[axel77]

Originally Posted by nekokami

Regarding the size-of-business issue, big companies are inherently less efficient than small companies with regard to management structure, but usually expect larger margins per sale, partially because their management structures only come in size XXXL. I think both of these factors contribute to their need for much larger volumes than smaller companies.

Thats why I said ROI including management costs. Larger cooperations have more mangement costs, so their total ROI is smaller on the same job as a smaller company. On the otherhand they can profit of economies of scope. Like Sony has more knowledge already on device development as a newcomer company.

Nevertheless the question is, is the market big enough worth taking the costs of developing a device? And in this regard in really doesn't matter if you are a selfsustained newcomer company getting money from investors, or if you are a devision of a enourmous concern, getting money from the concern funds.

Originally Posted by DMcCunney

And the question senior management will make will be "What is the best place to invest these funds that will produce the highest return?"

Every company is standing before this problem.

Another participant in the discussion is an engineer at GM. He managed to avoid rolling on the floor laughing at the idea that GM could produce a vehicle for a market of about 15,000, but it wasn't easy. They can't. They'd need a market about 30 times that large to even think about it.

I don't know about NY taxis, but the question about producing dedicated vehicles for that market is a question about productivity: can 15,000 vehicles finance a development of a dedicated vehicle? In this sense it again doesn't matter that much if the company wanting to undertake that endavour is big or small.

And the size of that investment will impose corresponding requirements for profitability. Again, senior management will ask "Can we make a better return investing these funds elsewhere?", and if they think they can, they may just pull the plug on the existing operation.

Usually no. They won't just pull the plug as long the operation as long it is more profitable than the total costs (including costs of investment compared to interest rates). When they decide to leave a sector they will usually just stop any further investments/development into it, sucking every cent out of the sector until it is no longer profitable because other competitors will develop. In strategic market some call this "milking the cow".

Originally Posted by DMcCunney

I didn't say that. I said they had a higher cost of entry and proportional return requirements. Big companies cannot profitably undertake small jobs. There have been an assortment of instances where a larger company has spun off a new operation as a separate company, for precisely that reason. As a new operation, the start up may not be able to bear the burden imposed by being a part of the parent. Split off as a legally and financially separate organization, the numbers change.

Indeed spinning off might be a good idea or a bad depending on many variables. I just fail to see how Sony deciding to continue the eInk device operations within the mother cooperation proofes anything more about their assumption of the eInk market compared to Phillips that decided it would be a good idea to make a spinoff (most likely with their money) to develop this device.

It can? Looked at the credit markets lately?

Well regardless of the messyness of the current market the basic assumption still holds that an economic endavour is attractive when the total ROI (including management costs and risk) is higher than the interest rate. If you have any idea how you can make more money than the interest rate you can borrow money. If your endavour is less than the interest rate, you won't do it, you'd rather borrow that money someone else. Thats why the state of the finance market is so important for any business. And thats why by changing a single variable like the interest rate in economic politics you can make enourmous effects on your countries economical activity.

Economics 101