Why giants thrive - Special report on companies
Conclusion: <i>The most powerful force behind the rise of the new giants is technology. But two other forces are pushing in the same direction: globalisation and regulation.</i><p>- Premise (support)<p>- Big companies benefit from supply chain  economies of scale&#x2F;network effects (Pankaj Ghemawat calculates that America’s top 1,000 public companies now derive 40% of their revenue from alliances, compared with just 1% in 1980)<p>- R&amp;D in countries with cheaper cost of labor&#x2F;materials (PwC, an accountancy giant, produces an annual survey of the world’s 1,000 most innovative companies. It found that last year those that deployed 60% or more of their R&amp;D spending abroad enjoyed significantly higher operating margins and return on assets, as well as faster growth in operating income, than their more domestically oriented competitors)<p>- Regulation inevitably imposes a disproportionate burden on smaller companies because compliance has a high fixed cost (Nicole and Mark Crain, of Lafayette College, calculate that the cost per employee of federal regulatory compliance is $10,585 for businesses with 19 or fewer employees but only $7,755 for companies with 500 or more)<p>- Small companies can&#x27;t game the tax code like large companies can (The country’s tax code runs to more than 3.4m words. The Dodd-Frank bill was 2,319 pages long. Big organisations can afford to employ experts who can work their way through these mountains of legislation; indeed, Dodd-Frank was quickly dubbed the “Lawyers’ and Consultants’ Full-Employment act”. General Electric has 900 people working in its tax division. In 2010 it paid hardly any tax)<p>- Large companies have a &quot;buffer&quot; during poor economic periods and can simply buy out smaller companies (the mortality rate for all American listed companies over a five-year period is as high as 36%, but for companies worth more than $1 billion it is only half that)<p>I was surprised not to see a mention of the evolution of the legal treatment of corporations discussed, as well as a discussion of the decline of unions and the weakening of the average employee&#x27;s bargaining power. But otherwise a better article than I was expecting from the economist.