Industrial Revolution and the Rise of Modern Capitalism
In the 19th century, new technologies were applied to new factories. Because of this, companies needed new strategies. Three important institutions in the United States helped companies compete in:
- The mercantile, commodity, securities, press and very important telegraph and financial institution transactions, which drove the revolution of distribution.
- Increasing profit margins, because costs were reduced.
Distribution Changes After 1870
Before 1870, the industry sold through a wholesaler and retailer to the final client. In 1870, the industry, competing with other companies, distinguished its marketing of products. The client listing showed what the retailer and the wholesaler were. In the 1920s, wholesalers disappeared, and companies sold directly to retail clients as they grew in scale.
Large-Scale Production and Cheap Labor
The first large distribution and large-scale production allowed low prices. Production was in the hands of cheap labor, and specialization produced flexible products. The first production was of small classes, with direct media and high quality, and had more variety. When a company could produce cheaply, competition lowered prices.
Three New Commercial Strategies
- Horizontal combination (cartel or consortium): Several companies that produced the same product signed agreements. In a cartel, instead of setting prices, they shared control of profits.
- Vertical integration: The company extended from production to the final premium product.
- Horizontal integration (mergers): Several companies merged to increase their market power.
The difference between the first and the third strategy is that in the third there is one large company, while in the first several companies remain. Major companies of the world passed through a period of unstable cartels and consortiums, because agreements were not signed and legal action could follow.
Trusts and Holding Companies
Early cartels and consortiums were governed through a board of trustees, or holding company, which governed the companies. The government eventually intervened, and trusts were replaced by corporations. The degree of vertical integration was very high, and half of the companies were rudimentary. All tobacco companies had vertical integration, and 82% of oil companies did too.
Gasoline and Chemical Industries in Europe and the US
Large companies in the United States were larger than those in Europe, and some had no production. Free trade was not very competitive, and monopolies were common. Cartels needed more associations, even trade associations. The character of these companies was aggressive.
Mergers and Industrial Expansion
There was a large number of mergers. The costs of these models made them more expensive. Companies invested in research, and the most important industries were chemical, electrical, steel and pharmaceutical. Cartels grew a lot.
Japan: From Isolation to Industrial Power
In 1850, Japan was a country with little development and little industrialization, like other Asian nations. When the American arrival pushed Japan to industrialize, Japan began to accept trade.
The emperor could no longer rule as before, and the nineteenth-century war with the shoguns changed political power. The emperor restored his power, and the country modernized quickly, bringing in foreign entrepreneurs and universities. The samurai, former lords of war, lost power and their wealth diminished.
In 1880, the government sold a large number of public companies. Some were bought by samurai and merchants, known as the great daimyo merchants. The industrial aristocracy formed the great commercial groups, the zaibatsu, which were strongly protected by the state.
The Zaibatsu
Japan needed domestic and foreign trade, while most of the farm population had no demand. The zaibatsu were highly diversified, operated as holding companies, and grew very large. Their companies had great success.
Japan had no energy sources such as coal or oil, only forests as plant carbon. Forests were exploited heavily. By 1930, 60% of invested industrial capital was controlled by only three zaibatsu:
- Mitsui
- Sumitomo
- Mitsubishi
Japan as an Industrial Power
In the 1960s, Japan became the first industrial power in the world. The market and work organization changed. New methods of production and management emerged, with new machines adapted to subcontracted labor. A new mode of production, labor organization based on the Toyota model, spread, while in the USA production was managed from the performance of the worker. Machines were adapted to the time workers needed, which slowed the worker in producing one product. In short, the system continued to evolve.