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Author: 
 
 Guaranty Trust Company 
 of New York 
 
 Title: 
 
 Combining for foreign 
 trade 
 
 Place: 
 
 [New York] 
 
 Date: 
 
 [1 920] 
 
MASTER NEGATIVE # 
 
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 Guaranty trust company of New York. 
 
 Combining for foreign trade; plans and methods of 
 operation. [New York, etc.] Guaranty trust company of 
 New York [M920] 
 
 15 p. 3 fold, diagr. 24"". 
 
 1. U. S.— Comm. i. Title. 
 
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 LIBRARY 
 
 School of Business 
 
Combining for Foreign Trade 
 
 Plans and Methods of Operation 
 
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 Guaranty Trust Company of New York 
 
 140 Broadway 
 
 FIFTH AVENUE OFFICE 
 Fifth Avenue and 43rd Street 
 
 LONDON O FFICES 
 32 Lombard Street, E. C. 
 5 Lower GroBvenor PI., ?. W. 
 
 PARIS OFFICE HAVRE OFFICE 
 
 1 & 3 Rue dea Italiena 122 Boulevard Strasbourg 
 
 MADISON AVENUE OFFICE 
 Madison Avenue and 60th Street 
 
 LIVERPOOL OFFICE 
 27 Cotton Exchange Buildings 
 
 BRUSSELS OFFICE 
 158 Rue Royale 
 
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 COPYRIGHT, 1990, py 
 GUARANTY TRUST COMPANY OF NEW YORK 
 
 • • • 
 » • • 
 
 G33 
 
 ( 
 
 Foreword 
 
 THE information contained in this 
 booklet has been recorded as the 
 result of actual experience in aiding the 
 formation of combinations under the 
 Webb-Pomerene Law. It is presented 
 with the idea that specific data and de- 
 tailed information, together with a dis- 
 cussion of plans of organization, based 
 on actual developments, may be helpful 
 to those who are seeking a solution of 
 some of the more difficult problems of 
 collective selling. 
 
 Legal opinion is not agreed as to the 
 alleged limitations of the Webb Law. 
 Business men, however, have been proceed- 
 ing on the understanding that whatever 
 restrictions are discovered as hindering the 
 legitimate development of foreign trade 
 will be removed by Congress as experience 
 proves the necessity for amendment of 
 the Law. The Government desires to 
 
 foster our foreign trade activities in every 
 way possible, and when privileges are 
 not abused, and existing domestic laws are 
 not wilfully violated, very definite en- 
 couragement is likely to be granted to 
 groups of exporters who seek to establish 
 our products in all parts of the world on 
 a plane compatible with the highest stand- 
 ards of American business. 
 
 The services of the Guaranty Trust 
 Company of New York frequently have 
 been employed in this field in counselling 
 the members of new foreign trade organi- 
 zations, and have been and are entirely 
 gratuitous. No obligation of any kind is 
 involved. It is a matter of public service, 
 rendered in the belief that whatever serves 
 to expand the country's trade will, in the 
 long run, be of benefit to all and help 
 sustain the national prosperity. 
 
 I: 
 
Combining for Foreign Trade 
 
 Plans and Methods of Operation 
 
 THE Webb-Pomerene Law, p)ermitting 
 combinations in export trade, has 
 now been in force for more than twelve 
 months. During this period one hundred 
 and one organizations have filed papers 
 with the Federal Trade Commission 
 for the purpose of taking advantage of the 
 provisions of the Law. 
 
 Not all of these organizations have com- 
 plied with the essential requirements of 
 the law. Some trading agencies have 
 registered with the idea that it might be 
 safest so to do as an aid to contemplated 
 expansion of effort, without, in the mean 
 time, representing any organization of 
 competing interests. 
 
 There is, however, a rapidly-growing 
 number of well-planned organizations 
 in which American manufacturers and 
 producers have combined to promote their 
 sales in foreign countries. These include 
 five different groups of lumber producers, 
 groups representing steel, copper, pack- 
 ing, textiles, paper, cement, chemicals, 
 phosphate, magnesia, tanning, office equip- 
 ment, wooden ware, webbing, sash, door, 
 and mill work supplies, foundry equip- 
 ment, etc. Combinations in coal, electri- 
 cal supplies, hosiery, builders* hardware, 
 packing (additional groups), furniture, 
 steel sjjecialties, musical instruments, 
 railroad supplies, machine tools, stoves, 
 machinery, carpets and rugs, paints, tan- 
 ning, converters, and other industries are 
 under way. 
 
