Opinion: Strength in numbers comes at a cost

By Nicola Brittain
31 Aug 2011 View Comments

Economically, it’s a frightening time. It looks as though there is a double-dip recession on the way and some commentators have suggested this slump “heralds the end of capitalism as we know it”.

So what does this mean for the technology industry? Smaller companies are less able to weather the storm than larger companies. They do not have easily accessible stocks of cash that can act as a buffer if revenues take a bashing. They also do not have the manifold products or revenue streams that many larger companies rely on, which again makes them vulnerable.

Further reading

The industry tends to consolidate in difficult times, with a few enormous companies acquiring as many of the smaller companies as they can. Subsequently, they are able to ramp up their profits and wield more power with the political class.

The likes of IBM and Google have openly stated they are on the acquisition trail. And just recently, HP snaffled up one of the UK’s most successful medium-sized software companies, Autonomy, for $10.2bn. But is this deal and others like it good for the economy and the country as a whole? Many people think not.

Richard Holway, chairman at TechMarketView, had reservations about a successful British firm being acquired by the US giant. “Autonomy’s HQ is in Cambridge. It was a magnet for the area. It created jobs not just for entry-level graduates in the UK, but for support staff such as brokers, advisers, legal beavers, accountants and so on,” he said.

Although Autonomy CEO Mike Lynch has said that HP’s software operations will remain in Cambridge, job losses following a foreign acquisition are always likely (Kraft axed 150 Cadbury jobs in March); and even if the giant doesn’t make job cuts, will entrepreneur Lynch hang around in a company over which he no longer has control? More likely that he’ll be replaced by an American who’ll care little about growing jobs in the local economy.

And although this particular acquisition probably isn’t the result of the slump, it can be used to demonstrate that perhaps this process of consolidation isn’t that great for tech workers in the UK (or anywhere else).

Newsnight economics editor Paul Mason has said that there are tools that the government can use to protect its home-grown businesses. For example, it could introduce protectionism and make it too expensive for big foreign firms to buy up smaller domestic ones and potentially change a region’s jobs landscape. However, he admitted “there isn’t the political will to do it”.

He’s right. With a ruling class of politicians associating with and influenced by the leaders of these giant companies - all lauding the benefits of the “free market economy” - the government almost certainly won’t step in and act on behalf of its working population.

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