Companies and insects resort to self-harming behaviour to defend against "predators"

Wasps and fruit flies often play "Barbarians at the Gate"
George ILIEV

(Wasp photo, Wikipedia)

Insects and companies can be equally good at applying the phrase "cut off your nose to spite your face" when trying to protect themselves against a takeover. In the corporate world a company may take a "poison pill" or "shark repellent" to turn away an unwelcome acquirer. In nature, the fruit fly lays its eggs in alcohol so that its larvae will grow up toxic. This prevents parasitic wasps from laying their eggs inside the fly larvae, a study by Emory University biologists published in Science on February 22, 2013 reveals.

Companies make themselves toxic by taking on unnecessary debt or entering into unfavourable covenants with lenders or customers that take effect when the company is acquired. For instance, a company may introduce a clause that extends its product warranty from 1 year to 10 years in case it is taken over - which is a future cost that will be borne by the acquirer (See Peoplesoft's defensive strategy against Oracle). Similarly, a company may give its employees lavish bonuses in case of a takeover which, again, will make it much less attractive as an acquisition target.

The fruit fly uses the toxic alcohol defense technique when it senses the presence of predator wasps. By laying its eggs on mildly-alcoholic rotting fruit flesh, it protects its larvae from turning into hosts of the parasitic wasp larvae. Even though this is toxic to the fly larva, it would be deadly to the wasp larva if the mother wasp laid its eggs inside such an "intoxicated" carrier (a common parasitic technique used by wasps).

The remarkable discovery in the Emory study is that the fruit fly can sense the threat of the presence of a female wasp, which triggers the alcohol defensive strategy, even if the fly has never before met a wasp in its life. Companies have a much easier ride in this respect as an acquisition attempt rarely comes unexpected.

Who says caterpillars and milkweed cannot do game theory?

"Outgrow to outcompete" strategies succeed in both nature and business
George ILIEV

(Caterpillar feeding on Milkweed, Wikipedia)

My favourite game in Game Theory is the little known "sailboat race": When you are the leading boat in a race and the second strongest competitor is right behind you, all you need to do to maintain your lead is simply to mimic every move the second boat makes. You must have seen this in Formula 1 racing as well.

The biggest threat posed by this strategy is that a third boat that does not play by your rules may overtake both of you while you are locked in the mirroring strategy. Therefore, when other competitors are around, your best bet is not to look back but to focus ahead.

This is what milkweed seems to be doing: First it evolved a range of defensive mechanisms against caterpillars, such as hairs on the leaves and poisonous latex in the plant's tubes. However, in response caterpillars evolved leave-cutting techniques that stop the flow of latex, while the monarch butterfly caterpillar has even developed immunity to the toxicity of the plant. 

At some point this outcompete/co-evolve strategy must have got too complicated and risky for the two sides locked in the game and some plants just took the fast lane. Instead of defending against the caterpillars, many of the 38 species of milkweed focus on repairing and growing faster. The strategy of outgrowing the enemy, rather than defending itself, seems to be working for the milkweed.

In the corporate world, Sony was applying this forward-looking strategy for decades. Rather than fighting over market share with its next biggest rival, it would simply create a fundamentally new category of product and outcompete everyone in this newly created blue ocean: from the radio transistor and the walkman to the Blu-ray DVD and PlayStation. Apple and Google seem to be doing the same though they still dominate most of their historical market niches. In East Asia, this strategy of shedding old technologies and industries and focusing on the new ones has a name derived from nature: The Flying Geese model of economic/technological development.

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.