 Questions of Adaptation 
 
 Leading manufacturers in numerous 
 competing industries, and from all parts 
 of the country, desiring to act jointly and 
 to take advantage of the provision of the 
 
 [5] 
 
 Webb-Pomerene Law, have approached 
 the task by appointing a committee to 
 study the subject of **cooperative effort 
 in foreign trade," and to draft a plan for 
 the approval of all concerned. Frequently 
 this has been done through the trade asso- 
 ciation in which the majority of manu- 
 facturers in the industry are represented. 
 Often the chairmen of such committees 
 have written to the Guaranty Trust Com- 
 pany of New York, asking for guidance and 
 suggesting that we send copies of agree- 
 ments of combinations already formed, or 
 outline the basis upon which other groups 
 of manufacturers have gotten together. 
 
 We have however not found it prac- 
 ticable to serve anyone in precisely this 
 way. There is no "rule of three" by 
 which any selling organization for export 
 trade can be put together. The funda- 
 mentals may be, indeed, are, the same 
 in regard to many of the commercial 
 factors to be considered, but the technique 
 of organization is largely contingent 
 upon conditions which are peculiar to 
 each industry. The details are imp)ortant; 
 and no group of would-be exporters faces 
 exactly the same problems when all the 
 items relating to the nature of the product, 
 domestic methods of production, sale and 
 distribution, number of probable par- 
 ticipants in the combine and the indi- 
 vidual exjjerience — or non-experience — 
 in export trade, are taken into considera- 
 tion. The domestic problems of each in- 
 dustry have to be analyzed first, and the 
 conditions of manufacture studied. 
 
 Different Types of Selling Organizations 
 
 There are three types of selling organ- 
 izations which, with variations to meet 
 
the conditions peculiar to each industry — 
 not to mention the temperament and 
 vision of the f>ersonnel involved — may be 
 said to cover the needs of manufacturing 
 groups of competitors seeking to combine 
 under the Webb-Pomerene Law. Non- 
 competitors do not need to register with 
 the Trade Commission their intent to take 
 advantage of the provisions of the new 
 law, though many non-competitive groups, 
 represented by the commission houses or 
 manufacturers' agents with offices at the 
 seaboard, have done so as a precautionary 
 measure. 
 
 The Ideal Form 
 
 In every new industrial effort, particu- 
 larly of the cooperative order, the ideal 
 needs must give way to the practical, in 
 some measure, but there seems to be no 
 reason why American manufacturers, 
 with the world before them and with 
 government recognition of the need for 
 assisting every legitimate kind of foreign- 
 trade expansion, should not organize upon 
 the most efficient basis. Thus far there 
 has been only one apparent handicap, 
 namely, a tendency on the part of certain 
 competitors in the several groups to insist 
 that every important manufacturer be in- 
 cluded in the combine. This has made for 
 delay, and not infrequently the best re- 
 sults have been sacrificed in the interests 
 of expediency where basic principles 
 should have prevailed. They have lost 
 sight of this fundamental in foreign 
 trade, that efficient measures for success- 
 fully meeting competition abroad are 
 much more important than small differ- 
 ences of opinions at home. When an ex- 
 port company, no matter how powerful 
 its individual units, goes into the markets 
 of the world to compete for business 
 against merchants whose experience in all 
 phases of foreign trade is longer and wider, 
 it needs every possible equipment and ad- 
 vantage to succeed. It cannot afford to be 
 
 handicapped by minor considerations 
 in respect to internal organization. 
 
 The ideal selling organization, which 
 we will call No. 1 , is made up of a group of 
 competitors all making or producing 
 about the same type of product, who create 
 their own export company by contribu- 
 ting funds for working capital by the 
 purchase of stock, such capital being used 
 for the establishment of offices and staff 
 at seaboard in the United States, for the 
 expenses of travelling representatives, 
 offices, warehouses and possibly show- 
 rooms abroad, publicity and general pro- 
 notive effort. It is assumed, for the sake 
 of this illustration, that we are dealing 
 with a major industry and a staple pro- 
 duct, such as lumber, coal, copper, or 
 cement, and with a group of producers 
 who have reasons for going into the ven- 
 ture on a large scale. 
 
