The triumph of the virtual corporation
Monday, March 25th, 2013By Jerry Davis
This post is part of an Aspen Institute Business & Society Program conversation series exploring ways to align the incentives of business and the capital markets with the long-term health of society. To learn more, visit www.aspeninstitute.org/bsp.
Dell’s (DELL) buyout is the latest in a series of firms leaving the public market. Since 1997, the number of American companies listed on stock markets has dropped by more than half, from more than 8,800 to roughly 4,100. Some firms leave the market due to mergers or going private (Dell), while many are delisted due to bankruptcy or liquidation (Circuit City, Borders, or Eastman Kodak).
But Dell’s buyout represents something bigger: The triumph of the virtual corporation.
Dell’s announcement coincided with the 20th anniversary of Business Week’s famous 1993 cover story on “The virtual corporation.” The virtual corporation was described as a temporary network of specialists that could be snapped together and re-configured like Lego pieces. Designers designed, manufacturers manufactured, marketers sold. The article was prescient in many ways, but missed out on one development: The growth of “turnkey” manufacturers in industries ranging from PCs to pet food.
In the 1990s, companies like Ingram Micro and Flextronics took on the mundane tasks of assembly, supplier management, and distribution for many large PC makers — often manufacturing competing brands on the same assembly lines. During the 2000s, the vast majority of electronics assembly moved offshore. The numbers are stark: At the start of 2001, the Computer and Electronic Products industry had 1.9 million employees in the US. It now has fewer than 1.1 million — about as many as Foxconn alone empoys in China.
