Small is the only way to survive!

Here is the clincher. Apple sold seven million iPhones in third quarter 2009 and Nokia sold 113 million of theirs. But it defies logic when the profit Apple made is 1.6 billion dollars compared to Nokia’s 1.1 billion dollars! Some economists are scratching their heads because the doctrine that they espouse seems to be working in reverse. Yes, we have been told often that the most efficient way to go about anything is have economies of scale. It has always been true that it works out very costly if we will to just make one unit instead of making multiple units. Even a child will know that. But why then is Apple’s profit so much more than Nokia’s even though they are only churning out a small number of phones?

Ah, the reason could be that the profit margin for Apple is much higher than Nokia’s. Unfortunately, this is not a clear cut case as Nokia also have good margins for some of their smartphones. Perhaps, Nokia has grown too much and spreading it thin with churning out many models, some of which not selling too well. Indeed, almost three quarters of their models are considered duds and have to be withdrawn from the market prematurely. Obviously, Nokia is not the only example, nor the phenomenon is exclusive to the mobile phone industry. A look at the automobile market tells a similar story. We have the big threes like GM, Chrysler and Toyota having to trim down their productions during the financial crisis. Some of them even faces bankruptcies and had to be baled out by their governments. But look at the small players like Ferraris and Porsches! They are doing well with plenty of orders. So small is the way to go!

Small is indeed the preferred way. Smallness will ensure that a change in direction can be effected during trying times. A mouse can easily outwit an elephant. Going forward to the next decade, it would be useful for business schools to champion the small enterprise. It would be even better if they can operate in their niche area. In today’s economic climate, where competition is everywhere, there is a real need to create unique brands where people can associate with. No where will we find it truer than in the land of the middle kingdom (read China). Here you can find thousands of factories turning out similar looking goods with almost similar sounding brands with each trying to undercut each other in their prices. It is the norm here that for a product costing a hundred dollars, the production profit is around two dollars! So, before you jump into starting your business, first, think SMALL. It might be the only way for our troubled world.