 First, what should be the capital of 
 this export company? That depends upon 
 the nature of the product, the potential 
 demand abroad (whether the market be 
 permanent and universal or confined to a 
 few countries), to what extent the partici- 
 pants wish to spread the initial effort, and 
 up)on the size of the foreign organization 
 necessary to cope with the business that 
 may be expected at the end of a reason- 
 able, pioneering period. It is obvious 
 that the capital of the company can be 
 increased whenever the volume of busi- 
 ness demands. A general tendency has 
 been noted to limit the initial capital 
 to moderate figures, and to depend up- 
 on modern methods of foreign bank- 
 ing as the means of financing the project, 
 thus avoiding the necessity of tying up a 
 large amount of money. When the amount 
 of capital has been agreed upon, it is sim- 
 ply called for as required for working 
 expenses; it is not necessarily all provided 
 at once. 
 
 There are three main points for com- 
 mon agreement: 
 
 l> 
 
 I 
 
 
 (6] 
 
 1. The basis of contribution to the working 
 capital of the company, by purchase of stock. 
 
 2. The allocation of orders. 
 
 3. An equitable provision for those already 
 having established connections abroad. 
 
 Retention of Trademarks 
 
 A recurrent demand among manufac- 
 turers of standing who seek to cooperate 
 for foreign trade is that the identity of 
 their product shall be preserved, regardless 
 of collective selling arrangements. This 
 means that they wish to avoid the chance 
 of losing any of the goodwill already es- 
 tablished by the previous sale — tlirough 
 whatever channels — of their merchandise 
 in foreign markets. They insist uj)on this 
 provision, at least during what they re- 
 gard as the experimental period of the co- 
 Operative effort. 
 
 This is neither unnatural nor illogical, 
 though in many cases this factor has been 
 over-emphasized. In the markets of the 
 world, with thousands of international 
 competitors who pioneered the foreign 
 fields long before American indu'-^ry be- 
 came important, substantial gi ^awill for 
 
 WEBB COMBINAT ION NO.l 
 
 ParTJcipatinij Afanufacturers 
 
 or Producers 
 JZ345€789 10 
 
 £x/forT//;j\rCo/r?po/7y 
 Foreign Mor/fcts 
 
 The above diagram vizualizes a combination 
 of competitors manufacturing the same kind of 
 product. The members, that is, the partici- 
 pating manufacturers, subscribe to stock — to 
 furnish working capital — on some proportionate 
 basis, say, that of relative production capacity. 
 All sales are made and cleared through the Export 
 Company, managed by executives experienced 
 in export trade. Orders procured through the 
 Export Company are distributed to the members 
 in the order of the relative amount of the invest- 
 ment, each member having his contract with the 
 Company and guaranteeing a minimum per- 
 centage of product to be dehvered, over a speci- 
 fied period, upon call of the Company. The 
 workmg capital usually is paid in as required. 
 See page 6 
 
 the American product is confined to com- 
 paratively a few names. But since it is 
 a point upon which most well-established 
 manufacturers in every group are insis- 
 tent, provision has been made for it, and 
 it has been necessary to formulate plans 
 on that basis. This has been done, and 
 it can be done in practically every line of 
 business by the adoption of a dominating 
 trademark governing the output of the 
 combination, with subsidiary trademarks 
 plainly indicating the source of mill pro- 
 duction or individual trade name. 
 
 The composition of the ideal combina- 
 tion, which we have called No. 1, may best 
 be visualized, perhaps, by the accompany- 
 ing diagram, which assumes (for the sake 
 of brevity and space) the number of par- 
 ticipants to be ten. As a matter of fact, 
 there are sixty or seventy corporations in 
 some of the combinations already formed, 
 and in one potential group there is a poss- 
 ibility that several hundred manufac- 
 turers may be represented. 
 
 Creating Working Capital 
 
 The basis of contribution to the work- 
 ing capital by purchase of stock in the 
 Export Company, on the part of the man- 
 ufacturers desiring to join the combine, 
 is usually that of production capacity, 
 •where that can be easily gauged. This 
 does not necessarily mean output of the 
 domestic plant or plants, because there 
 may be instances where one manufacturer 
 with a larger plant than his neighbor, by 
 reason of domestic contracts or longtime 
 obligations to old customers, may not 
 have for export the same volume of pro- 
 duct as a competitor with a somewhat 
 smaller plant. So we speak of "production 
 capacity" as representing the volume of 
 product which each member of the com- 
 bine is able and willing to pledge himself 
 in written contract to deliver to the Ebc- 
 port Company, upon specified notice, 
 over a given time, known as an allotment 
 period. It means surplus output in excess 
 
