The Hollow Corporation

When brand is everything, when a company makes nothing and outsources everything — what kind of business is that?

A successful business, according to an article in the UK publication, The Times.

It’s also a template for the modern business model of the 21st century. In Europe and the U.K. such a business is known as a “hollow corporation.” In the U.S. and elsewhere it is often known as a “virtual business.”

During much of the 20th century, the typical business model was that of a vertically integrated business, i.e., one which sold what it made. That model has been shifting.

Quoting Kjell Nordstrom, co-author of Karaoke Capitalism, the Times reports:

” ‘The boundary of the firm — the definition of what is inside or outside the company — has always moved back and forth,’ said Nordstrom. ‘What is happening now is that the boundaries are moving more quickly; and they are moving in a particular direction, with companies shifting more and more activities out of the corporation.’

The result is that companies, both large and small, are performing ever fewer of their traditional functions and becoming ‘hollow’.”

Driving this trend toward hollow or virtual businesses are the usual suspects that you’ve read about here before at Small Business Trends: globalization and technology. International, cross-border trade has become easier due to lessening of trade tariffs and technology that brings the world closer.

Component tasks can be performed anywhere in the world. People in diverse parts of the globe working on common technology platforms provided by Microsoft and Google can now share work product seamlessly. They can communicate easily and cheaply across long distances due to undersea fiber optic cables. Through technology, distance between workers is no longer the limitation it was once.

As the Times article points out, this development is nothing new in the United States, where the concept of the Free Agent Nation has been growing for years. In a revealing bit of socialistic sentiment, the article notes with some surprise that the number of self-employed in the United States exceeds those employed by the public sector. Of course, those who adhere to capitalism would say that ratio is exactly as it should be.

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.