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Business Models

The Virtual Corporation Business Model

What happens when the brand is everything and all functions besides marketing are outsourced? Can this be considered a real company?

The answer is a resounding “yes” according to an article in the UK publication, The Times.

The virtual corporation is a business model for the 21st century. In the U.S. and Canada it is often referred to as a “virtual corporation”, while in Europe and the United Kingdom it is called a “hollow corporation.”

During much of the last century, the typical business model was that of a vertically integrated business. This is a business which makes what it sells. However, that model has been transforming into the virtual one since the 1980s.

Quoting Kjell Nordstrom in The Times:

The boundary of the firm — the definition of what is inside or outside the company — has always moved back and forth,’ said Nordstrom. ‘What is happening now is that the boundaries are moving more quickly; and they are moving in a particular direction, with companies shifting more and more activities out of the corporation.’

The result is that companies, both large and small, are performing ever fewer of their traditional functions and becoming “hollow.”

Fueling this trend toward the virtual businesses are globalization and technology. International, cross-border trade has become easier due to lessening of trade tariffs and technology that brings the world closer.

Sub-tasks can now be performed almost anywhere in the world. People in distant corners of the globe working on common technology platforms can now collaborate on projects seamlessly. Furthermore, they can communicate instantly and cheaply across long distances due to undersea fiber optic cables. Through technology, distance between workers is no longer the limitation it was once.

Entrepreneurs typically use the virtual corporation approach during startup to keep their initial capital requirements to a minimum.

Read more on the virtual corporation strategy.

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