Manufacturing Methods
What differences do you see in manufacturing
methods among these three images from before
the Civil War, after the Civil War, and during
modern times?
The number of workers, the raw materials used, the
kinds of machinery, and the work environment.
How do you think the ownership of these
workplaces has changed?
As workplaces became larger and more modern,
ownership shifted from families of modest means to
wealthy entrepreneurs.
Business Terms
• economies of scale The concept of economies of scale says
that the cost of manufacturing falls as goods are produced more
quickly in larger quantities. After the Civil War, corporations
achieved this by investing in new technologies, expanding their
workforces, and purchasing machinery.
• fixed costs A company’s fixed costs are the debts the company
must service whether it is in operation or not. Loans, mortgages,
and taxes are fixed costs.
• operating costs A company incurs operating costs while it is
actively producing goods. Workers must be paid. Raw materials
and other supplies must be bought and shipped to the factory to
keep operations going.
Factories
• Why do many factories run day and
night, all year long?
A factory that is idle is still costing the owners
money but is not producing any goods or
revenue.
Big Business
• Big businesses can achieve efficiencies
associated with economies of scale in
several ways. One is specialization—of
workers and of machines. Another is
paying lower prices by purchasing
resources in large quantities.
Business Organizations
• corporation a business that has shared
ownership in the form of stock with hired
management, high fixed costs, and low
operating costs
• partnership a business owned and managed
by two or more people with low fixed costs
and high operating costs
• sole proprietorship a business owned and
managed by an individual with low fixed costs
and very high operating costs
Big Business
What advantage does a big business have when it comes to
operating costs?
As fixed costs go up, its operating costs go down more than those of
the small business.
How did consumers benefit directly from the rise of corporations?
Because goods were produced at a lower cost, corporations could sell
them more cheaply than small businesses and still make a profit. As a
result, consumers saved money on certain items
What drawbacks do you think may have been associated with big
business manufacturing from a consumer’s point of view?
The absence of personal attention provided by small businesses and
the lack of originality or quality that often comes with corporate
production.
Business Terms
• pool an agreement between companies to
set prices at an agreed upon base level
• monopoly command of an entire market by
an individual company
• trust a managing arrangement in which an
individual makes decisions regarding the
property or assets of another person
• holding company a company that owns
shares in and manages the assets of other
companies but does not make any products
Vertical Integration
• Owning It All Vertical integration increases efficiency
while making a company larger. Companies vertically
integrate when they purchase all of the businesses
on which they depend, such as those that supply raw
materials, equipment, or services such as shipping.
• Carnegie Steel Entrepreneur Andrew Carnegie’s
steel company engaged in vertical integration.
Carnegie bought coal mines, limestone quarries, and
iron ore fields, all of which were vital to the production
of steel, as well as the rail and shipping companies
that haul raw materials or finished products.
Vertical Integratin
Discussion
How could vertical integration prove to be
more efficient and cost effective for both
the producer and the consumer?
The producer’s ownership of businesses that
contribute to the operation of the parent
company cuts down on supplier expenses,
and the resulting savings can be transferred
to the consumer.
Horizontal Integration
• Combining Companies Horizontal
integration allows one business to dominate a
certain field. It occurs when a strong company
combines with other companies in the same
business—often competing firms—to form
one large corporation.
• Standard Oil John D. Rockefeller built his
company, Standard Oil, into the nation’s
largest oil refiner. With horizontal integration,
he acquired his competitors. Eventually he
had a monopoly—control of the entire market.
Horizontal Integration
Discussion
How did horizontal integration work
to consolidate an industry?
It turned an industry with many
competing firms into an industry with far
fewer firms, perhaps even leaving one
company with a monopoly.
Horizontal Integration
Discussion
• Horizontal integration was often a
successful strategy for strong companies,
but what challenges might it have posed
to the company doing the integrating?
• When a smaller, weaker company merges
with another company, the company doing
the integrating had to assume control of any
weaknesses that existed within the faltering
company and may have had to overcome
financial or structural challenges to turn the
merger into a success.
Horizontal Integration
Discussion
• What big American industry has employed both
horizontal and vertical integration in modern
times?
• The automotive industry; for example, General
Motors [GM] has acquired several other carmakers
and has also bought out other supplier companies as
well, such as the company that makes all of the
radios they install in their automobiles [Delco]
Microsoft bought out several software developers, but
also suppliers such as microprocessor
manufacturers.
Business Discussion
• If a paper mill bought a new
papermaking machine, what fixed
and operational costs might it incur?
• Fixed: loan to buy the machine; taxes
on the purchase. Operating: raw
materials, including trees; workers’
wages; shipping costs.
Business Discussion
• What are the fixed costs that most
households have?
Taxes, mortgage, or rent
• What are some operating costs of a
household?
Electricity, water, and heating or cooling