Multinational corporations and small businesses depend increasingly on one another for innovation, supply needs and financial and technical mentorship, and federal policies should better reflect and promote those symbiotic relationships, according to business owners and academic researchers who testified on the Hill on Wednesday.
“One of the most effective ways to support job growth in small businesses is to support job growth in big businesses,” Matthew Slaughter, associate dean at the Tuck School of Business at Dartmouth University, said during the hearing before the House Committee on Small Business. “This is because neither small business nor large business operates in a vacuum. Each is deeply embedded in the overall U.S. economy with extensive connections to each other.”
Slaughter emphasized during his testimony that the United States’ largest companies are increasingly turning to their smaller domestic counterparts to provide the intermediate support required to produce goods and services. Research he conducted with the Business Roundtable in 2010, for instance, shows that the average American multinational corporation purchases roughly $3.27 billion worth of goods and services from more than 6,000 American small businesses.
Based on those estimates, that’s roughly $1.52 trillion that the country’s largest firms spend on the country’s smallest firms every year.
“Input suppliers and their customers can strengthen each other, not just by the latter generating sales for the former but through many other channels such as sharing information and performance standards,” Slaughter said.
On the flip side, the advantages of big-small alliances for the latter party are more readily evident, as small businesses have long benefited from tapping into the large supply networks and mentoring programs created by big corporations. Moreover, many multinationals have more recently started building their own internal investment arms, which offer another path to capital for entrepreneurs and small employers outside of traditional bank loans and venture capital investments.
That value was twice exploited by one of Intel Corporation’s small suppliers, Energetiq, the chief executive of which testified during the hearing. Paul Blackborow’s Massachusetts-based firm secured early-stage financing rounds from Intel Capital in both 2006 and 2008, which funded research, development and production of patented light source technology that the company now sells to many large corporations, including Intel. But according to Blackborow, the value of the partnership extends well beyond the value of the funding.
“Our Intel Capital Investment Manager provides business development suggestions to us, and each year we are invited to attend the Intel Capital CEO Summit,” he said during his testimony, adding that the Intel team also helped his company navigate a recent legal and intellectual property problem. “That event brings together the CEOs of the Intel Capital portfolio companies with senior executives from large public companies from around the world. We have been able to make many useful connections at that summit.”
Intel Corporate Vice President Robert Bruck also testified, noting that his company depends on goods and services supplied from more than 6,700 small businesses worldwide (accounting for more than two-thirds of the corporation’s total network). Those firms provide everything from chemical gas and computer hardware to real estate and advertising services.
Bruck also outlined a number of policies that he thinks would “facilitate an innovative and investment friendly ecosystem” and make it easier for small-large business collaborations to grow. He urged lawmakers to promote government research and development programs, eliminate overly burdensome regulations and remove barriers that prevent businesses large and small from tapping into global markets and collaborating across borders.
Slaughter elaborated on that third point, adding that, “because of the supply-chain partnership, there are lots of small U.S. businesses engaged in the global economy by supplying large U.S. exporters, even if they themselves do not export directly.” He asked the committee to help provide small business owners with better information about how to enter export markets, as well as support any legislation that makes it easier for companies of all sizes to build their products “in many stages spanning many countries.”
“Government policies targeted at just small business or at just big business affect all firms, not just firms of a particular size,” Slaughter said. “So, government policies should be aiming to promote investment growth and job creation for all U.S. businesses.”
Do you know or own a small business that benefitted from a partnership with a large corporation - or vice versa? Please share your story in the comments below.