Since the industrial revolution, it has been common among ‘industrial’ entrepreneurs to undertake projects that are difficult, focused on the long-term and are aimed at accumulating ‘maximum value’ from future customers.
While these projects were laudable, they also introduced a new phenomenon of companies that are much larger than the most advanced cities in the world. IBM, for example, is larger than the ancient cities of Geneva (Switzerland) and Heidelberg (Germany) combined.
What makes this new phenomenon of multinational conglomerates especially peculiar is the reality that they have organisational structures that are somewhat centralised, but are simultaneously geographically dispersed.
Consumer-Entrepreneur Information Asymmetry
The most daring of all the market attempts that aim to provide value are those targeted at the maximum number of consumers.
This requires the entrepreneur to make heavy investments on machinery, labour, material, networks, distribution and marketing in order to introduce a product at an affordable price to a larger audience.
The salient problem with this approach, is not just that it requires a lot of capital, but it also lends itself to being extremely vulnerable to uncertain events (e.g. material cost changes, labour price changes, labour strikes, government regulation, and competitive substitutes).
The result of this approach is that consumers are held at the mercy of ‘competitive market pricing’ in terms of the quality of the products they are buying. In the consumer’s mind, complex factors such as government ‘price’ regulation, customer price inflation, GDP growth, import/export exchange rates, and the company ‘brand’ are involved in influencing the price of a product.
The other result of this approach is that the entrepreneur is held at the mercy of possible competition and a complex market environment. In the entrepreneur’s mind, complex factors such as production costs, material costs, labour regulation, employment rates, customer affordability, lifestyle and social interests are involved in influencing the choice…