Summary lecture 2, Global Business History

Lecture 2:

Second industrial revolution, between 1870-1913, also first wave of globalization.

US, Russia and Japan were leaders in average percentage growth. When we look at the GPD but not divided by the population, we see that the United States is becoming a global leader, but the Netherlands is lowest, while it was rich for European terms

From 1800-1900, we can see that German and the US start to manufacture more and china is manufacturing less on a global world scale.

The rate of macro-inventions (like steam, cotton and iron) slowed down after 1825.

It increased in 1870-1913 in new sectors (like steel, chemicals, electricity, transport and food processing), the centre of gravity shifts away from the UK, more in direction of the US, But also other countries participated.

The most important invention is the electricity. Therefore steam power declined after the invention o electricity.

First the communication was very districted, like only via letters. During the second half of the 19^th century, the telegraph was invented and therefore it was more easy to communicate and the whole word became more connected. Another very important invention was the telephone that soon complemented the graph.

There were also advancements in transport. The steam engine made sure, that the locomotive could be invented. Changed the way in which people could move goods. Another major inventions was the steamship. Biggest advantage, was the fact that it did not depend on the weather conditions and could therefore be used anytime.

A crucial innovation was the production of chemicals, namely:

1. Fertilizers, like ammonia (crucial to provide food for everyone)
2. Dyes, like indigotin
3. Explosives like dynamite (were important for example during the buildings of railways)
4. Materials, like synthetic plastic (reshaped how can cheaply make stuff)
5. Pharmaceuticals, like the aspirin

Inventions during second revolutions

1. Electricity
2. Bridges
3. automobiles

 What is big business:

1. economies of scale and/or scope due to new technologies
2. vertically and/or horizontally integrated
3. but also a group of firms (cartels)

before big business, was the factory system:

1. was not vertical integrated, spinners and weaving not combined
2. geographical clusters
3. predominantly family/small businesses

Origin of big business: railway because:

1. huge investment
2. huge employer
3. huge complexity

the formative years of big business:

The new industries of second industrial revolution in 1870-1912:

1. Steel
2. Electricity
3. Chemicals
4. Cars
5. Food processing
6. Petrol

Most important features of big business is economies of scale (continuous production, especially in food processing, chemicals and metallurgy, because they are very capital intensive). Assembly linr, huge production, huge in cost.

Economies of scope, use the same inputs and tools to manufacture a bunch of different products in the same place or the same color applied to a different material.

Vertical integration:

1. Backward integration, merging of firms with their suppliers of input
2. Forward integration, distribution and marketing

Horizontal integration: gain market power and curb price competition by merging

Causes of big businesses:

1. Capital intensity implies high fixed costs and high minimum efficient scale. Average size of the efficient plant size much higher for capital intensive industries
2. Transport technology, big output demands big market, with high transport costs production needs to be close to inputs and consumers, the railway and the steamship caused market integration. Fall in transportation cost allow concentration of production in a few big plants.
3. Communication technology, a firm is not the same as a plant. Big firms imply big complexity to coordinate employees and activities. New ICT make it possible to coordinate production and distribution amongst spatially dispersed units
4. Changes in supply, in capital-intensive industries average cost rises fast when production is below full capacity utilization. Vertical integration pays off to ensure a predictable flow of inputs and output, by implying higher penalties for non-compliance.
5. Changes in demand. Consumers of expensive durables need to trust the seller. With the development of national/global markets the brand becomes the guarantee of quality. Some industries require sellers to provide teaching and repair services and unspecialized whole-salers were unwilling to invest in these

Market integration, local markets becoming one bigger market (when prices become the same)