Amazon’s Philadelphia-area hiring blitz, announced last week, has generally been met with approval. Philadelphia Mayor Jim Kenney called Amazon’s plan to hire 4,800 employees a “big step on the road to recovery.” But the nation’s second-largest company is not without its critics. Amazon’s sheer bigness is considered reason enough to justify suspicion and constant interrogation.
But our tendency to associate big with bad is partly based in make-believe. Movies routinely depict moguls, like Amazon’s Jeff Bezos, as monsters (think of any rich villain from a Marvel film), and big retailers are always portrayed as swallowing up small shops (think Tom Hanks in You’ve Got Mail or Danny DeVito in Other People’s Money).
In reality, big businesses make big mistakes and, as the American Enterprise Institute points out, they don’t last forever: “Nine of every 10 Fortune 500 companies in 1955 are gone, merged, reorganized, or contracted.”
Nor do big businesses benefit from small business failure. Actually, the opposite is true. Many small businesses source from or supply to large firms. Small business owners are also consumers and benefit from the economic growth derived from larger firms, especially when housed within their own communities. Amazon’s expansion of factory towns may be just what some struggling communities need.
Ram Mudambi, professor of strategy at Temple University, asserts that small businesses should aim to complement rather than compete with large firms to establish a “win-win eco-system.” And this makes sense since big businesses are not typically rivals of small firms. Industry giants primarily compete against other large players. Walmart is far more concerned about Amazon than the boutique down the street.
Still, small firms do face major pressures from large firms. Small firms typically lack supply chain efficiencies that help large firms offer lower prices. Small firms also struggle to retain talent—let alone attract it – given that large firms can offer better fringe benefits and professional development opportunities. Amazon has even been offering a $1,000 sign-on bonus for a diversity of entry and mid-level positions.
As a result of the pandemic-era boom in e-commerce, Amazon has been on a hiring spree while championing minimum wage hikes. And although paying employees more sounds great, small firms with shrinking profit margins are being forced to close shop in response.
That’s a real problem. And it’s the result of Amazon, and other large retailers, getting government to do their dirty work. So, instead of demonizing Amazon, let’s make it harder to game the system. Here’s how:
Don’t hate the player, hate the game.
The rules of the game determine who wins and who loses. And companies that can influence the rules (or avoid them altogether) likely will. This is the dynamic that hurts small firms the most. Large firms lobby lawmakers (by donating to their reelection campaigns) and senior public officials (by giving lucrative consulting jobs after they retire). The payoff is new regulations—like minimum wage hikes—whose trickledown impact tends to hit small producers hardest. This form of crony capitalism is sometimes called “corporatism.” According to Mudambi, it is corporatism, not capitalism that is the problem.
More industry-wide restrictions and regulations won’t help mom-and-pop shops. Instead, policymakers and small business advocates should encourage greater engagement between big and small businesses. And Amazon is a prime example of how this approach can pay off.
If you can’t beat ‘em, join ‘em.
According to Nick Love, Amazon Launchpad director, many small and medium-sized businesses increased sales throughout 2020 despite the hardships they faced. “Globally, independent third-party sellers in Amazon’s store—almost all of them small and medium-sized businesses—increased their sales by more than 55% from April 15, 2020, to January 15, 2021, compared to the same period a year earlier. During the same time frame, the number of American small businesses that surpassed $1 million in sales increased by more than 30% year-over-year.”
While Amazon and businesses using its platform flourished in 2020, other small businesses suffered. During pandemic lockdowns, Amazon kept America well stocked with essentials, while local small businesses dealt with government-mandated closures. Now, as small businesses attempt to mount a comeback in Philadelphia and across the state, consumers have grown accustomed to their new online shopping routines. Therefore, small firms should consider how Amazon can help them keep and even expand their customer base. For instance:
- Small businesses are already using Amazon as a platform or supplemental selling source. In fact, roughly half of all annual Amazon sales are because of small businesses.
- Amazon provides its sellers with opportunities for peer-to-peer assistance and information on marketing strategy. Amazon also offers a wealth of seller-focused information via its Seller University and Small Business Academy.
- Amazon is offering buyers the ability to choose which regions to shop from and even which producers to support (such as black-owned businesses and veteran vendors).
It’s undeniable that Amazon and the pandemic have fundamentally altered the business landscape. But rather than badmouthing the behemoth, local small businesses should see this as an opportunity to learn from its experiences, lean on its expertise, and reach more customers than ever. And consumers should be aware that when big business and big government collaborate on new regulations, it’s bad news for everyone else.
Dr. Kimberlee Josephson is an Associate Professor of Business at Lebanon Valley College in Annville, PA. She serves as an Adjunct Research Fellow for the Consumer Choice Center and her research and op-eds have been featured in various Pennsylvania and national outlets.