Strategies of Superstar Firms Paper Example

Paper Type:  Essay
Pages:  7
Wordcount:  1794 Words
Date:  2022-12-05


The superstar concepts are beyond firms, and they can go beyond sectors and cities. The idea of a superstar was first used to refer to companies such as Google, Apple, Amazon, Facebook, and Microsoft. The companies are popular, and almost everyone knows something about them, and people rely on the companies, nearly daily. The firms and others that operate the same way are crucial in engineering dramatic changes in the way individuals in developed countries work, live, socialize and communicate. It might be disputable that superstar firms are the force behind the economic and technological progress which creeps concern to their growing dominance could initiate innovation and improvement in the coming ages. From the general perspective, the term also means firms, cities, and sectors which enjoy a substantially larger share of income as compared peers. The firms pull away from their peers over time. The concept of a superstar is dynamic and is typical for firms, cities, and sectors.

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David et al. (2017) observe that the fall of labor's share of the Gross Domestic Product in the United States and various other countries remain uncertain despite being well documented. There are empirical assessments which focus on the trends in the share of labor. Such estimates majorly rely on the macro data and the industries through obscuring heterogeneity among companies. Technological changes and globalization are advantageous to various production companies in each market. The concentration of the product market is likely to rise as superstar firms dominate the market with a low share of labor in firm value added and sales, and high profits - an increase in the significance of means a fall of the aggregate labor share.

The focus of firms about superstar firms is the metric of economic profit which is primarily a method of measuring the invested capital multiplied by the outcome above the capital cost. The firms focus on the economic profit instead of market share, revenue size, and productivity since there are metrics which have risks of including companies which a are merely large and might fail to create economic value. Malmendier and Tate (2009) explain that superstar forms a total of 80% of all the economic value. The underlying meaning is that the companies account for 80% of the economic profits which firms create above billion dollars of revenue. According to Malmendier and Tate (2009), superstar firms generate an average of 1.6 times more economic profit as compared to 20 years ago.

Characteristics of Superstar Firms

There are some characteristics which differentiate superstar companies from the rest. From the general perspective, superstar concepts are beyond firms, and they can go beyond sectors and cities. The areas include financial services such as asset management, software, and internet, pharmaceuticals, real estate, medical products among various others. The superstar firms are also part of the "superstar" sectors of activity, especially those with value-added gains are channeled to a gross operating surplus. Manyika et al. (2018) define gross operating surplus as an economic measure which is a representation of income which the capital earn.

Principal focus on economic profit and extended analysis to sectors and cities of economic activity

Despite the various definitions, superstar denotes sectors firms and cities which enjoy a substantially higher share of income as compared to peers and is pulling away from the peers over time. The metric of superstar sectors is gross operating surplus and gross value added to the different types of activities such as sales, production, and services which cut across business setups such as retail stores, factories, and laboratories. Malmendier and Tate (2009), observed that superstar firms represent between 13-15% of the total global pool of economic surplus. The same firms also represent about 22-25% of the overall corporate earnings globally.

The Dynamic of Firms

The gap between median and superstar firms has widened. The firms gain 1.6 times more economic profit on average as compared to superstar firms 20 years ago. The firms continue to be displaced from the top 1% and the top 10%. There are also firms which have managed to rise from the bottom 10% to higher deciles. Manyika et al. (2018) add that in the past two decades (corresponding to a business cycle) almost 50% of all firms fell out of the top 10% during the business cycle and when they fell, approximately 40% fell to the bottom 10%. The firms are also diverse, and they emerge from different regions and sectors such as manufacturing companies and global banks, fast-growing Chinese and US tech firms, and long-standing consumer brands.


Superstar firms spend approximately 2-3 times more on insubstantial capital such as R & D. The companies also exhibit more shares of foreign revenue and depend entirely on inorganic growth and more acquisitions as compared to median firms. Greater scale and invested capital are the primary drivers of the loss and the higher economic profits at both ends of the distribution channel. Among the characteristics which the bottom-decile firms share include investments ad size. Such features suggest that the size of the firm is inefficient. The factor which sets superstar firms apart is their ability to execute and select their bond investments.

