Business History Lectures Flashcards

Question

How do the industrial revolutions link in with business history?

Answer 1

They represent an extremely useful way of thinking about the linkages between the evolution of business and the broader development of economy and society. We have technological change providing the links between social change and organisation change.

Answer 2

1. 1750-1815 2. 1870-1914 3. 1973 onwards.

Answer 3

1. Approximate dates - 1750-1815 2. Location - UK 3. Technologies - Machinery 4. Motive - Water, Steam 5. Material - Iron 6. Automation - of transformation 7. Process Type - Labour 8. Size of firm - Small 9. Advantages - Specialisation 10. Organisation - Entrepreneurial 11. Industry Structure - Competitive 12. Type of Capitalism - Personal 13. Mode of Governance - Markets

Answer 4

1. Approximate dates - 1870-1914 2. Location - USA/ Germany 3. Technologies - Chemicals 4. Motive - Electricity, oil 5. Material - Steel, Plastics 6. Automation - of Transfer 7. Process Type - Capital 8. Size of firm - Large 9. Advantages - Internal integration 10. Organisation - multi-divisional 11. Industry Structure - Oligopolistic 12. Type of Capitalism - Managerial 13. Mode of Governance - Hierarchies

Answer 5

1. Approximate dates - 1973 Onwards 2. Location - USA/ East Asia 3. Technologies - ICT, Biotechnology 4. Motive - Nuclear, Renewable 5. Material - Silicon, Smart Materials 6. Automation - Of control 7. Process Type - Information 8. Size of firm - Mixed 9. Advantages - External Integration 10. Organisation - Networked 11. Industry Structure - Mixed 12. Type of Capitalism - Collaborative 13. Mode of Governance - Networks

Answer 6

1. Substitution away from human skill and effort to powered machines, e.g. the steam engine. 2. Substitution away from animate to inanimate sources or energy, e.g. coal. 3. Use of more abundant raw materials (coal, cotton, iron). These were combined by the factory, for example, the textiles industry

Answer 7

Owner-managed single plant/ factory. I.e. and 'entrepreneurial form' of organisation. It was limited in scale and capital requirements with the owners taking all entrepreneurial and strategic operating decisions.

Answer 8

1. There is a limit to the coordination ability (function) of a single owner/ entrepreneur, leading to a -shaped LRAC curve. Due to limits in scale, the firm cannot grow past a certain point but the number of firms can grow. This leads to firm inefficiency even if all firms operate on their lowest LRAC curve. It may be more efficient to have fewer firms producing more. Therefore, the firms may be individually efficient but the industry as a whole may not be. This is consistent with perfect competition whereby all firms operate on lowerst LRAC point. 2. Life Cycle Effects - A lot of the reason for a firms success is due to the original entrepreneur. First we have the innovator, then the maintainer then the third germination usually fails through either lack of innovation or failure to expand.

Answer 9

Infrastructure. This led to the exploitation of new technologies, a much larger scale of production and much greater capital requirements.

Answer 10

1. Helped create national markets. 2. Provided new organizational challenges and a requirement for a layer of management to coordinate operations 3. Required more capital than individuals could provide 4. Provided a major source of demand for iron and steel

Answer 11

For most industries vertical integration strategies were predominantly used to capitalise on reducing costs, be it through forward integration towards distribution or backwards towards raw material processing.

Answer 12

- Characterised by ICT and to a lesser extent Biotechnology. - Limitations to managerial form organisations exposed with a new focus on network firms - examples include Toyota, Sun Microsystems.

Answer 13

A network based firm is one that makes it an explicit part of its strategy to exploit being part of a network. They focus on very small parts of the vertical chain and outsource most other activities. They are frequently co-located in geographical clusters (Silicon Valley).

Answer 14

The mutuality in the relationships mean that lead Manufacturer will share investment plans with little fear of the opportunism which encourages vertical integration in the Chandlerian model of the firm. Each iteration allows every part of the supply chain to become more efficient and thereby reduce costs. Toyota, for example managed to reduce then umber of parts in their cars by over 50% in 15 years. Such an improvement reduces production costs but also repair costs.

Answer 15

Schumpeter - Entrepreneurs as disequilibrating 'agents of change' through innovation and 'creative destruction' Kirzner - The entrepreneur seen as establishing equilibrium through local knowledge of a situation (the Austrian view) Casson - As a co-ordinator of resources

Answer 16

They are innovators that create something new and destroy something from the past.

Answer 17

The entrepreneur was the central agent for change with the function: to reform or revolutionise the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing an old one in a new way, by opening up a new source of supply or materials or a new outlet for new products, by reorganising an industry and so on

Answer 18

1. Product Innovation - The introduction of a new good. 2. Process Innovation - The introduction of a new method of production (or handling a product in a new way commercially) 3. The opening of a new market by an existing branch of manufacture 4. The conquest of a new source of supply 5. The carrying out of the new organization of any industry –this may involve breaking up a monopoly or creating one.

Answer 19

Baumol believed that economic policy can have little effect on the supply of entrepreneurs but can alter the 'rules of the game' in ways that dramatically change the relative pay-offs (wealth, power, prestige) to productive , unproductive and possible destructive entrepreneurial activities.

Answer 20

Productive entrepreneurs are those that create wealth through innovation while 'rent diversion' activities are those that simply redistribute existing wealth. He argued that changes in the rules of the game via laws, institutions or customs changed the incentives (social prestige, approval and pure economic reward) may results in significant changes in the allocation of entrepreneurial activity.

Answer 21

The Pre-Industrial Revolution Britain changed the law to increase the pay-off for innovation as opposed to rent-seeking.

Answer 22

Monopoly Trading Privileges made available through Royal or Parliamentary privileges eroded by The Statute of Monopolies (1624) which enabled merchants to attain patents that were seen as novelty. Primogeniture in Britain encouraged business activity among younger sons of nobility, freeing up wealth for the individuals that were focused on a less hedonistic lifestyle. In France, business activity among nobility was less socially acceptable.

Answer 23

The number of patents which record the number of novel application for a product or process. A major growth in industrial productivity can be seen from 1750 onwards where it grew by 1% per annum, which coincides with an increase in patents.

Answer 24

Robert Allen argued that the key macro differences in Britain was the high price of labour (wage) compared to wages elsewhere and the domestic cost of energy, especially coal being relatively low. The low relative cost of substituting labour for coal led to the Industrial Revolution being primarily British. This made it worthwhile to incur the high R&D expenses.

Answer 25

A large enough market is required to make the fixed costs of innovation worthwhile. for instance, in cotton, the export market demanded vast amounts of cheap cotton and helped prevent the cost of cotton falling to a much larger extent. The economy as whole experienced growing prosperity, establishing a strong home market.

Answer 26

[The] characteristics of ..... the closely stratified nature of English society, the striving for upward social mobility, the emulative spending bred by social emulation, the compulsive power of fashion begotten by social competition – combined with the widespread ability to spend (offered by novel levels of prosperity) to produce an unprecedented propensity to consume: unprecedented in the depth to which it penetrated the lower reaches of society and unprecedented in its impact on the economy.....

Answer 27

Newcomen Steam-Engine and machinery such as the spinning Jenny. They provided trajectories for subsequent micro-inventions. They were examples of biased technical change which radically altered optimum factor proportions, in this case higher ratios of both capital and energy to labour.