 [7] 
 
of domestic demand. There need be no 
 difficulty in deciding this, nor any need 
 to worry about changing conditions. The 
 allotment period may be made three 
 months, six months, or a year, and the 
 contracts between the individual manu- 
 facturer and the Export Company changed 
 as time, and necessary readjustments, 
 seem to require. Thus each member of the 
 combine may be as conservative as he 
 wishes in making his contract to deliver 
 goods on call from the Export Company. 
 The Company makes such calls according 
 to terms incorporated in the by-laws and 
 standard contracts, and in response to 
 orders sent in by the selling agents cover- 
 ing the foreign field. 
 
 One manufacturer may testify that, in 
 normal times, his capacity enables him 
 to pledge ten per cent, of his output for 
 export; another five, another fifteen, 
 another twenty per cent., and so on down 
 the line. (During the readjustment period, 
 following the armistice, many manu- 
 facturers in some major industries were 
 able and willing to pledge as high as fifty 
 per cent, of their plant capacity for ex- 
 j)ort.) The member whose pledged volume 
 of product for overseas, to be held for the 
 disposal of the Exj>ort Company, is great- 
 est takes the largest amount of stock in 
 the combination. His contribution to 
 working capital is greater than that of 
 any of the others because his capacity is 
 greater. Usually, of course, the corpora- 
 tion whose contribution is proportionally 
 the highest is the largest and wealthiest. 
 
 Voting Power 
 
 In a steel combination, the stock is 
 held for five years in a voting trust, and 
 control is determined in advance for that 
 period In the Textile Alliance, working 
 capital is raised out of non-voting pre- 
 ferred stock, with voting control vested 
 in common stock issued to four textile 
 trade associations with which the partici- 
 pating textile merchants are affiliated. In 
 
 the copper combination, also, the working 
 capital is raised out of non-voting pre 
 f erred stock, the voting control being vested 
 in stock without par value which is al- 
 loted, one share to each participating 
 copper producer, whose voting strength 
 in respect to such shares without par 
 value varies according to the amount of 
 the copper production of such partici- 
 pant. In the phosphate combination, 
 which is an incorpK)rated association, 
 there is no stock whatever, the control 
 being established )by a two- thirds vote of its 
 participating members, and whose expen- 
 ses are defrayed out of assessments upon 
 the meml>ership. In one of the lumlwr 
 combinations, working capital has been 
 raised out of stock which is assigned by 
 the stockholders to stock trustees who 
 vote as directed by a majority vote of the 
 stockholders assigning such stock. In 
 another lumber group, the working capital 
 has been raised out of non-voting pre- 
 ferred stock, the control being vested in 
 stock without par value, of which each 
 lumber producer has one share. In another 
 lumber group the capital stock has been 
 subscribed for by the lumber producers 
 in proportion to their productive capacity, 
 but is voted upon the basis of one vote for 
 each producer, regardless of the number of 
 shares such limber producer owns. In still 
 another lumber group, the working capital 
 has been raised out of non-voting preferred 
 stock, the control being vested in common 
 stock which is held by the original sub- 
 scribers to the preferred stock in the same 
 proportion as their holdings of preferred 
 stock. 
 
 This indicates that working capital may 
 thus be raised out of capital stock, with 
 or without par value, with or without 
 voting power, and with or without pre- 
 ference as to dividends and other rights. 
 Subscriptions for this purpose may be 
 called for on the basis of productive ca- 
 pacity, or total sales, or export sales for the 
 preceding year, or averaged over a number 
 
 
 
 of years. Voting control may attach to 
 the stock out of which the working capital 
 is issued, or it may be vested in stock of 
 another class. It may be distributed ac- 
 cording to the subscriptions for working 
 capital, or upon a basis providing for equal 
 voting strength to each participating 
 member. It may be distributed according 
 to the relative export sales, or total sales, 
 or the respective productive capacity of 
 the participating members as such ca- 
 pacity varies from year to year during the 
 connection of the participators with the 
 export association. It is simply a question 
 of establishing the rights of the stock- 
 holders — invariably active participators 
 in the combination — in accordance with 
 their obligations to the export association. 
 It is vital that the organization shall be 
 so shaped that the obligations of the 
 participating members to the export asso- 
 ciation in respect to export sales shall be 
 binding and fortifying in every detail. 
 