Superstar Dynamics

The dynamics of superstar firms are beyond the companies, and they are also visible in the cities, although to a lesser extent. Malmendier and Tate (2009) explain that there are a few sectors which account for approximately 70% of the added value and the excess across the G-20 group of major economies. The sectors include the provision of financial services such as insurance, asset management, banking, software and internet, professional services, pharmaceuticals, real estate, and medical products. The profits obtained from the sectors are in contrast to the previous 15-20 years when value addition and surplus are gained more widely and are distributed across all sectors. The superstar sectors tend to exhibit higher skill intensity, higher R & D intensity, lower labor intensity, and lower capital as compared to other sectors. Choi, Lou, and Mukherjee (2018) assert that the higher returns in superstar sectors gain more as compared to corporate surplus as compared to flow to intangible capital and labor on patents, software, and brands.

Technological Conditions, Mechanisms and Corporate Growth Strategies

The technological progress in machine intelligence and the digital arena is managed to accelerate at a greater extent for a long time. The technological advancement has also triggered societal changes, and among the impacts of such progress includes the transformation of various sectors into the superstar sectors. Superstar firms are increasingly controlling modern society, and technological advancements are the significant drivers of these firms. Examples of such firms include:

  • Amazon-an online shop
  • Facebook-a large social media site that facilitates social interactions and connects people across the globe on one single platform
  • Google- a search engine that integrates various services such as emails, photos, analytics, scholar, YouTube, calendar, contacts among various other services.
  • Uber-a taxi that operates on an online platform through the use of a mobile application
  • Airbnb- a technological enterprise that provides accommodation and hospitality services across the globe
  • Walmart-an online shop
  • Apple-an IOS software company

There are also various other superstar companies that operate under technological conditions. The companies appear to be distinct and have managed to gain their power through employing digital technologies which foster conditions that enable a few winners to take all essentially. They are technologically innovative firms whose business models allow them to exploit market advances. The emergence of superstar firms has in various was defined the contemporary society, because the digital giants have leveraged the internet, network effects and big data to emerge as hugely profitable through providing essential services. The most common services are enhanced online shopping and free web search.

The internet companies are not the only superstar firms. According to a study by Choi, Lou and Mukherjee (2018), there has been a sharp increase in the share of sales of superstar companies from finance t transportation. The acceleration trend of superstar firms has also become more uniform across developed economies and industries during the past decade. The firms have also dominated strong markets and have also experienced technological change.

The rise of superstar firms has also helped to explain other disturbing economic trends. Despite the proliferation of impressive new advances in digital devices, software and artificial intelligence over the last decade, and outrageous profits which Silicon Valley has generated, economic growth in the United States and other developed countries has been sluggish.

The Darwinian Selection Model: Amazon and Alibaba

The mode suggests that among the competition benefits include facilitation of an efficient allocation of resources across all firms within an industry. In such cases, firms with higher levels of productivity are likely to increase in size while companies with lower levels of productivity tend to decrease in size (Daly 2017). Such firms also exist through a concept referred to as Darwinian Selection.

Competition is an essential characteristic of superstar firms. For example, superstar firms such as Alphabet, eBay, Alibaba, and Amazon are all online firms which are classified under superstar firms. The firms also depend on the internet and technology to operate. It means that their models of operation are the same across all levels. Competition enables Amazon, Alibaba, eBay, and Alphabet to move their market shares to become more efficient. For instance, the market shares move through lower cost and generally lower prices (Chang & Allen 2016). The competition also facilitates the movement of the industry towards more appropriate producers which sometimes forces others to exit.

In the American market, Alibaba and Amazon are the major giants in the e-commerce industry which are closely competing against each other with an objective of winning the crown for the leader of the global e-commerce market. The origin of the two companies suggests that Alibaba started as a venture in 1999 while Amazon started as an online business store in 1995. Amazon is, therefore, older than Alibaba with a gap of approximately five years. The two companies have, however, managed to establish a strong brand, and a resilient presence in their home territories, i.e., China and the United States respectively. However, there is a close competition between the two technological superstar firms since they are making efforts to seek new markets for expansion (Bielinski 2018).

Amazon and Alibaba share various common features. For instance, Amazon majorly focuses on merchandise, electronic products, and digital media content. Alibaba, on the other hand, focuses on multiple sites which aim at numerous sellers. Although the operation mode of the two companies is similar to a superficial look, they are quite diverse.

Amazon operates through direct sales and owns warehouses while Alibaba does not operate the same way (Chang & Allen 2016). Amazon operates through assisting branded manufacturers and small businesses to reach consumers. The operation strategy of Amazon focuses on using an online platform which is the same as a traditional store despite operating online. Amazon exercises complete control over the customer experience.

Concerning the D...

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