Shifting Sands: Profits Crisis in Traditional Industries

Senthil Kumar

Apr 19, 20232 min read

https://rdcu.be/c98so (free access to the paper)

Profits crisis: evolving patterns of firm size and performance in traditional U.S. industries

Journal of Industrial and Business Economics

https://doi.org/10.1007/s40812-023-00268-y

Abstract

With the arrival of the new millennium, many industries across the developed

economies are increasingly facing volatile, uncertain, complex, and ambiguous business environments—often characterized as VUCA—caused by a host of disruptive factors hyper-competition, globalized value chains, high-velocity business cycles, frequent technological changes, shorter product life cycles, unstable financial markets, and the rise of the digital economy. These disruptions are triggering serious financial crises within the traditional scale-economy industries by decoupling the link between the firms’ size and growth-related strategies and profitability.

By capturing the changes in firms’ assets, revenue, and financial performance

with the help of long-range panel data on public companies, this study traces the impact of such disruptions on the financial performance of firms operating in the traditional scale-based industries in the U.S. economy. The study indicates emerging challenges to corporate management due to disruptive technologies, widening global competition, dynamic consumer trends, and volatile financial markets and highlights further the implications for firms’ strategy, corporate governance, and organizational design.

The findings defy much of the conventional wisdom. We found evidence for limits to competitive advantage in several industries. Global competition and VUCA disruptions have challenged the traditional size, economies of scale and scope, and merger advantages. Short-termism and volatility in financial markets pose challenges to capital-intensive industries. In the long run, the emerging sectors – Knowledge economy firms – also may experience such distress. There is a need to overhaul how the financial markets assess and reward firms and investors in capital-intensive and labor-intensive industries – given the profit limits to firm size and growth. https://rdcu.be/c98so