Abstract: Vertical Integration and Business Diversification: The Case of the China Egg Produce Company in Shanghai, 1923-1950

Ning Jennifer Chang

Abstract

In the past it was thought that Chinese firms in the first half of the twentieth century, without the advantages of new technologies, ample capital, and special tax treatment enjoyed by foreign enterprises, could hardly compete with Western intruders. Recent studies, however, indicate that we underestimated the vitality of Chinese businesses. This paper is a case study of an industry whose products were sold exclusively to Europe and were controlled by a single Chinese business, the China Egg Produce Company (CEPC), along with six to eight British and American enterprises. Focusing on the CEPC and the refrigerated egg-packing industry during the interwar period, this paper argues that CEPC was quick to grasp Western management in terms of vertical integration and business diversification. Thanks to their ability to deal closely with the small egg collectors in the producing areas, CEPC managed to gain a footing in a business dominated by foreign enterprises. They then consolidated their position by seeking to control every link of their operation including egg purchasing, processing, transporting and, eventually, even selling. In addition to vertical integration, CEPC also diversified their business. Chinese enterprises during the interwar period shared many of the characteristics displayed by the early multinationals, including vertical integration and managerial hierarchies. When it was obviously profitable, Chinese firms were quick in transferring, absorbing, and adapting Western management and technology. This process was interrupted by the outbreak of World War II and later by the Communist Revolution. The example of the CEPC should lead historians to wonder whether the company would have developed into a Chinese multinational if there had been no political upheaval in the 1950s.