Text 5 Alternative Means of Organizing a Business

In organizing an emerging business the typical alignment is either to have a sole proprietorship, a partnership (limited or general), or possibly a corporation. Recently though, with the reduction in the interactive “size” of the world economy and the increasing speed of transactions it is apparent that there may be adaptations of the three basic organizational structures that would fit entrepreneurs better. Two organizational formats that are talked about slightly in text books are the joint venture and the consortium/cooperative.

In a recent article in Business Week magazine, Dallas based Dresser Industries joined together as joint venture partners with Komatsu Ltd. of Japan to build construction equipment and engineering facilities in the United States, Latin America, and Canada. This joint venture was to merge their manufacturing, engineering, and finance operations to reduce cost, yet retain distinct product lines that would be sold through their existing dealership networks.

The joint venture allows for a customized relationship for a specified duration with each principal member having explicit rights and responsibilities. It also includes the means to dissolve the joint venture. The power of the joint venture lies in the synergy which two or more companies bring to bear on specific detailed activities which both are involved. For instance, in Normal, Illinois, the Diamond Star motors Corporation is a joint venture between Mitsubishi of Japan and Chrysler Corporation of America. They cooperatively planned, designed, and laid out an automobile plant in this Midwest community that can produce up to 250 000 cars a year, while hiring fewer than 3,000 employees. The technology, engineering, and management style have lead to the production of remarkably high quality of automobiles that have received many automobile awards. Unfortunately, due to Chrysler’s poor financial health, Chrysler is seeking Mitsubishi’s purchase of more of the joint venture’s financial responsibilities to create some cash flow for Chrysler Corporation. Although this may appear to be negative news, it’s one of the strengths or the joint venture style of organization. It provides flexibility for partners to move in and out to varying degrees.

The other organization format is the cooperative or consortium based organizational pattern. In this form of organization, several companies come together to work on projects of common interest and to support these projects with their expertise and their power base. An excellent example of this is the Airbus consortium of government agencies in Europe which includes France, Germany, Britain, and Spain. Once thought of as a little plane manufacturing and marketing concern that holds 30 percent market share in the airline industry. This is still far behind the 53 percent held by Boeing, but orders are soaring and it has made tremendous strides in acquiring major contracts by worldwide airline companies. It is currently seeking major orders from United, American, or Delta Airlines.

Although they have been receiving significant notoriety of their successes, the politics of operating and managing consortium based activities is troublesome. Each firm has a variety of stakeholders with varying objectives that need to be accomplished. This hinders the path of least resistance in the market place; and hence, many times the politics or interrelationships of consortiums or cooperatives may cause its collapse.

In this era of pace change, consortiums/ cooperatives and joint ventures are means of taking advantage of new market niches that are developing or to redefine and reinvent products to better serve current customers.

Discussion:

These are some helpful word-combinations in addition to the glossary that you should translate, memorize, and use while discussing the questions:

to operate a plant, to do business, to be in keeping with requirements, to resolve problems, to take advantage of (smth.), to exceed a size, to evaluate firms, to use equipment, to employ specialized workers, to achieve production economy, to put limits, to keep track of (smth.), to keep in (constant) touch, to waste resources, to specialize management, to put (the decision) into effect, to bring out a new product, to get service, to employ advertising, to raise capital, to enjoy advantage.

1. Prove economic importance of big corporations.

2. Do you agree with the author's reasons for large firms?

3. Explain the notion of specialized management providing illustrative examples.

4. What is your final judgement about the importance of the corporation? Aren’t small-scale businesses equally important?

5. Do you agree with the following statements?

“Today the large organization is lord and master, and most of its employees have been desensitized much as were the medieval peasants who never knew they were serfs. Ralph Nader

“If small business goes, big business doesn’t have any future except to become the economic arm of a totalitarian state.” P.D.Reed

“America can no more survive and grow without big business that it can survive without small business. Every fact of our economic and industrial life proves that the two are independent. You cannot strengthen one by weakening the other, and you cannot add to the stature of a dwarf by cutting off the leg of a giant… The American industrial machine is a unit, just like an automobile. It’s made of big parts and little parts, and each of which does its particular job and all of which are intricately fitted together. You may think that it would be fun to sort them all into neat piles according to size to please the statisticians. You could even pass a law declaring that all the parts must be the same size, and the theorists, no doubt, would be delighted. But when you get through your automobile won’t run and neither will American industry”. Benjamin Fairless

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