Answer 28

The proportion of workers to the factors, such as capital and technology. A higher ratio meant that less workers were needed per unit of capital or technology.

Answer 29

They had no effect on factor proportions but were responses to entrepreneurial challenges as the technology was developed. This often involved 'collective invention'

Answer 30

free exchanges of knowledge amongst innovative entrepreneurs.

Answer 31

1. Invention - A new idea 2. Innovation - The first commercial application of an idea 3. Diffusion - The process by which innovations are adopted and imitated and welfare/productivity gains are realised

Answer 32

Invention - The spinning wheel. Innovation - James Hargreaves invented the Jenny which allowed many spindles by a single wheel. Diffusion - adopted rapidly in Britain and France but not to India - the primarily exporter of textiles in the world during the mid 18th century.

Answer 33

It was very capital intensive, 70 shillings as opposed to one shilling for a wheel. As each was worked by one individual, this would imply a 70-fold increase in the capital-labour ration. Allen shows that at these prices, the adoption of the Spinning Jenny was only profitable in Britain and France.

Answer 34

``` Steam engine invented by Thomas Savery (1968) and was developed on by Thomas Newcomen into working 'atmospheric engines' This adaption was majorly inefficient and only used for pumping water out of mines where energy was cheap. James Watt (1768) invented the separate condenser which provided greater efficiency meaning the applications became viable in factories. 1884 - further developments in compounding and rotary motion enabling the use in sea and land transport. Many more applications found through entrepreneurial challenges from then on. ```

Answer 35

Machinery was around pre Industrial Revolution, but the difference post was the use of powered machinery. The use of such machinery drove factories to have a centralised power source, be it water or steam.

Answer 36

Richard Arkwright was famous for the invention of the water frame, used for cotton spinning. This made use of water power for the worlds first successful cotton-spinning mill at Cromford, which was organised as. a factory village.

Answer 37

1. Recruitment - Factories were seen as prisons and were indeed modelled as prisons. 2. Time orientated work replaced task-orientated work. 3. Problems of supervision and discipline - no class of foremen existed. 4. The problem of accounting for large amounts of fixed capital.

Answer 38

1. Centralised location - Hours could be controlled and work supervised (unlike the putting out systems) 2. Productivity gains through division of labour/ specialisation (Adam Smith used the example of a pin factory)

Answer 39

1. Increasing dexterity in individual workers concentrating on a single task 2. Reduced time lost in rotating between tasks 3. The invention of machines which abridge simple tasks

Answer 40

The merchant could reduce risk by only paying for completed articles once there was demand. This meant all the risk was on the supplier. Such system became antiquated once there was a more stable level of demand - especially from overseas - reducing the risk to merchants.

Answer 41

1. Pilfering of raw materials 2. Difficulty of speeding up/increasing production –higher wages would often result in reducing hours of work (the backward bending supply curve) –tension between “time free” worker and “time-bound” merchant (D.Landes A Revolution in Time 1983).

Answer 42

The merchant would supply raw materials to the artisans and pay for completed articles. As a result, it was a very flexible system, with the merchant being able to adapt to fluctuations in demand.

Answer 43

1720-1795. One of the entrepreneurs who developed the district known as 'The Potteries ' in Staffordshire - transforming from a small market to a centre of global trade.

Answer 44

His organisational skills are often cited as the key to his success, with a constant strive to innovate and specialise. Entruria acted as a model. In Etruria a mater potter might supervise 150 workers, compared to the traditional 10. This was partly driven by product innovation which required the development of new tasks for each process. Wedgewood also incorporated a hierarchy of wages according to skill.

Answer 45

1. Potteries were notorious for failing to comply to the disciplines of clock time. Wedgewood implements fines for lateness, a clerk of the works and the bell. A primitive clocking in system seems to have been a Wedgwood invention. 2. He was a stickler for cleanliness. 'That won't dot for Josiah Wedgewood'. 3. Wedgewood created a foreman class due to his absence from the factory filling the death of his partner Bentley. 4. Recruitment of skilled artist was a challenge, so Wedgewood implemented in house training (including that of girls). In 1790 around 25% of the workforce were apprentices.

Answer 46

Queensware - Wedgewood becomes 'Potter to Her Majesty' and is allowed to call it Queensware after producing a tea-set for Queen Charlotte in 1765 - an enormous commercial success. Black Basalt (1768) - A fine black porcelain was used to depict newly escalated Etruscan poetry in Italy. Jasperware - Stoneware with a matt finish, often blue and white with white decoration in relief.

Answer 47

Fasion is infinitely superior to merit... and it is plain from a thousand instances if you have a favourite child you wish the public to fondle and take notice of, you have only to make choice of proper sponsors (1779)

Answer 48

Innovation can be a competitive advantage for the innovating firm, but only if the cost to the imitator is greater than the cost to the innovator. When an innovation is easy to imitate, as many of Wedgewoods were, success may depend upon a complementary asset.

Answer 49

1. Reputation. 2. Strong marketing/ distributional network. 3. Better access to raw materials. 4. Better internal organisation for innovation.

Answer 50

A key reason was the failure of Wedgewood to connect the product with patronage, as was done with Black Basalt and Queensware.

Answer 51

1. Partnership with Thomas Bentley combined own skills as scientist- innovator with those of a ‘well networked’ salesman 2. Fastidious attention to building a reputation 3. Marketing through patronage and fashion (e.g. Queen Caroline) –maintaining an exclusive London show-room, replicated elsewhere; warehouses dedicated to ‘a fine price’ 4. Penetration of middle class with different marketing techniques, often exploiting feelings of loyalty –e.g. to royalty or the Pope, and a preparedness to ‘fine tune’ products to class characteristics (e.g. using drapes rather than nudes for more prudish middle classes) 5. Knowledge (e.g. in exploitation of foreign markets) and use of social networks (e.g. ambassadors). 6. Pricing strategy –prepared to be different –positioning his products as high price/quality

Answer 52

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Answer 53

1. Sole Proprietorships. 2. Partnerships 3. Corporations organised as joint stock companies.

Answer 54

1. Access to capital without ownership dilution, which families/ owners were often unwilling to do. Internal financing often the main method for long term capital 2. Death of founder 3. Organisation of hierarchy - no separation between entrepreneurial and functional management decisions due to an absence of class managers. 4. Typically small businesses.

Answer 55

The use of joint stock type of company, with access to external funds and a separation of ownership from management.

Answer 56

- Capital-intensive production processes often involve returns over many years, long after the owners of a firm may be deceased. - Profitable investments (from society’s point of view) may be foregone under the owner-manager ‘entrepreneurial’ type of enterprise when the profits occur at dates different from the preferred consumption stream of the owner. - Irving Fisher (1930) considered the case of a farmer who can use land for mining (declining returns over time), farming (constant), or forestry (increasing). A strong preference for a constant consumption pattern might (for example) favour farming even if one of the others had a higher present value. - With a perfect capital market, Fisher proposed the separation theorem, in which production is optimally left to a firm which maximises the present value of investment opportunities. If this is forestry, the farmer can sell equity in the forestry firm on liquid capital markets to achieve a consumption pattern which is preferred to that provided by farming.

Answer 57

