The Rise of the Micro-Multinationals

An interesting report on the evolution of labor under ‘digital capitalism’:

* Report: The Rise of the Micro-Multinational: How Freelancers and Technology-Savvy Start-Ups Are Driving Growth, Jobs and Innovation. By Ann Mettler and Anthony D. Williams. Lisbon Council Policy Brief, 2013.

Here is the summary:

“This policy brief is divided into four parts.

Part one … is intended to introduce the concept of micro-multinationals and explain why we believe their dramatic arrival on the economic scene is but the first shot in a wider, rapidly unfolding revolution.

Part two will look in greater depth at the changing economic landscape and the forces driving micro-multinationals to the forefront of modern economic developments.

Part three will discuss the changes that micro-multinationals are themselves making on the world around us, and part four will look at the implications for policymakers and make eight recommendations.”

Excerpted from the Introduction:, by Ann Mettler and Anthony D. Williams:

“As crisis engulfs the world’s leading economies, there is great concern about job creation and energizing growth rates.

The sudden arrival of subdued, Japanese-style growth prospects for North America, Europe and the rest of the developed world – combined with years of sluggish employment figures – have given increasing urgency to the task of finding effective responses. But so far, nothing seems to have worked. That is not surprising, as traditional levers of policy intervention tend to be designed around the interests of economic incumbents – existing market players – rather than the newcomers that are today’s key engine of growth and jobs. Consider this: All net job growth in the United States between 1980 and 2005 came from firms less than five years old.

And, interestingly, in each year between 1997 and 2008, more than 2.5 million people simply created their own job by becoming entrepreneurs (and also created more than one million additional paid employment positions each year).

In other words, 65% of all jobs created in the US in that time were jobs that entrepreneurs created for themselves, making freelancing an increasingly important source of employment and a significant, albeit often overlooked, cornerstone of modern economic activity. In Europe, the numbers are similar. Some 32.6 million people are classified as self-employed, which accounts for more than 15% of total employment.

The vast majority of Europe’s self-employed, some 23 million, are freelancers, meaning they work for or in one-person companies. And while the crisis has had a negative impact on the overall employment situation in Europe, a European Commission study recently found that self-employed entrepreneurs were much more resilient to the economic downturn than dependent workers and employees.

At the forefront of this seismic shift in the way jobs are created and economic value added is a new type of company, the micro-multinational. Traditionally, these small, self-starting, service-driven companies would have been described as small- and medium-sized enterprises, or SMEs, but thanks to the Internet, the emergence of new business platforms and the increased openness of the global economy, these companies can enter markets with a minimum of bureaucracy and overhead.

Add to that their unparalleled ability to respond promptly to changing market developments, a collaborative DNA that often translates into superior innovation performance and the lack of the institutional inertia and legacy relationships plaguing larger organizations, and one begins to see the transformative and paradigm-changing potential.

Take Local Motors, a radically new kind of car company founded in Chandler, Arizona by Jay Rogers, a former US Marine with a mission to reinvent the auto industry.

Rogers doesn’t employ a design team and he doesn’t do much in-house R&D. Instead, he has an online community of 12,000 freelance designers from 121 countries that participate in contests and collectively design next generation cars.

Unlike its larger rivals, there are no massive three million square foot manufacturing facilities and no shiny global headquarters to house tens of thousands of office workers. Instead, he makes cars using a network of micro-factories, each one producing custom-built off-road vehicles designed for that particular region.

And the results have been spectacular: So far, he has designed and produced around 50 off-road vehicles (that’s the company’s niche) and plans to produce and sell 1500 more at roughly $75,000 [around €55,000] each. He employs around 15 full-time staff.

Examples like Local Motors may be on the extreme side – after all, not every micro-multinational is organizing freelancers on a project basis to take on bloated 20th century industrial behemoths such as the car industry. But it is a good example of the basic economics driving micro-multinationals to the forefront of today’s economy. Put simply, in the past you had to be large to gain global reach; today, this is no longer the case. Typically, a company like Local Motors can conceive and design a car in 14 months – not the three- to five-year development time it can still take Detroit and some European carmakers. And customers don’t need to schmooze with slick salesmen or visit expensive showrooms to choose their vehicles. Instead, many Local Motors customers take part in designing their own cars online, customizing production to get their perfect vehicle, and cutting out an expensive distribution network that drives up the price and slows down delivery. True enthusiasts can even visit the Local Motors factory and take part in building their car themselves.

But the truly transformational development is this: In the 19th and 20th century, firms needed to get big to attain the scale necessary to develop global distribution networks, to tap into global talent pools and to bring in the large revenue that drives profits and creates jobs. As the world enters the 21st century, this formula has been stood on its head. Today, many large companies are hampered by their size – bogged down in bureaucracy and overstaffing that makes them painfully slow to take decisions and often blinds them to important new opportunities emerging in today’s markets. This, in turn, leaves them singularly unprepared to take advantage of the radical new opportunities on offer, and facing the world with a cost structure that makes it difficult for them to compete with leaner, new enterprises like Local Motors. The result is that large companies are under increasing pressure to deliver more with less – a fact which may well account for the jobless economic recovery we have seen in 2010 and 2011, and could well be an indication that big companies, no matter how much economic stimulus is applied, are never going to deliver the jobs that politicians are counting on them to provide.

But it also means that entrepreneurs, freelancers and the self-employed are in a position unlike ever before to become the engine of jobs, growth, innovation and future prosperity – and to deliver on their dreams. Put simply, technology puts them in the driver’s seat, allowing them to scale up and deliver products without having to build the huge infrastructure and bureaucracy that 20th century enterprises relied upon. The difference over time is a revolution in the way economic value is created, with smaller companies now able through technology to gain the scale that only larger ones could previously aspire to. Under these circumstances, the speed, agility and responsiveness that their small size permits becomes a major asset, rather than a liability.

And it is no surprise that, more and more, big companies are starting to depend on the ability of smaller companies to help them meet deadlines, deliver top-of-the-line work and effectively embrace fast-changing market conditions to which their own sclerotic management structures are not capable of responding quickly enough.

This has important implications for the labor market, too. Policymakers must understand and embrace the fact that jobs are being created not by yesterday’s economic heroes, but by tomorrow’s emerging champions – and focus their policy on stimulating the creation of more globally-focused SMEs and creating a social system that facilitates and supports work in this area, as we will argue in part four of this policy brief. Undoubtedly, it is a good news story – unless you choose to view it from the nostalgic lens of yesterday’s economy. There has never been a better time to be an entrepreneur, to write your own job description, to create a profession for yourself and to find your own way forward in a highly diversified modern economy that puts so much power at the mere click of a keyboard. And that is exactly what more and more people are doing.”

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