volkswagen, Toyota and GM
dominate the car market; Siemens of Germany’s main competitor in the supply of
conventional power plants, sophisticated healthcare equipment, is General
Electric of the US; Big pharmaceutical firms in Europe are concentrated in the
UK, France, Germany, Switzerland, Denmark and Sweden.
PSA Peugeot Citroën of France has been dependent on the Western European
market for 75% of its sales; the bigger Volkswagen Group sells 40% of its output
there and a third of 9.3m units in Asia Pacific - - mainly China.
What is interesting about VW’s total average 2012 head count of 550,000 with
237,000 employed in Germany, an additional 173,000 were employed across Europe.
Outside the United States, the global premium car market is dominated by 3
German companies: Audi, BMW, Daimler and Toyota’s Lexus [I’m not including the
real pricey market including VW’s Porsche - - Ferdinand Porsche was the founder
of VW - - and the Italian sports car manufacturer Lamborghini that has been part
of the Volkswagen Group since 1998. Today, some 950 employees work at its
headquarters in Sant’Agata Bolognese. In 2012, Lamborghini delivered more than
In Europe Ryanair, EasyJet and Norwegian, dominate the low fares airline
market while in Southeast Asia, Air Asia and Lion Air do.
Eric Garland, a strategic trends analyst and author,
says on the Harvard Business Review blog that one of the most powerful
trends has to be
the consolidation of multiple economic sectors toward a handful of firms with
hegemonic power over their industry. Much of this is driven by the needs of the
financial sector, which itself has consolidated massively. This
paper by the Richmond Fed shows
how from 1960 to 2005, the US financial services sector went from 13,000 of
independent banks to half that number, while the top ten banks grew from 20%
market share to 60%. As of 2013, the top
ten banks had 70% of the market.
Garland warns on the impact on entrepreneurship:
IGiant firms seek the services of similarly large vendors. New, small entrants
into the market will be at pains to form relationships with such firms, and the
power imbalance is effectively a monopsony — sell to us at our price, on our
invoice terms, or get lost. Trying to sell into a world of enormous corporate
cartels is considerably more difficult than it was forty years ago, when every
sector in America was smaller, more diverse and more dynamic...For
entrepreneurs, why start something new in such an environment? The current
tech boom might serve as a counterexample, but consider that for most
venture-backed companies, the ultimate exit plan is
for sale of the firm to an existing behemoth, not continued independent
[pdf] published by the Kauffman Foundation last
IFrom about 2002, the number of high-tech young firms continues to decline,
while there is a modest increase in the number of young firms overall. The
impact of the Great Recession on entrepreneurship is evident after 2007, with
sharp declines in the number of young businesses both in the high-tech sector
and in the economy as a whole. The number of young high-tech firms fell to
79,034 in 2011, marking a 19.2% drop from 2007. By contrast, the number of young
firms for the entire private sector fell by 18.3% during the same period."
In recent weeks we reported that Apple
had acquired 24 firms in the past eighteen months.
Nokia, Europe and Japan's old companies versus US
Big US companies are no longer big employers