Incorporation - The creation of a separate legal entity in the form of corporations. Corporations have the ability to raise capital through the issuing of shares, becoming a joint stock company. Members will have limited liability, up to the amount of their investment. In 1815 Britain this would have required a 'charter' of incorporation.

Answer 58

1. East India Company. 2. Hudson's Bay Company. These two companies employed a class of managers who sort to maximise the long time value of the organisation

Answer 59

He viewed them as less efficient than sole traders or partnerships and needed monopoly privileges and limited liability to stay in the game. Smith also believed that these companies had an unfair advantage in terms of limited liability. He used the principle-agent problem to explain the inefficient of corporations..

Answer 60

The principle (owner) is unable to fully monitor the actions of the agent (manager).

Answer 61

Pollard (1965) argues the contemporary evidence 'overwhelmingly' backs up Smiths assertion. Abbé Morellet listed 55 joint stock companies in 1769 set up in Europe since 1600 and posited 'all failed from mismanagement, notwithstanding they had exclusive privileges. But, not all companies were unsuccessful, with Smith citing the Hudson Bay Company.

Answer 62

1. Fraud by promoters. 2. Wastage of capital on promotion. 3. Failure of management consistent with the principal-agent model.

Answer 63

Despite being 100 years after Smith, Marshall was still skeptical about such companies. 'a great body of shareholders were almost powerless' leaving 'vast temptation for fraud'. However, the increasing importance of this form of business 'a strong proof of the marvellous growth in recent times of a spirit of honesty and uprightness in commercial matters' However, Marshall's opinions did change over the editions of his famous 'Principles' between 1890 - 1920. In the 8th edition he notes: ' Their scope for expansion is without limit'

Answer 64

The South Sea Company was formed in 1711 by incorporating £9 million of government debt into a company to exploit trade in South America. 190 other ‘questionable ventures were floated in 1719-20’before the ‘bubble’ burst and share prices fell back to around 15% of their peak (Wilson p.44) A subsequent Parliamentary enquiry into the practices of the South Sea Company, resulted in the South Sea Bubble Act of 1720. Although intended to ‘shore up’ the South Sea Company, it made joint stock company formation very costly and difficult.

Answer 65

1720 - Incorporation cost at least £600 in legal experiences. - Encouraged partnerships but limited impact due to the smallish capital requirements of the early industrial revolution and the cultural emphasis on personal relationships and personal finance. Even in textiles, iron and breeding where capital was in excess of £20000, they were just as likely to be partnerships. - The comparative independence between industry and financial institutions of the City of London, largely responsible for the speculative mania. In conclusion, the Act was just one of several factors preventing incorporation.

Answer 66

The family tend to live on the profits of the business, reducing the cash flow. This would lead to the dilution of ownership.

Answer 67

There was a need to access external capital in major way, which began with canal construction in the late 18th century. By 1800, 100 Canal Acts had been passed by Parliament.

Answer 68

Deed of covenants, Repeal of Bubble Act in 1825, Decisive shifts in the financing of investments occurring at this were the creation of joint-stock banks and the construction of railways.

Answer 69

An innovation in the 19th century between many subscribers, achieved the advantage of joint stock status, without incorporation, circumventing the law. The relevance of this innovation can be seen through the formation of gas companies at this time.

Answer 70

One of Britain's original great trading companies. Incorporated by the Royal Charter from Charles II in 1670, giving it monopolist of the fur trade in Rupert land, establishing Forts for trading in the Hudson Bay. Factories were where the 'factor' or agent stored wares waiting trades.

Answer 71

Goods were only able to enter a few times a year. Furs were exported and other goods - often hunting equipment - were imported. Agents would remain in fort, relying on aboriginals to bring furs up-stream, or for middlemen to conduct local trades. Operations centralised with key decisions being made in London and relaying detailed notes. Local Employees with few skills and 'virtually indentured'. Therefore, little incentive for entrepreneurship.

Answer 72

1. Monopoly positions of middlemen restricted trades. 2. Inability to exploit local knowledge. 3. Could only enter the Bay a few times a year due to freezing.

Answer 73

Late 18th century the North-West Company, based in Montreal began trading. The organisation was very different. They shipped from Montreal due to lack of access to the bay, which meant a huge cost disadvantage and that they had to access customers directly via large numbers of trading posts where furs were collected. Advantages? 'Wintering partners' could act flexibly, on the basis of better local knowledge. As partners they received shares of the profit, incentivising actions in line with the companies interest. 'Voyageurs' undertook arduous journeys into the interior but could be promoted.

Answer 74

Competition between different forms of organisation, one being centralised with detailed instructions to subordinates; the other decentralised, more flexible and therefore able to be more competitive and change to market environments. The HBC adapted by putting posts inland and reformation of organisational processes, which ultimately led to its triumph.

Answer 75

Repealed in 1825 but still needed incorporation through Act of Parliament.. Reforms in 1835, 1838 and 1844. Act finally removed in 1856.

Answer 76

Ability to fund railways and banks.

Answer 77

- The joint-stock notinherently inefficient compared to other business forms and it can respond to competitive challenges. - It also tells us that managerial organization is important, dependent upon a ‘fit’between an strategy, a firm’s organization and its environment.

Answer 78

Prior to railways, transportation based on improvements to canals and roads. The Railway network constructed in after the 1830s. It paved the way to the 2nd IR in helping create national markets.

Answer 79

1. Construction - unprecedented demand for iron and later steels in many different forms, from simple (rails) to complex (locomotive engines) 2. Promoted innovation through wider marketswhich increased specialization and competition 3. Release of working capital previously tied up in stocks of raw materials 4. New organizational and managerial challenges

Answer 80

- Required the largest capital out of companies in Britain, also meaning they were the largest companies. - Most raliway comapnies became joint-stock enterprises, creating a separation between 'ownership' and 'control'. This created a new rentier class of owners and one of salaried managers, - Geographical dispersion %%%%%%%%%%%%%%&&&&&&&&&

Answer 81

A merger wave in Britain of the 1830s, leading to the creation of very large companies, making railway companies especially even larger.

Answer 82

- Canal and coach companies. - Mark Huish - General Manager of LNWR (1846-58) -pioneered methods of depreciation provision, accounting for rolling stock and track. Progress was made in terms of costing, pricing, marketing, and the use of statistics

Answer 83

- Poor generally, many changes were forced on management due to the difference in the scale of the challenges. - Hawke (1970) argued that railways failed to increase productivityafter 1850s – by 1890s limitations largely recognised.

Answer 84

1. Existing management techniques borrowed from canal operation, coach or sea transportation inadequate (e.g. canal companies did not own barges and were not concerned with whereabouts of barges) 2. Narrow recruitment -limited pool of talent at chief executive level, often through internal promotion 3. Narrow social background of chief executives

Answer 85

US railroads expanded very rapidly in the 1850s and were often, by the second half of the nineteenth century, far larger than their British counterparts, on average perhaps 10 times as large (Wilson p. 39). By the time their networks were fully developed by 1910, the whole network was 240,000 miles in the US against 12,000 miles in Britain

Answer 86

Daniel C. McCallum. He believed that such structure is required in larger railroads.

Answer 87

1. Financial accounting –new performance measures including the ‘operating ratio’ common in US as a way of measuring profitability, defined as “the percentage of gross revenue needed to meet operating costs” 2. Capital accounting 3. Cost accounting –Albert Fink (Louisville and Nashville) developed cost accounting techniques to examine divisional performance and develop fare structures based on cost