 Allocation of Orders 
 
 The basis of allocation of orders is the 
 same. This means that, based on produc- 
 tion capacity also, the member whose in- 
 vestment is largest is first on the list for 
 foreign business, in the order of pre- 
 cedence thus established. He has greater 
 volume to supply and the size of his 
 organization is such that, if he were in 
 foreign trade for himself, he would be apt 
 to get more business than most of his 
 competitors in the same line. 
 
 There are, of course, exceptions to this 
 basis of allocation. The above illustration 
 applies in the majority of instances, but 
 it does not serve every group of producers 
 formed to operate through their own ex- 
 port company, with their own organiza- 
 zation. The Cotton Converters, for ex- 
 ample, are manufacturers who simply 
 convert textile goods "from the gray", as 
 the phrase, is into finished designs of 
 their own creation. Their success depends 
 upon their skill in selecting designs which 
 
 [8] 
 
 [9] 
 
 meet with popular favor. They have no 
 plants; their "gray" products are made 
 to their order by others and so their capac- 
 ity to turn out goods is practically un- 
 limited. They could base their individual 
 investment upon yearly sales, calculated 
 over an average period, but allocation 
 could not be made upon that basis for the 
 reason that the Export Company, repre- 
 senting the group, will be compelled, as a 
 matter of business acumen, to push the 
 designs of that manufacturer whose prod- 
 uct meets with greatest favor in the 
 foreign market during the current season. 
 
 In this case the amount of capital re- 
 quired was fixed and each member of the 
 potential combine agreed to take stock 
 in accordance with the recommendations 
 of a representative committee, each pro- 
 ducer to share in the profits of the Export 
 Company in proportion to his investment. 
 Each converter present during the early 
 conference stages realized that whether 
 his own or one of his competitor's designs 
 would be in greatest demand abroad next 
 year or the year after was largely a matter 
 of fortune, and so each member was taking 
 an equal chance. But they did not wish 
 to lose, merely because of the peculiar 
 conditions relating to their line of 
 business, the advantages of collective 
 selling arrangements, of common ware- 
 houses and display rooms, uniform credit 
 arrangements and joint advertising. A 
 standardization committee may have to 
 fix an assumptive margin of profit on the 
 many different lines, in order to adjust 
 price agreements — quite a task for a 
 voluntary committee of business men — 
 but the farseeing leaders in this industry 
 are not allowing mere obstacles to deter 
 them and they will ere long be doing 
 business together in the foreign field. 
 
 In another instance the prospective par- 
 ticipants in a group of manufacturers seek- 
 ing to combine for export have preferred 
 to subscribe to stock on a basis of their 
 mercantile rating, and to allocate orders 
 
•^-spr 
 
 on the same basis. This method was adop- 
 ted as the result of their war experience. 
 It may easily occur that peculiar con- 
 ditions prohibit the adoption of any plan 
 of allocation yet worked out — though, 
 with so many varieties developed to date, 
 that would be very unusual. But there 
 is always a way where there is sufficient 
 will — and vision. The advantages of col- 
 lective selling are so many that if condi- 
 tions in a given industry forbid the enjoy- 
 ment of all, there usually is enough attrac- 
 tion in those which can be procured to 
 lead to determined cooperation. 
 
 Meeting Foreign Preferences 
 
 It must be remembered that the prim- 
 ary consideration in the mind of the 
 chosen head of the Export Company is to 
 do business, which means he must accom- 
 modate the foreign buyer and build up 
 good will. How, then, it may be asked, 
 are you going to preserve your fixed basis 
 of proportionate allocation of orders if the 
 foreign buyer in any one or several mar- 
 kets asserts a decided preference for one 
 brand or make of goods over another, 
 either because he has had reason to know 
 that brand better than others, or because 
 of his own expression of taste and judg- 
 ment.'* 
 
