According to a page-one article in the Wall Street Journal, companies have decided to re-aggregate their businesses. GM will purchase, or in some cases re-purchase, companies that make auto parts; Oracle will purchase Sun Microsystems, which will then run Oracle databases. Companies tout this as a way to increase sales, control, and squeeze cost savings out of their supply chain.
GM is, of course, a special case: GM is really the production arm of a union pension fund and has the implicit backing of the Obama administration. As such, GM's goal is not so much to produce a profit as to increase the number of union members, and by purchasing businesses they increase union representation.
Oracle's move, on the other hand, makes no sense at all. They explicitly want to re-create the old IBM, which controlled and sold every piece of equipment, from the software down to the cables that connected the computers together. The efficiencies and innovations of other companies destroyed the old IBM business model; Oracle fails to explain what has suddenly changed that makes this failed model viable again. Disaggregation continues to yield benefits in other areas.
Finally, we see companies such as Pepsi who intend to purchase their bottlers. Their stated goal is to gain more control over how Pepsi's products are distributed and marketed. Although I admit that the entire "bottler" structure for the soft-drink industry has always struck me as a relic from the days before efficient transportation — why shouldn't there be just one big Pepsi factory? — the stated goals of the Pepsi re-aggregation raise red flags. In essence, the Pepsi company intends to impose their vision of distribution and marketing on the bottlers; while Pepsi believes this is a strength, I believe it is a weakness as it interposes a single point of failure into their business model.
Topics: · business
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