Answer 88

Joint-stock corporation with dispersed ownership. Over time, this became a typical form of large enterprise, in both the US and Britain.

Answer 89

In some European economies, where capital markets were still weak, new innovations included joint-stock investment banks.

Answer 90

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Answer 91

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Answer 92

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Answer 93

The loss of British economic leadership in the second half of the 19thcentury -in some industries to the US, and in some industries to Germany. A focus more on precision engineering, such as watches, clocks, bicycles and footwear. The US was one of the first to make such goods.

Answer 94

Mainly chemicals and dyes.

Answer 95

From around 1900, the US takes over in productivity, with every consecutive year after this, up until 1973, increasing in relative productivity.

Answer 96

Following WWII, as a more service based economy, Britain began to reduce the productivity gap.

Answer 97

Germany began to move ahead in productivity following WWII (1973) as a result of the 'economic miracle'

Answer 98

Relative output per employee never drops below 150%, meaning US workers produce 1.5x as much in the same time. This suggests there is something fundamentally wrong with Britains manufacturing techniques.

Answer 99

One reason could be the tendency for the UK to make more bespoke goods, and less amass produced goods.

Answer 100

Once again, Germany only overtakes the UK after WWII.

Answer 101

The 1851 Great exhibition "of the Works of Industry of all Continents" attention was drawn to the extent of mechanisation in US ( a parliamentary fact finding mission). Later in the 19th century, a surge of imports from the US, which became known as the 'American Invasion'. Items included Clocks, bicycles, typewriters and sowing machines.

Answer 102

Anglo-American Productivity Councils were established. The productivity gap became apparent to US observers during the war itself

Answer 103

Alfred Chandler. Following the railways, the modern managerial business was born, providing fertile opportunity for mechanisation on a large scale.

Answer 104

Required large amount of capital, and led to large potential for economies of scale, enabling businesses to operate oat the lowest point on the LRAC.

Answer 105

1. Investment in productionfacilities sufficiently large to achieve significant cost savings; 2. Investment in product specific networks- facilities for marketing, purchasing and distribution 3. Investment in management to supervise and co-ordinate the above activities and achieve the economies

Answer 106

HE viewed it as a faliture of British capitalism that sufficient numbers of firms dod not undertake the '3-progned investment'

Answer 107

They were largely unaffected.

Answer 108

-distribution made possible by the railroads, post, and telegraph national branding allowed for penetration of rural areas -metals –esp. constructional steel –rails, bridges, buildings -electrical equipment -industrial chemicals -light machinery -food, drink, tobacco processing -packaged goods In many of these industries, very powerful firms and oligopolistic structures emerged, many of them familiar names to this day

Answer 109

In Chandler’s view, those firms which initially made the necessary 3 pronged investments, obtained powerful ‘first mover advantages’ making challenges very difficult –‘path dependency’ and ‘persistence’

Answer 110

- Pre-emption: where economies of scale large in relation to market size - Learning effects: first to move down learning curve - Lower capital costs: uncertainty of incumbent’s moves to entry by challenger

Answer 111

On the basis of: changing technology/markets/anti-trust actions

Answer 112

Britain more ‘locked into’ ‘personal capitalism’, limiting potential for growth – family preference for ‘dividends’ rather than investment and lack of investment in management

Answer 113

1890 - Formalised a strong anti-monopoly sentimentin America. The Sherman Act aimed to make collusion and price fixing cartels illegal.

Answer 114

He believed the act helped to promote merger and industrial concentration, a trend that was underway as larger firms attempted to achieve scale economies. Frequently mergers created giant holding companies, through the exchange of shares in existing companies for those in the holding company

Answer 115

The merger boom from 1897-1902.

Answer 116

- In the 1880s, the cigarette market was only a smallish part of the overall tobacco market - For Chandler, story begins with James B Duke and the invention of the Bonsack machine, capable of producing 120,000 cigarettes a day, compared to 3,000 by a good hand-worker. A few Bonsack machines were clearly capable of supplying the entire world market at the time! - 4 years after opening a factory and admin. offices in New York, and signing an exclusive contract with Bonsack, it was supplying half the nation’s consumption of cigarettes. In 1887 W. Duke & sons produced 487 million cigarettes.

Answer 117

Standard Oil was created in this way by John D. Rockefeller, whose Standard Oil Trust rationalized production into big refineries, converting the smaller ones into specialist producers of items such as lubricants, vaseline etc.

Answer 118

According to Chandler, the key elements were: - Intensive nationaladvertising, establishing a national brand name - A vertical integration strategy combining mass production with mass distribution - Forward integration - Backward Integration

Answer 119

Network of national sales offices headed by a salaried manager. Staff visited local retailers, drug stores etc ... “managers worked closely with New York headquarters to ensure effective scheduling of the high volume to jobbers and a few large retailers..”

Answer 120

purchasing network in tobacco region of US Because of vagaries of size of crop and curing required, prices very volatile. Duke counteracted this by building own storage and curing facilities and buying direct from farmers...

Answer 121

Failure of Duke to move decisively into cigar marke,where individuality remained important. In cigarettes: other producers forced to follow suit... desire to control competition forced merger of Duke and its 4 largest competitors to form the American Tobacco Company in 1890, becoming a founder member of the Dow Jones Industrial Average in 1896. This was eventually broken up by anti-trust action in 1911.

Answer 122

Variants on the Duke story can be found in other industries using similar continuous process technology. First movers in many industries became established household names not just in US: Diamond Match, Quaker Oats, Pillsbury Flour, Quaker Oats, Campbell Soup, Heinz, Borden’s, Carnation, Libby, Procter and Gamble, Eastman Kodak..... Integration in perishable goods and machinery also important.

Answer 123

A term named after Henry Ford and used to describe an economic system characterised by both mass production and consumption. The US were leading in manufacturing productivity by following such an approach.

Answer 124

1. The inter-changeabilityof manufactured parts | 2. Arranging the manufacturing process into a sequence of machines each dedicated to a simple operation

Answer 125

The assembly-line.

Answer 126

- The idea can be traced as a concept to French gunsmith-inventor Honoré Blanc who stunned gathered revolutionaries in 1790 by assembling gun-locks from parts taken randomly from bins. Experiments reported to US Congress by Thomas Jefferson....... - Idea caught on in US in woodworking industries, e.g. housing construction, where pre-fabricated ‘4x2’ was ubiquitous, and windows/ glass came in standard sizes. Here, the abundance of supplies of wood, and relative scarcity of labour made the use of machines to abridge labour highly attractive. - It is possible that these trends were helped by greater homogeneity of demand in US –although as Landes (1998) has pointed out consumer resistance to standardized production did exist, e.g. in the realm of furniture.

Answer 127

In the US, the deskilling of workers began, but less so in Europe whereby workers were more organised and resistant to mechanisation. Laws France have since hindered productivity gains but maintained brand image.

Answer 128

Inter-changeability in metallic goods requiring fine tolerances much more difficult to achieve, but the tanks were quickly produced and assembled.. Government intervention in US gun-making kept this enable parts to be swapped out rather than the entire gun having to be sent off and replaced?