 There is more than one way of solving 
 this apparent difficulty. The solution 
 which experience has proved to be most 
 satisfactory is provided by price restric- 
 tion on the intended product. For ex- 
 ample, let us suppose that in a group of 
 manufacturers of electric motors, through 
 established connections abroad — prior to 
 the creation of the combination — or 
 through the immediately proclaimed pre- 
 ference of the foreign buyer in a given 
 market, a demand for one particular make 
 of motor suddenly asserts itself quite out 
 of proportion to the volume of orders for 
 other types of machines made by other 
 manufacturers in the combine. So soon 
 as the orders for this particular type of 
 
 motor — which may carry a subsidiary as 
 well as a dominant trademark — exceed 
 the quota of business already allocated to 
 the manufacturer of said motor, an ad- 
 ditional cost of from 5% to 7}/^%, say, 
 above the list price is added to the selling 
 price of the article in the market from 
 which the orders are coming. This may 
 not check the insistence of the foreign 
 buyer, because service and quality in 
 mechanical devices, especially in Europe, 
 are often much more powerful selling 
 factors than price. But it is apt to 
 > decrease the sales a little, and if it does 
 not, then the extra profits on these sales, 
 in excess of the volume represented by the 
 allocation due the manufacturer of the now 
 popular motor, go into the pK)ol and 
 serve to compensate the other members 
 of the combine whose allotment of foreign 
 business may have suffered by reason of 
 the foreign buyers* insistent demand for 
 the specified type of motor. 
 
 What can be fairer than this? It must 
 be remembered that the manufacturer of 
 this motor has already pledged for export, 
 all surplus output above estimated do- 
 mestic demand and that he has already 
 benefited through the promotive ef- 
 forts of the collective selling organization. 
 He could not, under any circumstances, 
 arrange immediately for a large increased 
 output, whereas the automatic cost-check 
 afforded by the increase in price does af- 
 ford him time to extend his plant facilities, 
 if he wishes, during the period until a new 
 allotment when a readjustment of allo- 
 cations can be made. As the other mem- 
 bers of the combine are all Sjharing pro- 
 portionally in the profits of the Export 
 Company, all they suffer is the loss of 
 whatever differences there might be 
 in orders to keep their plants going at 
 higher capacity if the prearranged allot- 
 ment of business had come to them 
 in normal rotation. In one case, the 
 manufacturer whose motor found great- 
 est foreign favor would have gotten 
 
 [10] 
 
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 all the business he expected — and more — 
 and in the other, his associates in the com- 
 bine would be in a better position than 
 if each had been selling alone and shared 
 in none of the profits of his associates' 
 prosperity. 
 
 Freedom to Promote 
 Individual Sales 
 
 If any member of the combine making 
 a product which is competitive as to 
 trademark as well as in price and quality 
 advantage, feels that he is not getting all 
 the business that might be secured if 
 he were pushing his own goods abroad 
 exclusively with his own representatives, 
 he is, or should be, always at liberty to 
 send his own representative into the 
 -oreign field to promote business for 
 lis particular product, provided that it is 
 understood that all orders received through 
 any agencies whatsoever are faithfully 
 reported to and cleared through the pool. 
 Proper penalties, in the by-laws and con- 
 tracts, can be provided should there be 
 any infractions of this rule. 
 
 Any manufacturer who does send his 
 own salesmen abroad is, of course, adding 
 to his individual selling expense, but we 
 are assuming that he does this deliberately 
 because of his belief that it will pay him, 
 knowing that the combination offers 
 him other economies already mentioned. 
 
 In one important group, a large pro- 
 ducer who believed he had established 
 considerable goodwill abroad by the de- 
 velopment of his own export organization, 
 felt that not a little popularity had been 
 created for his particular grade of product, 
 and said that he was held by contracts 
 with certain foreign distributing agencies 
 for several years ahead. At first he was 
 very much averse to throwing in his lot 
 with, others who had no such already ac- 
 quired assets in the foreign field. Ulti- 
 mately this producer came to see that 
 there were other advantages to be pro- 
 cured by collective selling which out- 
 
 weighed those to which he had given 
 initial thought, and he concluded by 
 agreeing to pay a small commission 
 into the pool for the privilege of contin- 
 uing his individual contracts during their 
 present life, and for the insurance against 
 competition from others who appeared to 
 be willing to go ahead without his co- 
 operation, if necessary. 
 
 In the case of two other groups, each 
 producing staple products, their plan pro- 
 vides that the individual members of the 
 Export Company shall supply the combine 
 with such percentage of the producer's 
 capacity "as the Board of Directors may 
 determine". 
 
