Superstar Formation and Sustainability

The second article in the September 17th, 2016 Special Report "Companies" in The Economist is "Why giants thrive".

"Pankaj Ghemawat, of the Stern School of Business at New York University and the IESE Business School at Navarra, Spain, calculates that America’s top 1,000 public companies now derive 40% of their revenue from alliances, compared with just 1% in 1980."

"It found that last year those that deployed 60% or more of their R&D spending abroad enjoyed significantly higher operating margins and return on assets, as well as faster growth in operating income, than their more domestically oriented competitors."

The article gives reasons for the continued growth of the Superstar companies though when it is gives the example of Amazon, I have to take exception to the various aspects attributed to the rest of the Superstars. Amazon has grown ideas from within that both created a trend and captured it (one click ordering and shipping, Echo, etc.), discovered the emergence of a trend and cornered that market (Amazon Web Services, small niche businesses will need eCommerce outlets, etc.) and finally this is a significant one, reinventing a market place that was considered to already see heights of innovation and productivity (logistics, supply chain, etc.).
In comparison, Google is starting to look like "I can do that too". It has copied Amazon's Echo, Apple TV and the Smartphone. Google does create solutions to Grand Challenges, as I call them, or should they be called Grand Automation, such as the self driving car - something one cannot and should not expect from the likes of the Detroit car families.

A key insight from the article is, "Most of the new tech firms are “platforms” that connect different groups of people and allow them to engage in mutually beneficial exchanges."

Though nothing lasts forever in the future of economics:

"The superstar companies, then, seem to have all the advantages. But two arguments are being advanced to suggest that their success may not last. One is that the forces speeding up creation, which currently work in their favour, could also speed up destruction. The other, more fundamental one is that these companies are merely holdouts against a general trend towards a more fluid economy."

Enjoy the complete article here.