Answer 129

The pursuit of standardized interchangeable parts became a distinct objective in gun manufacture because of its obvious interest to the military. In 1812 Eli Whitney stated to the US War Department that the Britishgovernment had ‘on hand over 200,000 stands of muskets, partially finished or awaiting repair' In 1798 US government awarded Whitney a contract on the basis of his determination to apply mechanized techniques on the basis of ‘a new principle’ of manufacture. Simeon North was simultaneously working on similar ideas in pistol manufacture Many contemporaries remained sceptical but Whitney had a ‘great influence in spreading the idea to government small arms armouries at Springfield and Harpers Ferry’

Answer 130

Large standardised demand. In Britain, the Portsmouth Pulley Rocks were being produced for the Royal Navy. It started in 1805 and operated using the same machinery for over 100 years. Wasn't implemented around Britain, but in the US it was somewhat implemented in the form of making guns.

Answer 131

- Different factor prices: scarce labour, abundant raw materials, relatively abundant management skills - ‘Localised Learning’: the US experience makes clear the geographical boundedness of learning, not easily transferred. Rosenberg described the spread of machine tool technology: as a sequence of problem solving challenges. At any given point, progress was constrained by a particular bottle-neck known mainly by those experiencing it, yet each new solution shifted the focus to another technical constraint or phase of production. With frontier technology rapidly changing and new applications being spun off, physical presence in the active area was virtually indispensable for anyone who hoped to improve on the prevailing best-practice.

Answer 132

The automobile industry. It required mass production and mass consumption. Up until this point, they were mainly toys for the rich, being hugely unreliable.

Answer 133

Henry Ford created the mass-production/mass-consumption/high wage production system by adding the assembly line to the American system within a philosophy often referred to as ‘Fordism’ Ford’s business model based on relentlessly pushing down the cost and price of an ‘unchanging’ automobile –the Model T –through an extreme strategy of vertical integration. The inflexibility and limitations of Ford’s business model was later exposed in competition with General Motors. The cars were all the same and managerial techniques were not great.

Answer 134

Both saw the potential for the automobile. In 1908, the ‘industry’ sold just 65,000 machines in US. By 1916 Ford alone was producing 0.5 million. If Ford was the great centraliser, Durant was the opposite, creating with General Motors a considerable ‘holding company’ producing many different automobiles, parts etc. Early divisions inc. Buick, Olds, Chevrolet, Cadillac etc.

Answer 135

The recession/crisis of 1920 saw the departure of Durant and the emergence of Alfred P. Sloane who introduced a viable decentralised corporation at GM.

Answer 136

1903- Ford Motor Company established producing mid-range cars. 1907 -Henry Ford establishes strategic control basing strategy on a successor model to the reasonably successful Model ‘N.’ and based on Ford’s prescription for a lighter cheaper car ‘with a single block, cast in one piece,...providing 20hp and a magneto fired engine’...’requiring no mechanical aptitude –a car for the masses. 1906-8 Planning for model T shaped by experimentation with model N and the influence of ‘Yankee’ engineers with strong predilection for interchangeability. Planning for production of Model T left to Charles Sorensen –factory layout and machine sequencing etc. 1908-10 planning for move to ‘the crystal palace’ at Highland Park, architect Albert Kahn 1909 –decision to build only Model T –touring car, runabout, and delivery car to use same chassis

Answer 137

“... skills from sewing machine and bicycle industries” ”there can’t be much work or fitting if you are going to accomplish great things” “The motor-car as fusion of 3 arts ‘buying materials, the art of production, and the art of selling”

Answer 138

- Relations with suppliers, e.g. prototypes for every machine tool - Experimentation - The assembly line, gravity slides, conveyors

Answer 139

1 year on from April 1 1913, average assembly time fell from 20 to 5 person minutes.

Answer 140

Pioneered assembly line production 1910-1913. It was the original mass manufacturing factory.

Answer 141

“the increased velocity of throughput permitted Ford to reduce the price of his product until it was half that of his nearest competitor, to pay the highest wages in the country for non-skilled work, and to acquire a personal fortune that was larger than that of John D.Rockefeller, Andrew Carnegie, or James Buchanan Duke”. (Chandler The Visible Hand, 1977)

Answer 142

Reduced person-hours per chassis from 2 hours 38 minutes to 93 person minutes using conveyor belt to control the pace of work and other transfer devices. Helped make T the dominant design.

Answer 143

Focused on more specialisation and final assembly at the very end, meaning less transferring of whole vehicles around the factory.

Answer 144

In 1913, it was reckoned that that about 31% of | workers were leaving every month. Ford countered with the “$5 day” in 1914 - which could represent efficiency wages.

Answer 145

* better retention and lower turnover, * inducing more effort , * attracting better quality workers * improving morale Resulted in 50% of profits being taken away in 1913, but as his profits were so large and growing to much, this was made up within two years. The reason for efficient wages may also be due to the lack of monitoring on the floor.

Answer 146

- Motivation of Ford not clear –did not own 100% of shares –and it is clear that Ford had other motivations, including keeping out the unions - The increased wage bill (wages up from $2.34 to $5) amounted to one half of company profits. - Introduction of $5 day considerably assisted recruitment and reduced turnover costs. - Not clear whether productivity increased enough to offset higher wage bill. Estimates of productivity increases 1914-13 suggest 30-50% increase in productivity, while profits continued to increase –but Model T increasingly successful . - Perhaps wage increase excessive.

Answer 147

% at For 1913 | 1914 | 1915 Turnover Rate 270 | 54 | 16 Lay-off Rate 62 | 7 | 0.1 The annual turnover and lay-off rates at Ford.

Answer 148

Market share held by Ford fell from 55% to 30% from 1921 to 1926 due to falling demand for the T-Model. As a result, Ford had to have a model change, ending production in the Model T in 1927. The switching costs in the factory were large, involving a 6 month closure at Highland Park.

Answer 149

General Motors reorganised under Alfred P. Sloan, increasing competition against the Model T. Strategy included centralised coordinated marketing strategy based upon decentralised organisation. Also, a planned model change and consumer credit (which Ford eschewed)

Answer 150

The Chevrolet was within 30% of the price of the Model T by 1926. This, as well as growing prosperity, a willingness to pay for closed bodies and 'fashion proved fatal for Ford's marketing strategy. By 1930, both Ford and GM adopted the 'annual model change; as part of their business strategy.

Answer 151

We need to distinguish technology from productivity. Rather different technologies co-existedin Britain and US. In US we have adoption of highly mechanised mass production techniques, requiring intensive inputs of management (Chandler) and unskilled labour whereas in Britain demand and factor conditions favoured skilled labour intensive craft production. ‘Chandler thesis’ stresses role of marketing investments in creating greater demand homogeneityin US - In Broadberry’s view, it is possible, through this distinction, to explain how Britain could be seen in 19th century as the technological leader but the US was simultaneously the productivity leader

Answer 152

Britain: 14% Germany: 16% US: 36%

Answer 153

Germany and Japan with rapid advance in the 2nd IR.

Answer 154

Unfavourable political economies. Germany was hundreds of lesser states which only began to unite in 1824 with the creation of Zollverein and finally the creation of the German Empire overseen by Bismark. Japan closed itself of for centuries, ending its isolation policy with the Meiji restoration of 1868. In the late 19th century both Germany and Japan had strong governments perusing coherent industrial policies.

Answer 155

1. The Role of the State 2. Education 3. Finance 4. Corporate Governance 5. Entrepreneurial differences

Answer 156

