Firm Turnover and Competition

Source:

WHAT DOES FORTUNE 500 TURNOVER MEAN?

SCHUMPETER’S GHOST: IS HYPERCOMPETITION MAKING THE BEST OF TIMES SHORTER?

 

Fortune 500 Turnover

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We find that, while annual turnover on the list has, on average, increased since the early 1980s, it doesn’t quite mean what many people think it means.

It’s easy to paint a narrative around these numbers that coincides with the Great Moderation and the productivity revolution of the 1990s and early 2000s. But reality isn’t so simple.

1. Turnover among big companies is not a new phenomenon.

The late 1950s, as mentioned, experienced moderately high levels of turnover (at least compared to subsequent periods). Prior research has revealed considerable churn among big companies in the early decades of the twentieth century as well.

2. Higher turnover in the 1980s did appear to reflect value creation as corporate conglomerates, ravaged by inflation and competition, were taken apart and remade into separate, more efficient companies.

But, in the 1990s, higher turnover reflected (a) methodological changes in how the Fortune list was compiled, and (b) a mergers and acquisition boom, concentrated in a handful of sectors, that destroyed perhaps as much value as it created. /Turnover is less a broad economic trend than a discrete temporal and sectoral phenomenon

 

Fortune 500 changes reflects:

1.a kaleidoscopic process of sectoral change and greater efficiencies at the level of individual firms

2. some less sanguine economic developments, which includes the downside of higher volatility—the high M&A volume in the late 1990s included the largest number of the worst deals of the past thirty years—and the deleterious implications for consumers and households.

3. it appears as if performance among the Fortune 500, as measured by return on equity, did not necessarily improve and, if anything, became more volatile over time.

 

Schumpeter’s ghost: Is hypercompetition making the best of times shorter?

At the center of Schumpeter’s theory of competitive behavior is the assertion that competitive advantage will become increasingly more difficult to sustain in a wide range of industries.   (recently resurfaced in the notion of hypercompetition.)

This research examines two large longitudinal samples of firms to discover which industries, if any, exhibit performance that is consonant with Schumpeterian theory and the assertions of hypercompetition.

We find support for the argument that over time competitive advantage has become significantly harder to sustain and, further, that the phenomenon is limited neither to high technology industries nor to manufacturing industries but is seen across a broad range of industries.

We also find evidence that sustained competitive advantage is increasingly a matter not of a single advantage maintained over time but more a matter of concatenating over time a sequence of advantages.

 

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