 It is provided that: 
 
 "All sales of the producer's (product 
 here specified) in or for export trade, ex- 
 cepting, however, sales under contracts 
 now existing, shall be made exclusively 
 through the Company (combine). Such 
 sales shall be permitted through other 
 channels, however, if made at prices and on 
 terms previously approved by the Com- 
 pany, and if immediately reported to the 
 Company, and if packed and shipped un- 
 der the producer's own label, or dis- 
 tributor's label, as heretofore reported to 
 Company, and if the manufacturer shall 
 pay to the Company upon its demand, 
 such sum per as the Board of Di- 
 rectors of the Company from time to 
 time shall determine — not exceeding, 
 
 however, five cents (5c) per The 
 
 Company shall maintain in New York 
 City and elsewhere such offices, yards, 
 agencies, representatives, and business 
 connections as in its opinion shall best 
 
 promote export trade in , and so 
 
 far as practicable shall apportion its 
 orders between the producers and all 
 others having agreements with the Com- 
 pany identical herewith and then in force 
 in proportion to their respective produc- 
 ing capacities determined as aforesaid. 
 The producers shall execute each order 
 so apportioned and shall pack, label. 
 
 \ 
 
 V 
 
 [11] 
 
 ! 
 
 
?' 
 
 mark, and ship all so ordered in 
 
 accordance with specifications and direc- 
 tions furnished by the Company. With 
 each such shipment, the manufacturer 
 shall furnish to the Company, in such 
 form as the Company shall prescribe, 
 invoices, bills of lading and certificates 
 of inspection signed by an inspector fur- 
 nished by the Company, which certifi- 
 cates shall be final on all questions re- 
 garding quality, weight, quantity, pack- 
 age, and marking of such shipment. All 
 
 losses and charges in respect to such 
 
 incurred subsequent to such shipment, 
 shall be borne by the Company. 
 
 "When ordering from the pro- 
 ducer, the Company shall designate the 
 price f.o.b. mill, at which the producer 
 
 shall sell such to the Company. 
 
 For furnished upon such order, the 
 
 manufacturer shall accept in full pay- 
 ment, and the Company shall pay three- 
 fourths of such price within thirty days 
 after date of shipment from mill, and one- 
 quarter within ninety days after date of 
 shipment from mill, or shall pay in such 
 manner as shall be agreed upon by the par- 
 ties hereto. The Company may sell such 
 
 WEBB COMBINATION NO. 2 
 
 Parfic/poT/n£ Monu/actorers 
 or Producers 
 
 9 10 
 
 §)d>(§)(§)(§)(§)^(|)^^ 
 
 Foreign Markets 
 
 S « Subsidiary 
 
 In this form of combination each member, or 
 participating manufacturer or producer, wishing 
 to continue to do business individually with 
 foreign customers, forms a subsidiary company 
 jar export buHness only. The subsidiaries may 
 create a Webb Association and have working 
 agreements as to prices, terms of credit, alloca- 
 tion of territories, etc., but each subsidiary com- 
 pany uses it's own individual selling and dis- 
 tributing agencies for the promotion of its own 
 business See pages 12 and 13. 
 
 in export trade at any price it 
 
 chooses, and may retain to its own use 
 the entire proceeds thereof*. 
 
 These provisions are quoted as serving 
 to show how simple the contract between 
 the individual participant and the com- 
 bine may be. Each of the groups referred 
 to— in fact all of the groups dealing in 
 staple products — have provided very 
 rigid machinery for the insurance of 
 the quality and standard of products 
 which the individual producer may fur- 
 nish for export. It is realized that the 
 utmost must be done to protect the foreign 
 market against despoiling by unwise and 
 shortsighted individuals who might seek 
 to get rid of inferior products on the other 
 side of the water. 
 
 In what is termed No. 2 plan, each one 
 of a number of manufacturers creates a 
 subsidiary /or export business only, and the 
 subsidiaries form a trade association and 
 register for operation under the Webb- 
 Pomerene Law, without a central selling 
 agency or stock company of any kind. The 
 executive staff of the trade association 
 makes trade and credit investigations, 
 and supplies the information to the mem- 
 bers of the trade association, the members 
 supplying the operating expenses by pay- 
 ing dues or submitting to proportionate 
 annual assessments based upon their 
 yearly sales. The subsidiaries may have 
 '*gentlemen*s agreements'* as to prices, 
 terms of credit, allocation of terri- 
 tories, etc., but each subsidiary company 
 uses its own individual selling and dis- 
 tributing agencies for the promotion of 
 its own business. The members of the 
 trade association need not have any agree- 
 ment as to prices if they allocate re- 
 spective foreign territories and agree not 
 to sell in one another's domain. Like- 
 wise, if they do not allocate territories 
 but agree upon a free field, then they may 
 have agreements as to prices, terms of 
 credit, common warehouse facilities, etc. 
 