``` Britain: Basic universal education only after industrialization Education Act 1870 Basic universal education – Purpose to instruct or discipline? ``` ``` Germany: Universal elementary education introduced in many German states long beforeindustrialization (egPrussia 1763) ```

Answer 157

Britain:Increasing importance during 19thcentury Primarily left to private enterprise -patchy and inadequate Germany: Strong development of post-elementary vocational education

Answer 158

Britain: Strong belief in learning by doing –“men with practical skills rather than formal qualifications” Germany: Direct education of a managerial elite TechnischeHochshule–category of DiplomEnginieur Huge size of system

Answer 159

Britain: Largely privatised - provision at university level Late development of science subjects at older universities Germany: Strong links between industry and universities –first industrial laboratories and specialist institutions

Answer 160

Sharp contrast between laissez faireattitude of British governments and autocratic/paternalistic German state Laissez Faire: laid back.

Answer 161

Role of the Banks - strategic/entrepreneurial decision making.

Answer 162

Corporate Governance - 1871 company law introduced the unique ‘dual board’ structure –supervisory Boards (Aufsichtsrat)and executive boards (Vorstand).

Answer 163

Legal position of cartels. In Germany cartel agreements far from being illegal as in the US after the passage of the Sherman Act, and could be made legally binding if they were written in contracts. In Britain, while not illegal, agreements not enforceable in courts.

Answer 164

Chandlers three pronged approach from Scale and Scope (1990) - comparative development in Germany, US and Britain, arguing that German businesses much more likely to have made 3-pronged investments than British firms, creating powerful first mover advantages in many European and world markets. This was especially true for producer goods. In consumer goods, lower income levels in Germany precluded similar development. In Chandler’s view, many British businesses failed to make the 3-pronged investment in production, management, and distribution, clinging to what he termed ‘personal capitalism’. German business closer to creating US style organizational capabilities, but did so more through a ‘cooperative’ style of capitalism in which inter-firm relationships play a much larger role.

Answer 165

In Chandler’s view, many British businesses failed to make the 3-pronged investment in production, management, and distribution, clinging to what he termed ‘personal capitalism’. German business closer to creating US style organizational capabilities, but did so more through a ‘cooperative’ style of capitalism in which inter-firm relationships play a much larger role.

Answer 166

Rather than focusing on long term growth, many British companies pursued a goal of obtaining a steady flow of profits for established families, far in excess of US counterparts, indicating an unwillingness to retain corporate earnings for investment purposes

Answer 167

The merger wave of the 1890s did not –as in US –create large integrated enterprises , but more often loose ‘federations’ of the original companies (e.g. Cadburys and Frys). This did begin to change during and after WWI though.

Answer 168

- Antitrust environment –less need for merger, allowed for creation of cartels and cross firm ‘communities of interest’. - Strength of universities and educational system –technical universities esp. important. - Role of universal banks.

Answer 169

Began to occur after completion of the railway and communication network.

Answer 170

- Developed with railway construction and then with industry. - Simultaneous provision of retail banking, development banking, investment banking, investment trusts. - Senior bankers took positions on supervisory Boards of companies and actively monitored management.

Answer 171

Despite high prices, due to monopolies in the production of goods (such as ball-bearings), the quality of durable products was so great that the demand was maintained. Longevity was key and brought down the average yearly cost of goods, despite a higher start price. Both culture and legal apparatus favoured cooperation between firms.

Answer 172

1879 with the building of a large factory at Bournville

Answer 173

In Chandlers book 'Scale and Scope'.

Answer 174

Moved overseas cautiously, reaching Australia in 1920, travelling across the British Empire.

Answer 175

1911 - Vertical integration into milk processing. 1930 - packaging. Investments into distributional facilities far less that US counterparts

Answer 176

Bourneville: A factory in a garden. Cadbury's was not just an ordinary factory. Far ahead of its time and under the direction of George Cadbury the workers were provided with housing, education and training. Pension schemes for employees and medical facilities ensured a healthy and dedicated work force. George Cadbury regarded the employees as part of his family and treated them well and with recognition for their services

Answer 177

``` “Even until the 1940s, the owners managed and the managers owned”. - Organization of Cadbury still reflected pre-occupation with production and selling - Board represented manage- mentfunctions rather than strategic functions - Board still dominated by Cadbury family –in 1930, Chairman and 5/7 Board members were Cadburys. ```

Answer 178

The Board of directors should not be controlling the day-to-day running of the firm, but should be long-term strategic operators of the firm. Such a method led to a slow down in the progress of Cadbury. 5/7 Board members were Cadburys.

Answer 179

1919 - Merger with Fry's following cooperation in purchasing for years, crating the British Cocoa and Chocolate Company. - Mainly (at first) an alliance for overseas operations rather than rationalizationon US lines (e.g. of the sort at Standard Oil) - In Chandler’s view this type of allowed both families to retain control and typified the frequently rather looser outcomes from mergers in Britain

Answer 180

- Like Cadbury’s, Gebrȕde Stollwerckalso built a large factory to yield economies of scale near Cologne in the 1870s. However compared to Cadbury’s they invested far more heavily in professional management and distribution and “paying close attention to marketing, ... they concentrated on packaging” both in terms of design, and to create consistent quality. - A network of sales offices in Europe and the US was rapidly established and which provided information on local tastes”. Chandler1argues that it was “marketing expansion which became a pace setter in manufacturing and engineering”. Sales offices supplied information on local tastes. An R&D lab established in 1884. - Capabilities in engineering and packaging created economies of scopeand allowed the company to diversify successfully into vending machines.

Answer 181

Chandler in Scale and Scope.

Answer 182

``` Britain: 1905/6 - 30 1921 - 446 Germany: 1911/2: 550-600 1929/30: 2100 Germany one of a number of economies that historically have positively favoured cartelization –in Britain they developed strongly after the experience of WWI ```

Answer 183

A collusive joint profit maximization strategy of members. Companies compete on quality of goods rather than the price, as the price is fixed. This causing an upward bypass towards benefit.

Answer 184

Price stability, technology sharing or agreeing upon a pattern of specialization, allowing for productivity gains and competing for market share thorugh innovation.

Answer 185

There are strong incentives to do deals at below the agreed price and for which marginal revenue greater than marginal cost. Such deals may be difficult to detect, making cartel pricing agreement highly unstable. Nevertheless price fixing cartels do sometimes survive.

Answer 186

Cartels may be welfare enhancing. Webb observed how a combination of tariff policy and cartelization in the form of the German Steel Mill Federation encouragedboth vertical integration(to avoid paying the higher prices associated with the cartelized inputs of pig iron) and higher capital intensity, encouraged by greater price stability.

Answer 187

Universities, powerful firms. According to Amatoriand Colli“the state played a determining role in this phenomenon since early on German leaders understood the importance of investing resources in the links between science and industry”. New institutions included the Imperial Institute of Physics and Technology, (now PTB) founded in 1887. From early 20thcentury, specialist research institutions were created in areas such as weather, geology, agriculture, forestry, shipbuilding etc.

Answer 188

One of the most clear-cut cases of the loss of British leadership was in the emergent synthetic dyestuffs industry in the second half of the 19th century. The case provides an excellent example of German ascendancy in ‘science based industry.

Answer 189

A clear-cut case of the loss of British Leadership. Provides an example of German ascendancy in 'science based industry'.

