Only the big can serve the big
While cornering the market and imperial ambitions are often motives for massive mergers and acquisitions, for companies in service industries such deals are often a matter of survival. As their clients become multinational and massive, so too must the companies that serve them.
It's a matter of efficiency. Take a company like Procter & Gamble, for example. With operations in over 100 countries and in a score of product segments, it makes no sense for the company to have to co-ordinate the efforts of local services in each country and each segment.
To take one example, that company (P & G) needs to have a coordinate worldwide patent application and protection strategy, so that its Pringles products are protected in South Africa as well as its shampoo brands are in Lithuania. To manage this in detail would take an enormous internal staff. Much better to coordinate with one or two law firms that specialize in this area, who in turn will have either branch offices or associates from Caracas to Canberra. This can, of course, be done only by a law firm with the same global reach as its client.
The big multinational corporations want to minimize the number of transactions it takes them to get something done, whether it be doing public relations, accounting, money management, or environmental issues. But no company wants to keep a full staff of people who are not involved in the core business, if possible, Hence, the proliferation of worldwide service firms.
Some examples:
- The growth of global banks, insurance companies, and other financial services with worldwide reach. Citigroup is the model, with branches almost everywhere and expertise in the local business climate and regulations in every country.
- An explosion in the size and reach of major law firms.
- The dominance of the Big Four accounting firms, the only ones who have the expertise and the bodies to deal with the biggest corporations.
- International commercial real estate firms.
- The rise of major technical consulting practices to provide worldwide IT consulting: IBM, Cisco, Accenture, AT&T. These things have gotten too complex for local companies or in-house staff to manage.
- The growth of worldwide advertising/Public Relations groups, using a variety of more specialized semi-independent subgroups.
- The growth of staffing and temp work companies internationally.
- The globalization of delivery services and freight companies.
In every service industry, mid-sized single-country companies are at an increasing disadvantage. Being big in the US or Japan is no longer good enough. As ever-bigger corporations look to reduce the number of transactions and the problem of sorting out who is responsible for what, they want partner that can relive them of that burden. So service industries are following quickly in the mergers and acquisitions boom, in order to gain instant breadth.
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