Saturday 22 April 2017

How Big Business Destroys Small Business

The way a Free Enterprise system is supposed to work is like this, companies compete against each other to provide better service's, better products and cheaper prices. This system can be quite brutal as it can drive companies out of business. But for all of it's faults Free Enterprise is good for small business as the entry level is not that high. But today we do not have a Free Enterprise system, instead we have Crony Capitalism.

Crony Capitalism is a system where by both Government and the financial markets protect big business. Government protects it by regulations, these regulations are an annoyance to big business but they help to keep small business under control because they often cannot comply with the regulations. The financial markets keep small business under control by denying it access to financing.

I'm going to use an Australia company as an example of how big companies destroy small business, that business is Bunnings. Bunnings is an Australian icon, the company operates out of massive warehouses where they sell everything you need for building or repairing, houses and gardens. Bunnings is also famous for it's sausage sizzles, where by community groups hold sausage sizzles outside of the stores with Bunnings providing the equipment and the community group providing the food and taking home all of the profits. I've served on a few sausage sizzles and eaten one or two sausages at other times.

But the reason I will be concentrating on Bunnings is not because it is a bad company but because it is a symbol of a problem that is all too common in our economy. I recently started asking people if they needed to buy a hammer where could they buy one? They always answered Bunnings. I would then ask them where else they could buy a hammer? The most common answer was, ummm, as they thought about it. A hammer is not a complex piece of technology, it doesn't really need a specialist store to sell you one. Any old hardware store should do, but there aren't any old hardware stores anymore, Bunnings drove them out of business.

The thing people like about Bunnings is the convenience, here you can buy, timber, gardening products, hammers, drills, boxes the list of items seems endless. But what people don't think about is that in each Bunnings warehouse is somewhere around 5 businesses. Instead of 5 independent business we have instead 1 chain store. A chain store that likes to use a number of tricks to make people think they are saving money when they probably aren't. The store is very basic, while there are many items there are no frills. Prices are often very specific, $12.77 for example, which makes you think that that price was hard fought over, the cheapest it could be. But the reality is that the price is often arbitrary, decided by Bunnings itself.

But the real problem is that when I spend money in an independent business, my money is going to local people. People who in turn will spend most of their money locally. But when I spend money in a chain store, the money can go anywhere, but it probably won't be local. Instead of supporting locals, and our own local economy we instead give our money away to where? In most cases we simply don't know. This helps destroy local communities, economies and of course jobs, it also destroys opportunity.

The destruction of small business has a lot of knock on effects. It takes political power away from local communities and gives it to big business. It means that all of our eggs are being put into one very big basket, what happens when we fall over? Bunnings is a massive company, a company that is owned by an even larger company, Wesfarmers. Have a look at that link and see how many companies it owns. It owns three liquor retailers, how much competition can three retailers in the same market provide?

Instead of healthy competition we instead have the pretense of choice. Small business only survives because big business cannot work out a way to do the job that they do. Once they do work out then small business is destroyed. And by small business what I really mean is entire industries, hardware once consisted of small family run stores, now big business runs the hardware business. Competition has been destroyed and if anyone wants to compete, then all they need is a spare $1 billion dollars.

Do you have a spare $1 billion dollars? If not how do you compete? The answer is you cannot, big business is destroying small business and it is going to cost us all a lot of money.

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  1. Bunnings, WalMart in the USA buy in such quantities they can undercut all competition. And when say a WalMart in a small town goes out of business [and it does] that small town has no businesses left to pick up the slack. Left high and dry.

  2. Didn't anyone say Mitre 10? To be honest I would go by what is the closest store.

    1. Aulicus

      No one said Mitre 10, I don't even know where a Mitre 10 store is. Apart from which, it is not really a choice because it is still a chain store.

      Mark Moncrieff

  3. This article is very interesting and helpful. Thank you for sharing! Don’t forget to have a good tax planning to avoid you from having any business trouble in the future.

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