Business worldwide has gone through a transformation in the last several decades because of the search for excellence. To be the best you can be, simple demands that you need to specialize. You can’t be everything to all and still be the best. Companies that build complex products are being forced to intentionally outsource the manufacturing of most of their components to get better quality at less price. This has led to the fracturing of American business or one company manufacturing a better product through reliance on others to perform functions the business did before.
The effect is cascading as these builders of components and providers of services also rely on others to do the same so that they can also improve their productivity. This fracturing causes companies at the top of the fracturing hierarchy to become integrators while those supplying the parts or services are complementers but at a secondary level could also be integrators. Even small businesses play in this hierarchy as they can have a large network of larger companies that supply many of their important components or functions.
A very important side effect of this phenomenon is that companies end up with fewer employees and more independent contractors performing these outsourced functions. This causes us to misinterpret job numbers since people who were once employed are now in independent contractor roles and their work is no longer classified as jobs. This is the most likely reason why the US Government keeps putting out increasing jobless figures but the economy seems to keep rolling along.
Another misinterpretation of these numbers is when companies outsource certain functions to another entity and layoff workers who are immediately hired by the new supplier of the outsourced function. The media immediately reports a loss of jobs in that certain sector but fails to account for the reclassification of these jobs in the new enterprise performing the outsourced services.
Ultimately, this provides for leaner and meaner companies that can produce goods and services more efficiently. The smaller companies may generate less revenue but profits can keep increasing.
