Formation of Large Companies in Europe and the US

The Formation of the Corporation

France

French corporations were smaller compared to those in the U.S., England, and Germany. They were often family-dominated and had a close relationship between management and ownership. Examples include Renault cars and Michelin rubber. These corporations featured simple management structures, strong organizational skills in production, but weaker distribution capabilities.

Factors Limiting Concentration:

• Small market size
• Existence of a dense distribution network
• Industry expertise focused on quality goods

Forms of Cooperation:

• Restrictive sales promotion through specific organizations
• Innovation through holding groups of companies that controlled legal and stock exchange matters
• Mergers, which emerged in the early 1920s due to capital needs

Italy

Italy saw the rise of big industry in the early 1920s, including companies like Fiat, Ansaldo, and Olivetti. These companies were technically competent and had simple administrative structures, with large families often dominating leadership.

The Italian industry had a dual structure:

• Large state-supported enterprises (protected by tariffs)
• Smaller businesses linked to the larger ones through subcontracting

Spain

Corporations emerged in Spain in the 20th century, primarily in sectors like electricity, mining, banking, and railroads. There was limited internal concentration in textiles, steel, and shipbuilding.

Spain also featured:

• State-supported cartels
• Numerous industrial districts operating under quasi-integration

The Formation of Large Companies in the U.S.

Mechanisms of Growth:

1. Vertical integration (integrating production and distribution)
2. Horizontal integration (merging with competitors)

Early Forms of Concentration:

Cartels were common in the 1870s and 1880s but proved unstable due to their reliance on agreements.

Later Forms of Concentration:

• Trusts: Transferring shares to a company acting as a board of directors
• Holdings: Creating a new company that held shares of other companies

Legal Reactions:

The Sherman Anti-trust Act of 1890 aimed to curb the power of these groupings. However, it wasn't very effective, leading companies to explore other integration methods like fusion, which eliminated competition and provided greater market control.

Factors Favoring Mergers:

• Development of the stock market
• Strong investment banking

Outcomes:

• Widespread public limited companies
• Formation of oligopolistic markets in the U.S. economy
• Growth of the movement after World War I

The Formation of Large Companies in England

Characteristics of UK Companies:

Large UK companies were characterized by a higher level of expertise and less vertical integration compared to their U.S. counterparts. This was due to well-established marketing and distribution networks, more fragmented markets, and increased competitiveness from foreign trade.

Concentration through Associations:

Trade associations were a common form of concentration, fixing prices and distributing market shares.

Limitations on Associations:

• Influence limited by the presence of large wholesalers
• Strong foreign competition due to low tariffs
• Less aggressive market behavior compared to American or German cartels

Evolution towards Holdings:

Associations eventually gave rise to holdings, which were associations of companies that retained their legal status. Initially, holdings didn't involve significant organizational changes. However, by the mid-1930s, they began to adopt organizational structures similar to American companies.

Influence of Family Ownership:

Large families continued to exert influence on company boards (a phenomenon known as personal capitalism). Chandler argued that this hindered investment and explained the inability of these companies to compete effectively in international markets.

Competitive Sectors:

Despite these challenges, UK companies remained competitive with American companies in sectors like banking, maritime trade, and insurance.