- Between 1865 and 1900 transofmration of American business.
o Stimulated by technological innovation, esp. mechanization and use of electricity
o Was able to produce producers’ goods such as machinery and locomotives, and consumer goods.
- By end of 19th century, would become a mass-production economy.
- Between depression of 1870s and beginning of 20th century occurred
o 1870s major industries serviced an agrarian economy.
§ Except for few few companies equipping rapidly expanding network, leading industrial firms processed agricultural products, provided farmers with food and clothing.
§ Firms tended to be small and bought raw materials, sold finished goods locally.
- By beginning of 20th century, more companies making producers’ goods to be used in industry than farm or ultimate consumer.
o No longer purchased and sold through agents but had nation-wide buying and marketing organizations.
o Major industries dominated by few firms that had become great, vertically integrated, centralized enterprises.
- Basic changes came only after railroads created a national market
o Railroad network grown due to near desperate requirements for efficient transport due to movement west after 1815.
o Stimulated by the demand for better transport to move crops, bring farmer supplies, open new territories to commercial agriculture.
§ Quickend growth of old commercial centers.
o As a result intensified the demands for older consumer goods industries, particularly those who processed the crops of the farmer and planter into food, stimulants, clothing.
- Developed the first large market for this country’s producers’ goods.
o Railroads also had huge capital outlay and led to new ways of oligopolistic competition and large scale, professional management.
o Made the new country increasingly urban.
o By 1850 urban areas would grow more rapidly than rapid ones.
- Industries first dominated by great business enterprises were the ones that made consumers goods.
o Consolidation and centralization in these industries well under way by 1893.
- Gustavus Swift known for his meat-packing business.
o Saw potential in western meat market to eastern cities.
§ After Civil War, eastern cities rapidly outrunning local meat supply.
§ At the same time, herds of cattle gathering on western planes.
o After invention of refrigerated railroad car, would have fresh western meet supply to eastern cities.
- Swift developed beginnings of nation-wide distributing and market organization built around network of branch houses.
o Each “house” had its storage plant and own marketing organization.
§ Latter includes outlets in major towns and cities, often managed by Swift’s own salaried reps.
o To make effective use of branch house network, company soon began to market other products than beef and soon with increase in supply (due to demand), had set up meat-packing est. in many other places.
o Company also systemized buying of cattle and began concerted effort to make more profitable use of by-products.
§ Can see efficiency everywhere.
- Therefore by end of 1890s, Swift had fashioned a vertically integrated organization.
o All major departments, marketing, processing, purchasing, accounting all controlled form central office in Chicago.
o The great modern corporation carrying on major industrial processes, were all within same organizational structure.
- By 1900 the great modern corporation had become basic business unit in Amer. Industry.
o Each of major processes managed by a corporate department which were all supervised from a central office.
o Creation of nation-wide distribution and selling organizations was first major step in growth of many large consumer goods companies.
- Also accompanied formation of national marketing organization.
o Would lead to concentration of production in fewer and larger plants.
§ Led to lower unit costs and increased output per worker.
§ Meant setting up central traffic, purchasing, and often making organizations.
o Had large-scale buying and more systematic of everything.
- Large vertically integrated organizations altered the situations which business bdecisions made.
o Informations about markets, supplies, had to come up through several levels of departmental hierarchies, while decisions were transferred down same ladder.
- Costs determined prices rather than interfirm competition.
o Companies able to determine price quite accurately based on desired return on investment.
o Concerned themselves less with the price and more on obtaining new customers by advertising, brand names, etc, etc and on cutting costs through further improvement on the integration of all the processes.
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