Answer 190

“German leadership is mainly in industries, in which academic training and laboratory work can be turned to good account; and those are growing in relative importance”

Answer 191

Until the emergence of the synthetic dyestuffs industry, textile industry relied on vegetable dyes. Britain had many of the obvious advantages for developing synthetic dyestuffs –raw materials and large textile industry

Answer 192

Murmann (2003). He analysed the comparative development of the synthetic dye industry in Germany and Britain in terms of co-evolution of institutions, focusing on the inter0relationship between university research in Chemistry, the legal systems and industry.

Answer 193

1857-1865 Early synthetic dyes. -invention and first patent William Perkin of aniline purple (Britain) -‘over-supply’ of German chemists found many working in Britain and provided skills for many German start-up companies.

Answer 194

1866-1885 The rise of scientific theory in synthetic dye manufacture - Development of scientific organic chemistry (e.g. benzine ring theory) allows for a more systematic search for new dyes

Answer 195

1886-1914 The Age of corporate R&D laboratories - Rise of azo-dyes gives enormous advantage to new corporate R&D laboratories over lone inventor. Big 3 German firms share of US/British/German patents 66% in this period

Answer 196

Temporary monopoly over a product or process. Must meet tests of novelty, involve a significant inventive step, and be capable of industrial application. These tests are ‘the examination’

Answer 197

Requirements: - full documentation, i.e. a patent represents a codification of knowledge Value: - documentation makes patent tradable –rights/licences -worldwide many thousands granted annually, most of little or no value Dimensions: -length (duration) and breadth (scope) of patent. The ‘strength’ of a patent system reflects these dimensions.

Answer 198

- Slide 22 lecture 5

Answer 199

Process innovation reduces the Average and MC. The innovator can then attain monopoly profits until the patent expires, at which time, providing the innovation can be copied.

Answer 200

The prize for investing in R&D. This will depend on the duration of patents.

Answer 201

It will effect the payoff to innovators. As T increases, investment increases but so to does the deadweight loss. Therefore, there is a tradeoff involved.

Answer 202

Patents as ‘second best’ , encouraging innovation and disclosure but creating monopoly positions.

Answer 203

In the first phase, British firms (eg Perkin and Son) held ‘strong’ patents, discouraging entry and the need for the development of complementary assets. No patent law in Germany, so with access to strong skills base, there was considerable entry, with a Darwinian process of selection leading to strong survivors…..

Answer 204

Germany enacted its patent law in second phase (1877) at a ‘time when the science had advanced sufficiently to allow for systematic search’ and patent filing strongly favoured the larger firms, but with no deleterious effect on domestic competition.

Answer 205

Much better adapted to needs of dyestuffs industry than in Britain or US, where patent law predated chemical product innovation

Answer 206

``` Evolutionary economists have shown that the number of firms in an industry follows a distinct pattern. Entry and exit are both initially high as the market selects entrepreneurial decisions based on product innovation. Entry and exit positively correlated. Numbers of firms eventually begins to fall as process innovation becomes more important ```

Answer 207

Entry and exit are initially high as the market selects entrepreneurial decisions based on product innovation. Entry and exit positively correlated. Number of firms begins to fall as process innovation becomes more important.

Answer 208

No clear shake-out in dyestuffs except among French firms. Among German firms after 1900 and then nearly half firms in Germany by WWII.

Answer 209

1868 under the Meihi Dynasty once the 'shogunate (warrior rule) was overthrown. Characterised by a period of catchup pursued by 'characteristic intensity'

Answer 210

1. Tradition of effective government 2. Education/literacy 3. National identity 4. Strong work ethic

Answer 211

Tokugawa government -fearing rising Christian disobedience -secluded the country in 1639, restricting foreign trade to that of Chinese and Dutch

Answer 212

``` only western contact with Dutch through island of Nagasaki -this provides some inward flow of ideas but in any event Togukawa era far from static in terms of indigenous technology. Rise of merchant class important in creating a national market ```

Answer 213

Productivity growth encouraged in agriculture and mining, while civil engineering projects improved river navigation and irrigation

Answer 214

Without inventing the steam engine, there was considerable innovation in machine building by the ‘karukari masters’. Growing popularity of schooling

Answer 215

5. Transfer of written information 2. Import of people 3. Sending of Japanese to study abroad 4. Importing machines and plant. 5. Inward foreign investment

Answer 216

- Compulsory education system established nation-wide by 1904 - Higher education emphasised engineering rather more than science - British professors helped establish the engineering department of the Imperial University (now University of Tokyo)

Answer 217

- GNP more than doubled 1885-1914 - Patents granted between July 1855 and February 1902 was 4817 against 27,136 (US), 13,714 (Britain) 12,026 (France) and 10,610 (Germany)

Answer 218

A ‘financial group’ of firms controlled by a family and typically organized around a bank with specialized sales, marketing, and distribution companies to service the manufacturing firms in the group.

Answer 219

Were a characteristic form of business development between 1868-1945, when they were disbanded by the occupying powers in Japan for close association with the military.

Answer 220

A large spurt of government divestment by the Japanese government. Privatisation activities in 1880s as government recognised 'top down' approach to its industrialisation programme not working. Privileged position of Zaibatsu was a key element in the new industrialisation strategy when they were allowed to buy 'government plots'.

Answer 221

Mitsui, Mitsubishi, Sumitomo and Yasuda.

Answer 222

Mitsubishi, Mitsui, Sumitomo and Yasuda created family controlled Zaibatsu. Two of these Mitsui and Mitsubishi diversified considerably during the 20th century.

Answer 223

Success with a trading arm, Mitsui Bussan, allowed Mitsui to diversity into unrelated businesses as diversified as cotton spinning, silk reeling, paper production and engineering.

Answer 224

Much diversified Zaibatsu production organised in the form of holding companies, only loosely coordinated from the centre and could be highly dynamic.

Answer 225

Many family assets seized, trade-marks prohibited, and many new independent companies being created. Some groups reformed as Keiretsu.

Answer 226

- An inconsistency between the deleterious effects of the British “personal capitalism” and (more) successful family business elsewhere, including Japan - ‘Lifelong employment’ an important element of the Japanese business climate especially amongst the larger firms –commitment by firm and employee encourages investment in firm specific (non-marketable) capital

Answer 227

He also observes that values cultivated as part of the Meiji restoration included “the organic ordering of command structures” and the “collectivization of aims or the group first” which translates into loyalty to the employer/firm. Loyalty to firm equates with national loyalty.

Answer 228

Dominant view is that Zaibatsu contributed strongly to Japanese latecomer Industrialisation reinforced by relevance of business groups as alternative to state.

Answer 229

Strong position by WWI undoubtedly owed something to their privileged position vis a vis the government. However they possessed advantages related to scale and flexibility through their decentralised organisational form and a highly educated entrepreneurial management. Family control of finance enabled earlier entry into new industries.

Answer 230

With relation to

Answer 231

Zaibatsu firms compared to independent producers were less favourable. Tang considers an econometric model of the date of entry into new industries as compared with independent firms and finds that, when industry contestability is controlled for, Zaibatsu affiliates entered rather late.

Answer 232

Some Zaibatsu reformed to this structure. These business groups were rather different (firms, independent, no family domination). Have similar pattern to Japanese Chaebol business grouping like Samsung.

