To what extent can Chandler’s model of large-scale, integrated managerial enterprise explain the long-term competitiveness of leading economies?
Chandler`s model of large-scale enterprises is a way from and shift away from the ‘invisible hand’ model given by Adam Smith. Chandler`s model is an attempt to explain the developments in the second phase of industrial revolution where he tends to reason behind the enhancement of capital. In this context, he gave the concept of modern industrial enterprise, which according to him grew in three phases. That is, there were investments in the production facilities, mostly the ones with technological potential to produce economies of scale and the economies of scope, concepts which would be touched upon in the paper. Further, he argued that there were also increases investments in marketing and the distribution networks. Followed by these developments was the recruitment drive of managers and a build-up of managerial hierarchy to make important decisions regarding the functional units. Therefore, Chandler`s theory tends to build upon these central stipulations via which he explains how an industrial enterprise demonstrates long-term competitiveness. He also gives the concept of managerial capitalism in his theory which he claims is the decision making body overseeing various operations of the organization. Also, he adds that in addition to the industrial enterprise, there are various other sub-species forming the business enterprise, all of which carry out the modern production functions (Chandler 1997: 16). Therefore, the paper will aim at explaining in detail how Chandler has built a model explaining how the modern industrial units seek to produce economies of scale and economies of scope. The paper will also compare and contrast the modern economies of various nations to give practical implications of the model being discussed.
As mentioned above as well, an industrial enterprise is one of the sub-units of business enterprise in general, where salaried managers are looking after distinct operating units. Therefore, these industrial enterprises in question grew eventually as various units kept adding to it which were diverse in context to economic functions or geography. These units offered economies of scale, implying that as the size of an operating unit which produces a product increased, the unit cost of distribution or production kept decreasing (Chandler 1962). Similarly, economies of scope were produced, i.e. joint production patterns emerged from a single operational unit to produce more than one product. In other words, in this capital dependent industry lobbied by Chandler, the increase in output resulted from a decrease in the capital and labor ratio because of the addition of newer machinery or processes (Chandler & Tedlow 1985: 64). Also, economy of scope being argued in this case came about due to the production of a variety of end products after using the same raw material or utilizing the same processes. In this context, it is safe to assume that such an economy was highly dependent on skills, knowledge, team-work and experience i.e. the human capital which had the capacity to efficiently utilize the technological procedures. Since modern infrastructure and communication networks emerged in the last decade of nineteenth century, large organizations with a set hierarchy emerged, bringing about a revolution in production as well as the distribution functions. In addition, a specialization workforce was assigned tasks like market research and analyzing competition which is a sole feature of oligopolistic markets (Chandler & McCraw 1988: 42). Thus, an integration of various sub-units came about to produce economies of scale and scope, which is the central argument of Chandler`s theory.
Furthermore, evolution in these large scale enterprises paved way for an addition in the functional line of hierarchy. That is,...
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