McKinsey: tech gives small-medium sized businesses a killer advantage

 

Technology is allowing small and medium sized business to disrupt and compete with multinational corporations like never before, according to a global report into the profits of some of the world’s largest firms.

The report by research institute McKinsey Global Institute predicts multinational profit growth will slow from 5% to 1% in the next 10 years, with competition from technology-enabled firms and small and medium sized business expected to contributing to some of the decline.

The report, which was released today, is based on analysis of 30,000 large firms around the world and aims to highlight how the golden era might be over for the world’s largest companies, which have experienced a three-decade boom of unprecedented growth.

Titled Playing to Win: The new global competition for corporate profits, the report shows how record profit growth since the 1980s, which the report says led to five-fold growth in corporate net income until 2013, is set to slow in the next decade.

It also suggests in the future large corporations may cease to benefit from some of the things that have allowed such rapid growth, including falling costs, tax breaks and interest expenses.

McKinsey Global Institute director Richard Dobbs said that global corporate net growth had grown by more than 5% in real terms from 1980 to 2013, likening it to an “unprecedented bull run over the last 30 years”.

He said the expected 4% fall in the corporate profit pool real growth rate is a “very significant change” in the nature of global competition and the economic environment.

“Emerging market players – who by 2025 will represent 45% of the Fortune 500 - are playing by radically different rules and, in many cases, accept a 25-50% lower return than their Western peers.”

“Technology and technology-enabled companies continue to disrupt all sectors, reducing profits. Technology can also enable small and medium size enterprises to compete with their larger peers.

“At the same time we are seeing the end of the era of declining taxes, interest, and labour costs.”

Peter Strong, executive director of the Council of Small Business of Australia, told SmartCompany this morning he believes the internet and social media are a big driver behind this trend.

“It’s a good thing, a sign of the times; it should give us some hope for the future,” Strong says.

Strong cited recent comments by small business minister Bruce Billson regarding the US putting a stop to companies such as Microsoft buying up smaller tech companies, inhibiting innovation.

“Innovation comes from small not big,” he says.

Strong says the McKinsey research represents “another reason why we need that effects test”.

“If we’re not careful, the little ones will be stifled,” he says.

“Coles and Woolworths already inhibit innovation in our manufacturing and production areas by their domination.”

“There’s nothing wrong with big business slowing down their money making, it’s got to happen.”

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