The pioneers of the 1880s soon had their imitators. Nevertheless, the giant, integrated industrial enterprise remained the exception until after 1900. Nearly all American manufacturers, including those using the new mass production techniques, continued to employ existing marketers to sell and distribute their products. The makers of consumer goods relied on the wholesaler and increasingly on the mass retailer. The manufacturers of producer goods continued to depend on manufacturers’ agents and other comparable middlemen.
The firms that did adopt the strategy of vertical integration in the 1890s did so for the same reasons as the pioneers in the 1880s. Middlemen were unable to provide for their marketing needs. In addition, a few firms which had for many years been well served by the existing marketers began to build their own selling and buying organizations. These were primarily metal-making and metal-working companies whose output reached unprecedented levels through continuing technological and organizational improvement.
For these reasons enterprises that grew large in the 1890s by building their own marketing and purchasing networks continued to cluster in the food and machinery industries. In the r 890s Andrew J. Preston created a refrigerated distribution network comparable to that of meat packers to sell bananas in the national market.48 In 1899 his firm, the Boston Fruit Company, became the core enterprise in the United Fruit Company, which, in addition to its distribution system, came to own a fleet of refrigerated steamers and a vast acreage of plantations in the Caribbean region. In the same years William Wrigley and Asa Candler followed the model of American Tobacco and Quaker Oats to create giant business enterprises in the chewing gum and soft drink trade. Wrigley of Chicago made his fortune in chewing gum by integrating high-volume production with a global marketing organization and a supply department that became one of the world’s largest buyers of chicle.49 Candler of Atlanta became a multimillionaire from the making and selling of Coca-Cola in the same manner. The success of the Coca-Cola Company was based on his realization of the possibilities of high-volume sales by marketing syrup directly to druggists and other retailers rather than bottling the finished product.50 His company quickly became an integrated enterprise with a global sales force and a purchasing organization that operated its own co- operage. In addition, the company began to build branch processing plants to supply distant markets at home and abroad.
In machinery the same pattern held. The makers of newly invented office machinery followed the examples of Remington Typewriter and National Cash Register. In the late 1890s, A. B. Dick & Company, the developers of the mimeograph machine, began to market their product on a national scale. Around 1900 William S. Burroughs began to mass produce and mass distribute his adding machines. Their integrated enterprises dominated their markets from the beginning.51 In the next decade the two pioneering makers of time clocks and of computing and tabulating ma- chines put together similar organizations. These were to merge in 1911 to form the Computing-Tabulator Recording Company, the forerunner of International Business Machines. It is safe to say that all office machines, from the typewriter to the Xerox duplicator, were from their initial de- velopment produced and marketed through large integrated enterprises.
In the 1890s makers of large, complex, standardized machinery set up marketing organizations similar to those of the electrical companies and Otis Elevator. These firms included Ingersoll Sergeant Drill (which in 1905 joined the Rand Company to become Ingersoll Rand), Mergan- thaler Linotype, producers of a new form of typesetting machine, and E. W. Bliss, manufacturers of dies, presses, and similar machinery.52 Comparable, too, was the Owens Bottle Machine and Crown Cork and Seal.
Michael J. Owens had invented the bottle machine in Edward D. Libbey’s glass factory, and by 1900 the machine produced a completely automatic high-speed bottling process for which Crown Cork and Seal provided the stoppers.
As the century came to an end, a small number of companies that had long relied on wholesalers or manufacturers’ agents to sell their products also began to build their own marketing organizations. Manufacturers in the metal-making and metal fabricating industries, where the application of improved technology and factory design and the procedures of scientific management created a constant output, were among the first to adopt this strategy. In the late 1890s firearm manufacturers—Winchester, Colt, and Remington—began to set up a small number of regional sales offices of their own to contact wholesalers and retailers, to improve scheduling of deliveries, and to advertise more aggressively.54 At about the same time the Yale & Towne Manufacturing Company, the leading producer of locks and building hardware, Waltham Watch and other watch and clock makers, and the Crane Company, makers of plumbing fixtures, created much the same type of multifunctional enterprise.
In the nineties leading iron and steel producers and fabricators began to replace independent manufacturers’ agents who handled several accounts with salaried salesmen working out of branch offices. In that decade Washburn & Moen and the Trenton Iron Company (both prominent wire makers) set up several branch sales offices.55 In the same decade the foremost iron and steel maker, the Carnegie Company, and smaller firms such as Lukens Iron and Steel did the same.50 At Carnegie these sales man- agers and those agents who were still retained on a commission basis re- ported weekly to Alexander Peacock, who was appointed the company’s general sales agent in 1893. Peacock kept a careful overview of sales and inventory so as to improve scheduling and flows through the Carnegie plants and to provide information on the changing demand and competi- tors’ moves. In these same years, the wire companies and Carnegie began to expand their purchasing organizations and to integrate backward.
For these three companies, as in other large metal-making and metal- fabricating enterprises, such expansion and the beginnings of integration forward and backward quickly resulted in mergers with competitors. By 1901 all three of these firms had become part of the giant United States Steel Company. In the 1890s the primary route to size was becoming one of combination and consolidation. Their experience was part of another process of growth followed by American manufacturers.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.