1. Archive

Downsizing by giant companies helps small firms

Though repeatedly assailed for downsizings in which many thousands of jobs are eliminated, America's biggest companies may actually be creating additional jobs.

That might sound contradictory but it isn't, says the man who makes the claim. It is, he says, a misimpression resulting from a failure to understand the process involved, and an overemphasis on lost rather than created jobs.

While downsizings aren't pleasant, the news isn't all bad, he says, because when big companies cut jobs, entrepreneurship may get a boost.

What is occurring, says Prof. Eugene Jennings, is an efficiency effort by large concerns in which they concede that smaller, entrepreneurial companies, less encumbered by costly overhead, can help them produce better.

In this way, says Jennings, professor emeritus of management at Michigan State University and long-time adviser to heads of blue-chip corporations, jobs are transferred to "off-premises employers," that is, to smaller companies.

These employees of smaller firms, he says, often owe their existence to the large company's downsizing. "IBM has shrunk by 60,000 jobs in the past few years but it has created off-premises more than 300,000 jobs," the professor states.

He observes that smaller employers are expanding in many industries, including automotive parts, banking, environmental services, computer software and hardware, pharmaceuticals, chemicals, communications, telephone systems, office equipment, health care, medical supplies, capital goods and research.

Much of it is due, he says, to job-creating alliances the big corporations have developed among themselves or between themselves and smaller companies, the latter either established concerns or start-ups.

In the Metropolitan Detroit automotive industry, he says, there exist 150 companies that weren't in existence five years ago. Most of them, he says, were encouraged with capital or promises of contracts from big manufacturers.

The truth, says Jennings, is that "as many or more jobs are needed to sustain big corporations today as it took a few years ago."

He contends that the point has been missed by an emphasis on jobs lost. Job creation is less discernible to the public and the media, and he says the impulse behind job creation is also less observable.

Big companies, he says, have arrived at the realization that others can make things as well or better than they can. This is a vast shift in their thinking, he says, and it came about under pressure.