Why we love to hate big businesses

April 11, 2012, 10:24 am Angie Mohr investopedia.com

Ruthlessly crushing smaller local rivals and quick to shed jobs to protect shareholder profits, it’s little wonder that big corporations are distrusted and disliked.

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It seems big companies can't catch a break. A recent Harris poll suggests that consumers don't trust a lot of big businesses and less than 20% of people trust companies in the banking, pharmaceutical and health insurance industries. The movement to buy local is arguably one factor, but large corporations and their actions may have brought about some negative attitudes. Listed below are just a few issues that some consumers hold against big businesses:

Poor Net Job Creators

In terms of numbers, the vast majority of businesses in Australia are considered small businesses. The Australian Bureau of Statistics (ABS) reports that of the 2.1 million businesses in our country 96% are considered to be small businesses. In June 2011, the ABS found that:

  • Over 2 million businesses employed less than 20 staff (including 1.3 million businesses who did not employ any staff) and;
  • Over 2 million businesses had an annual turnover of less than $2 million.
Of course, these small businesses employ the lion’s share of the Australian workforce and create the most new jobs. The reason for this is that new or growing companies (which tend to be small at first) hire more employees over time as they grow. Large, established companies are in the business of making money for their shareholders. Most are focused on making more profits more efficiently. A common way to accomplish that is downsizing and increasing prices - two practices generally unpopular with consumers.

The Power to Affect Legislation

Large companies have deep pockets. Frequently, that means that they can have full-time lobbyists on the payroll making sure that any pending legislation is favourable to their industry and their company. Large corporations can have a huge impact on the law and on elected government officials who rely on their money at election time. Sometimes, corporations can even enter government agencies. This kind of cosiness between big business and the government can make people mistrustful.

Crushing Small Businesses

In industries where economy of scale makes a huge difference in profit margins, big businesses can, and do, squeeze smaller ones out of the market. This can happen through predatory pricing strategies, exclusive distributorship arrangements and even through lobbying state and federal governments to increase the barriers to entry in the industry. Big businesses are the Goliath to the small business David. In the Australian business world, David rarely wins.

Taking Profits out of the Economy

A corporation's main goal is to provide a profit to its shareholders. In a small company's growth cycle, profits are often ploughed back into company coffers to fund expansion, but a large, mature company siphons profits off to pay dividends to shareholders. Most shareholders retain those dividends in investment portfolios rather than spend them, so they don't have a stimulative effect on the economy. Local communities often do not benefit from having large corporations operate in their area, especially when top management is helicoptered in from elsewhere. Consumer sentiment can turn especially negative when large corporations receive government grants and loans to prop up operations.

The Bottom Line

Large corporations have a reputation for being untrustworthy and a drag on the economy. Some of this reputation has been earned fair and square; however, many big companies try to soften their image to appear more local and community-oriented, but jaded consumers are difficult to convince.

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