Answer 233

Where these investment activities occur across sectors/industries/firms, there may be considerable problems of opportunistic ‘hold-up’. Morckand Nakamura (MN) give the example of a coal-mine expecting to supply a planned steel-mill, where the latter can expropriate some of the joint benefits of its investment. Business groupings offer an alternative means of coordinating activities to the State, whose role is subject to various types of government failure. MN see a key role of the Zaibatsuin what they call the ‘tunnelling’, and by substituting for the 'failing state leadership'

Answer 234

It has been argued by many development economists, that successful latecomer industrialization requires a ‘big-push’ to initiate the process. A major problem is that this requires the coordination of complementary investment activities.

Answer 235

Transference of wealth from one group to another.

Answer 236

Big business in the 20th century. 1914-1939

Answer 237

1. Patterns 2. Strategies and organization for growth (the innovation of the M-form) 3. The legacy of WW1 and the role of the state 4. The role of ‘first mover advantages’ in sustaining big business

Answer 238

They tended to keep their competitive advantage over others.

Answer 239

- The largest US businesses in 1912 were considerably larger than those in either Germany or Britain - Largest British Firm in 1912 less than half size of US Steel - J&P Coats (UK - textiles) formed from acquisition of several firms in 1896 but represented the industries of the First Industrial Revolution

Answer 240

List still US dominated but increasingly reflecting the 2nd IR. List begins to reflect newer industries with JP and Coats now 47th in the world. A concentration in oil, metals, chemicals, vehicles and tobacco.

Answer 241

1. Size and capital intensity 2. Persistence and growth 3. Integration of potentially separable processes or plants: -vertical integration -horizontal integration 4.Diffusion of stock ownership (especially in US/UK) and the divorce of ownership from control 5. Diversification through acquisitionand through RandD creating new products 6. Multi-divisional organisation along regional or product lines

Answer 242

Most firm growth took the form of building bigger plants to attain economies of scale (late 19th and 20th). This frequently involved horizontal mergers. Prior to this vertical integration was often used. Once in the industry, firms can learn and benefit from economies of scope through diversification.

Answer 243

Economies of scope are economic factors that make it cheaper to make a variety of products together instead of making them on their own. For example, McDonald's can produce both hamburgers and French fries at a lower average expense than what it would cost two separate firms to produce each of the goods separately. This is because McDonald's hamburgers and French fries can share the use of food storage, preparation facilities and so forth during production.

Answer 244

the pursuit of a strategy for continuing growth of the individual firms. Only comparatively recently can we observe any tendency for downsizing, e.g. through share buy-backs.

Answer 245

Learning in the industry and then diversifying to exploit economies of scope. Diversification through formal Rand D departments and product innovation.

Answer 246

Business in the Third Industrial Revolution

Answer 247

``` Date: 1973- Location: USA, East Asia Technologies: ICT, biotechnology Motive: nuclear, renewable Material: silicon, smart materials Automation: of control Process Type: Information Size of Firm:miced Advantages: external integration Organisation: networked Industry Structure: mixed Type of Capitalism: collaborative Mode of Governance: networks ```

Answer 248

Involved 'stand-alone' proprietary technologies. Increasing complexity of technology in the post-war period. In the post war period this *****************

Answer 249

A key feature of the 3rd IR, being the various types of business network. The 2nd IR led to dominance of business by large firms realising economies of scale and competitive advantage through integration.

Answer 250

Business network firms achieve competitive advantage by cooperating with other firms and achieving improvement in productivity by obtaining external economies rather than internal economies associated with vertical integration.

Answer 251

Requires mechanism for coordination and control somewhere in-between the market and the firm based hierarchies.

Answer 252

General purpose technologies. E.g: 1st IR: The Steam Engine 2nd IR: Electricity and the internal combustion engine. 3rd IR: Biotechnology and ICT

Answer 253

1. Pervasive generic function that is vital to the functioning of a large segment of existing or potential products and production systems 2. Improvement Technological dynamism –continuous learning and improvement 3. Spawning Innovationalcomplementarities –improvement in GPT stimulates profitability of innovation in using industries and vice versa

Answer 254

The semi-conductor. These Semi-conductors can be reprogrammed to do just about anything.

Answer 255

The tremendous savings in applying binary logic come about because of the great scope for standardization and cost reduction due to learning effects andindependent scientific advance

Answer 256

Early History: Evacuated tubes which allowed electric currents to be modified - switched/ amplified. 1947: Amplification properties of transistors discovered by ATandT. allowed the first silicon transistor and planar process. 1959: First patent application for an integrated circuit Early development of Fairchild Semiconductor 1971: Intel's invention of '4004' micro-processor. 1986: 1st RAM chipe containing 1 million transistors. 1005: Chips pass 1 billion transistor mark.

Answer 257

Bell labs developed the transistor in a corporate laboratory owned by ATandT. Pervasiveness recognised by ATandT (the owner). They adopted a liberal cross-licensing strategy, believing that the spillover benefits from tapping into the capabilities of others would be greater than those from proprietary development. This open approach to innovation the face of technological complexity/ uncertainty was to become a much more important business strategy in the 3rd IR

Answer 258

An important competition in the early stages of the development of the transistor was the use of either germanium or silicon as the material for manufacture. Silicon offered better electrical properties but was initially considerably more expensive. In the US, military and space procurement favoured silicon, and the importance of this source of demand, together with the unsuitability of germanium for the planar process made for greater cost reduction with silicon - and substantial advantages for US over European and Japanese firms

Answer 259

Just as electrification a key GPT of 2nd industrial revolution, semi-conductor based Information Technology (IT) is key GPT of 3rd industrial revolution. Overal productivity growth slows initially but there is a rise of new firm entry (as measured by entry into the stock market) and investment by new firms relative to incumbent firms which are more wedded to older technology.

Answer 260

-Measures of innovation (e.g. patents, trademarks) stronger in IT era than in electrification era. -IT is spreading more slowly, but price of IT is falling 100 times faster than did the price of electricity

Answer 261

S-shaped. Slow initial adoption, growth phase, then levelling off.

Answer 262

No sign by 2005 that diffusion of computers across households had slowed down. Constant growth.

Answer 263

Global electronics industry has embedded the semi-conductor in larger system

Answer 264

Consumer electronics and computer.

Answer 265

Invention of Radio (Marconi) as a system requiring electronics. Military significance seen in WWI as warring factions cut undersea cables. US Navy attempted to 'nationalise' US radio businesses but was blocked by Congress *******

Answer 266

RCA dominant in emerging radio industry making money through 'patent packaging; in licensing technology (users tied to buying licences for several components). Only RCA able to pursue large RandD. Sarnhoff's realised that production of radios was not profitable due to simplicity and competition in the future. Therefore, this encouraged forward integration into 'software' such as radio content, crating NBC in 1926, also entered the phonograph. record player market. The RandD allowed RCA to pioneer television development in US. It set standards in the industry of broadcasting used later in the coloured television.

Answer 267

Sony and Matsuishita

Answer 268

Gun production

Answer 269

By military demands in WWII and developed in universities (code breaking and controlling gunnery fire)

Answer 270

UNIVAC produced the Remington Rand which proved successful in predicting Eisenhower;s successful presidential campaign in 1951. Big businesses purchased following this, namely Dupont, GE, US Steel.

Business History Lectures Flashcards

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