The Virtue of Big
September 12, 2001 | 12:00am
I have for a long time believed in the wisdom of "small is beautiful," perhaps because of my own small size. However, I have been feeling lately that business and economics may be making it impossible for small to survive long enough to be beautiful. The book Small is Beautiful is about economics where people matter. Does this mean then that in big economies or companies people do not matter? I guess it depends on what point of view one takes.
An economist friend of mine who has a PhD from MIT and is also a very successful businessman, argues with me that it is difficult to discuss pure economic principles with right-brain types like me. Let me run through the example of the luxury fashion and leather industry so we can put the arguments in perspective.
A buyer of a multi-label store complained that it is becoming increasingly difficult for small fashion brands to find production facilities for their designs. He explained that more and more design houses are being bought by the giant players in the luxury fashion and leather industry who, through their sheer size, have control and power over raw materials and production facilities.
The Gucci Group, for example, owns Gucci, Yves St. Laurent, Sergio Rossi, Bottega Veneta, and Boucheron, among many others. Its first quarter sales for this year were US$560 million. Its rival, the LVMH Moet, Hennessy, Louis Vuitton Group owns Louis Vuitton, Loewe, Thomas Pink, Fendi, Kenzo, Celine, Givenchy, Lacroix, Donna Karan, and Pucci, among others. Its first half 2001 sales was Euro 5.6 billion. Both companies’ strategy has been to grow by acquiring new brands so one can expect the trend to continue.
These companies have enough volume to keep factories busy with samples and production year round, allowing their products to be delivered to stores before anyone else can get theirs made. They have first choice of the best leather, fabric and trims and they buy at the best prices. They buy so much advertising space that they receive the greatest amount of publicity in return. They are able to deliver high quality, at presumably better prices than if they were a small design house that would have to pay a premium for access to raw materials and production.
But what happens to the small design house? The difficulties in placing production and sourcing raw materials make production more expensive. Designs are sometimes compromised when factories show a lack of interest in re-tooling molds or machinery. For example, a shoe factory that invests in wooden lasts (forms) for a Gucci production line may force a designer to alter the shoe design to fit the form to keep costs down. This is perhaps the reason why uniquely designed shoes like those of Manolo Blahnik’s are so expensive. How many can build up enough hype to charge as much as Manolo Blahnik? To right-brainers the argument becomes: What happens to creativity? What about the beauty in smallness? Does this therefore mean that if one is small, one either has to charge high prices so that only a very few can afford to buy the products or one has no choice but to sell to the big operators?
So I have come to the conclusion that small may be beautiful but it is very expensive. So, big may not what we want, yet it gives the consumer more choices, more access to luxury products at more affordable prices to reach a larger public. Which means that in big companies or economies, people do matter as well.
This brings me to how we can find success for our small and beautiful country. We either concentrate on developing a few world-class geniuses, which is very difficult and will benefit only a few, or we put aside right-brain emotions and focus on policies to benefit a larger population. Since our most valuable asset is our multitude of people, which gives us our greatest potential to be big, we should focus and develop our people to become highly qualified individuals so that our services can be sold all over the world at the best return to the nation.
I appreciate your comments at dorisho@attglobal.net.
An economist friend of mine who has a PhD from MIT and is also a very successful businessman, argues with me that it is difficult to discuss pure economic principles with right-brain types like me. Let me run through the example of the luxury fashion and leather industry so we can put the arguments in perspective.
A buyer of a multi-label store complained that it is becoming increasingly difficult for small fashion brands to find production facilities for their designs. He explained that more and more design houses are being bought by the giant players in the luxury fashion and leather industry who, through their sheer size, have control and power over raw materials and production facilities.
The Gucci Group, for example, owns Gucci, Yves St. Laurent, Sergio Rossi, Bottega Veneta, and Boucheron, among many others. Its first quarter sales for this year were US$560 million. Its rival, the LVMH Moet, Hennessy, Louis Vuitton Group owns Louis Vuitton, Loewe, Thomas Pink, Fendi, Kenzo, Celine, Givenchy, Lacroix, Donna Karan, and Pucci, among others. Its first half 2001 sales was Euro 5.6 billion. Both companies’ strategy has been to grow by acquiring new brands so one can expect the trend to continue.
These companies have enough volume to keep factories busy with samples and production year round, allowing their products to be delivered to stores before anyone else can get theirs made. They have first choice of the best leather, fabric and trims and they buy at the best prices. They buy so much advertising space that they receive the greatest amount of publicity in return. They are able to deliver high quality, at presumably better prices than if they were a small design house that would have to pay a premium for access to raw materials and production.
But what happens to the small design house? The difficulties in placing production and sourcing raw materials make production more expensive. Designs are sometimes compromised when factories show a lack of interest in re-tooling molds or machinery. For example, a shoe factory that invests in wooden lasts (forms) for a Gucci production line may force a designer to alter the shoe design to fit the form to keep costs down. This is perhaps the reason why uniquely designed shoes like those of Manolo Blahnik’s are so expensive. How many can build up enough hype to charge as much as Manolo Blahnik? To right-brainers the argument becomes: What happens to creativity? What about the beauty in smallness? Does this therefore mean that if one is small, one either has to charge high prices so that only a very few can afford to buy the products or one has no choice but to sell to the big operators?
So I have come to the conclusion that small may be beautiful but it is very expensive. So, big may not what we want, yet it gives the consumer more choices, more access to luxury products at more affordable prices to reach a larger public. Which means that in big companies or economies, people do matter as well.
This brings me to how we can find success for our small and beautiful country. We either concentrate on developing a few world-class geniuses, which is very difficult and will benefit only a few, or we put aside right-brain emotions and focus on policies to benefit a larger population. Since our most valuable asset is our multitude of people, which gives us our greatest potential to be big, we should focus and develop our people to become highly qualified individuals so that our services can be sold all over the world at the best return to the nation.
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