The Micro-Multinational Firm

By Saahil Parekh, 14th April 2015

Local Motors, a small car company in Arizona, US, has an ironical name: it is anything but local. It is a global community of co-creators and brings the coolest automobile innovations to the market through a network of micro-factories all around the world (some of them are mobile micro-factories, which fit in the back of a carrier truck). Products designed by the ‘co-creators’ online on the company’s website are manufactured based on local demands of the region using 3D printing technology.

Unlike a conventional car manufacturer which requires, at the least, an assembly line, Local Motors has done away with traditional processes through a disruptive use of the Internet. It essentially focuses only on its core component: setting up a bare-minimum workshop which facilitates low-volume manufacturing.

Firms of the 21st century are self-starting, self-driven and carry minimum bureaucracy and overhead. Riding on the wave of globalisation, fuelled by the growth of Internet, are the new firms like Local Motors. As Hal Varian, the chief economist at Google, puts it, this is the age of the micro-multinationals.

A recent report by the Lisbon Council for Economic Competitiveness and Social Renewal, a Brussels based think tank, elucidates the changes in the economic landscape due to the way micro-multinationals are remaking the world.

Policymakers should take note of the fact that “jobs are no longer being created by yesterday’s economic heroes, but by tomorrow’s emerging champions.”

All net job growth in the United States between 1980 and 2005 came from firms less than five years old. In each year between 1997 and 2008, more than 2.5 million people simply created their own job by becoming entrepreneurs. They also created more than 1 million additional paid employment positions each year.

In Europe, 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.

Internet has been the biggest facilitator in bringing about this change. If not for the Internet, micro-multinationals wouldn’t have been called that and would have traditionally been small and localised. But improved connectivity and openness of the global economy allows micro-multinationals to be in sync with the needs of the global, and not just local, consumer.

“Extensive use of web based technology means that these firms are multinationals from day 1.”

The argument of economies of scale says that every additional unit of capital investment in expansion generates a proportionally higher return as synergies of size kick in. However, this age-old postulate can now be questioned as firms are increasingly becoming smaller, leaner and niche in their own segments.

A wide plethora of online business services make it easier for companies to focus only on areas where they add value. Micro-multinationals have access to international markets through the wide range of services available online. From globally accessible cloud computing services to mobile-to-mobile international phone connections, the possibilities to connect, outsource and streamline are endless.

The decentralization of firm structure is even bringing changes in the large firms as they are increasingly setting up ventures that are quick, innovative and agile outside of the mother company. Employees at giants like Facebook and Google are increasingly adopting nuclear, modular structures within the organization.

This mentality is bringing a change in the way employment is sought. People don’t stick to a single job throughout their working lives; a trend that was the norm and not the exception in the post WW2 era. Almost everyone today goes through several jobs in a lifetime, sometimes even several careers.

(The Internet has made it) “possible for successful products and services can come from anywhere and anyone, catapulting small startups to global leadership in record speed, and making every person with a bright and actionable idea a potential star entrepreneur.”

It is almost paradoxical that the volatility of the economy only adds to the increasing rise of freelancers and micro-multinationals. While the 2008 financial crisis has had a negative impact on the overall employment situation in Europe, it has been found that self-employed entrepreneurs were much more resilient to the economic downturn than dependent workers and employees.

Schumpeter’s “creative destruction” is at play.

Saahil can be followed on Twitter @saahilparekh.