Exposure to Diverse Environment Makes Birds & Companies More Versatile

Conglomerates in emerging markets diversify because their environment requires it
George ILIEV

(Hong Kong Island, autumn 2009)

Birds of the varying weather...do not exactly flock together. They just stand out with their more versatile songs. Recent research shows male songbirds that live in fluctuating weather conditions are more flexible singers, incorporating a wider range of tones in their tunes. The birds need this variation in their songs because when precipitation varies, the acoustics of the environment and of vegetation change significantly. Variability allows these birds to be heard farther.

The same rule applies in the corporate world. Companies from emerging markets, where market and macroeconomic conditions are more dynamic, are usually the most diverse and the most diversified. Conglomerates in Asia, Latin America and Turkey incorporate a whole spectrum of industries. Just think of the South Korean chaebols (Daewoo, Hyundai, etc.) which run businesses from ships to electronics to fertilisers. 

(Hong Kong Island, 2009)

Imagine what a splash (or a flop) Apple would make if it started selling rubber boots. It doesn't have to resort to such luxuries only because it operates in a stable environment. It is the "companies of the varying weather that diversify together".

Of insects and startups: External threats make them small

Prehistoric birds may have reduced the size of insects just like African governments keep startups from "spreading their wings"
George ILIEV

What could insects and birds have in common with startups and governments? Could the size of one side of the pair be related to the danger that the other side poses?

In nature, it appears there may be a connection:

Reign of the Giant Insects Ended With the Evolution of Birds:

Maximum insect size tracked atmospheric oxygen levels surprisingly well for about 200 million years between 350 million years ago and 150 million years ago, as more oxygen allowed the existence of creatures with a bigger body mass. When oxygen concentration in the atmosphere soared to 30% around 300 million years ago, dragonfly-type insects reached a 70 cm wing span. Then, at the end of the Jurassic period about 150 million years ago this connection seemed to have broken: oxygen levels went up again but insect size paradoxically went down. However, this strikingly coincided with the evolution of birds. "With predatory birds on the wing, the need for maneuverability became a driving force in the evolution of flying insects, favouring smaller body size."

(Dragonfly in the Rodope Mountains, southern Bulgaria, 2010)

In the business world, instead of oxygen concentration, the level of transaction costs in an economy seems to determine the size of companies - though in the reverse way. In emerging markets with weaker institutions and high transaction costs companies need to grow bigger. The size and scope of a diversified conglomerate allows corporate organisations to internalise (and thus minimise) transaction costs by doing deals internally instead of going to the market. 

However, in Sub-Saharan Africa we can hardly find any large-scale companies. Could this be put down to predatory governments assuming the role of the predatory birds in the least developed economies? Bribe-taking officials and rent-seeking institutions preying on companies and startups might be stopping them from growing in size in the same way that pre-historic birds have possibly limited the size of pre-historic insects. The rest is history. Or, more precisely, evolutionary history.