EXTERNALIZING INTOLERABLE RISK AND UNCERTAINTY: THE MINING SECTOR AS A STRATEGIC-COST LEADER

摘要

Outsourcing/externalizing, which has long been associated with cost-cutting and just-in-time inventories, is also a powerful means for large corporations to shift intolerable levels of uncertainty (especially the peril of social ignominy) to a plethora of smaller firms that can (as required) fail and reform under new names. In effect, the function of the smaller firms is to transform uncertainty, which is unmanageable, into risk, which is manageable. Where there is an incredibly treacherous investment process, large companies will, from an optimal cost structure perspective, choose to externalize. If large companies chose not to externalize this investment process, they would incur higher costs and reduced profitability, while the smaller companies would, to a considerable extent, be crowded out. Thus, the externalization process is a form of spontaneous order that, via engendering a synergistic relationship, helps crystallize the aggregate structure of an industry. Moreover, without externalization, the large companies would expose their carefully cultivated reputations to the dangerous social and ethical cross-currents that tend to be an inherent aspect of uncertain, embryonic investments. Thus, small firms can act as an important foil for large corporations. In terms of the mining sector, this study has shown that JMCs increase society's ability to prospect areas that would otherwise be too marginal, as well as hazardous to the reputations of larger firms, and that the net wealth contribution to society per dollar invested in and expended by JMCs is very large. The transfer of significant losses to the JMCs is accepted by their shareholders because their losses are limited to their stake via the limited liability provisions. Meanwhile, JMC principals earn a living as entrepreneurs and benefit from any upside gain. This study also suggests that nations with rich mineral endowments who also place a high value on corporate social responsibility (e.g., Australia, Canada, and some states in the U.S.) will especially foster externalization in their mining industries. It was further shown that the nature of the relationship between LMCs and JMCs (i.e., externalization) should be of interest to participants in other industries/sectors that face similar uncertainties and have a desire for others to transform that uncertainty into more manageable risk.