E-Commerce, Transaction Cost, and the Network of Division of Labour: a Business Perspective

In the US and other industrialized economies multinational conglomerates continue to dominate the economy. The wave of corporate mergers and consolidations seemingly indicate this trend may continue. Yet evidence exists of another phenomenon that is emerging: large corporate leviathans are participating in a spate of corporate downsizing and vertical disintegration. What adds an element of paradox to this new phenomenon is that it is occurring in an economy that has been booming for three years and expanding for nine. After successive years of economic expansion since 1991, the spate of corporate downsizing remains unabated. The paradoxical incidence of downsizing in an economic boom has been explained away by cyclical factors external to the economy, such as an inflated dollar, an Asian economic downturn and a Russian economic crisis. It is believed that these external factors may have fuelled the intensity of price competition and cost cutting in the domestic economy, and thus have precipitated a wave of downsizing. In early 1998, when cyclical-induced downsizing was highlighted in Business Week as the cause, it was supplemented by an explanation that firms expected slow profit growth throughout 1998. This supplementary explanation is suggested to reinforce the conjecture that even the expectation of cyclical swings was enough to initiate corporate downsizing during an economic boom.