 12] 
 
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 Tentative Organizations 
 
 Manufacturers in one or two industries 
 who have no definite statistics and positive 
 information as to the extent of the poten- 
 tial market abroad, whose aggregate 
 domestic supply already equals domestic 
 demand, and who believe that a demand 
 for their American product may be created 
 in the foreign field — have organized 
 tentative associations (Plan No. 3) to 
 conduct investigations in advance of 
 attempts to do any business on a co- 
 operative plan or scheme. They 
 have assessed themselves on a basis 
 proportionate to their mercantile rating, or 
 yearly sales, and have thus supplied 
 funds wherewith to send properly-equip- 
 ped men abroad — men who understand 
 their products — with instructions to fur- 
 nish definite information as to the pos- 
 sibilities of developing business in their 
 lines in markets where freight rates 
 enable them to compete permanently 
 with the foreigner. 
 
 WEBB COMBINATION N0.3 
 
 ParT/c/Jbat/'n^ Manufacturers 
 
 or Pro c/ucers 
 1234567 89 10 
 
 j T I I I I IT 
 
 I W^fpb Assqciqtinn 
 
 t£ 
 
 I 
 
 ± ± 
 
 I 
 
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 Foreign AfarAets 
 
 In No. 3 ,a Webb Association is formed as a 
 tentative arrangement, for purposes of market 
 research and investigation, in advance of subse- 
 quent business operations should reports justify 
 development. This plan is recommended for 
 groups of producers or manufacturers who are 
 not sure of the extent of the existing demand in 
 any given market or who believe that a perman- 
 ent demand for their product may be created by 
 promotive effort. It may also be used by man- 
 ufacturers who wish to combine for purposes of 
 economy in warehousing, display rooms, adver- 
 tising, etc., while each retains individual selling 
 agencies and competes for business in foreign 
 markets. 
 
 [13 
 
 This is an intelligent way of approach- 
 ing the problem. It does not cost a large 
 amount of money to procure such sj>ecific 
 information and it is worth all it costs to 
 have it. 
 
 Foreign Combinations 
 
 Combinations in trade have been in ex- 
 istence in Europe for many years. The 
 report of the Federal Trade Commission 
 for 1916 furnished elaborate details con- 
 cerning the activities of these syndicates 
 and cartels, formed by European buyers 
 as well as exporters. In Germany, Italy, 
 Switzerland, Holland, Sweden, Belgium, 
 Japan, and certain other countries where 
 national policies concerning industrial 
 combinations contrast with those of 
 the United States, business men have 
 been much freer to cooperate and combine 
 than in this counrry. They have de- 
 veloped numerous comprehensive com- 
 binations, sometimes aided by their 
 Governments, which effectually unite 
 their activities both in domestic and 
 foreign trade. In England and Central 
 Europe though freedom to combine 
 is considerably abridged under the law, 
 important combinations have also been 
 formed. 
 
 In Germany prior to the war there were 
 600 important cartels, i. e., combinations 
 to control the market, embracing practi- 
 cally every industry in the Empire. Many 
 dominated the export trade of their in- 
 dustries and carried on vigorous cam- 
 paigns to extend their foreign business, 
 to prevent competition among German 
 producers in foreign markets, and to 
 secure profitable prices. Thus the German 
 dye industry operated as a unit in foreign 
 trade under the leadership of two great 
 groups of allied producers, the Badische 
 group and the Hachst-Cassella, which 
 were working under a fifty-year agreement 
 to avoid competition with each other. 
 The manufacture and exportation of 
 electrical equipment was made one of 
 
 1 
 
I 
 
 the bulkwarks of German foreign trade 
 by two great companies, the Allgemeine 
 Elektricitats-Gesellschaft and the Sie- 
 mens-Schuckert, working in harmony 
 with each other, with numerous sub- 
 sidiaries at home and abroad. Half of the 
 $150,000,000 worth of coal and coke ex- 
 ported annually was sold by one central 
 selling agency, maintained by the great 
 Rheinisch-Westfalische coal syndicate, 
 of which some of the Prussian Govern- 
 ment mines were members, and which 
 controlled the bulk of all the coal and 
 coke produced in the Empire. Practically 
 all the rapidly-increasing iron and steel 
 export business was handled respectively 
 by the single selling agencies of the 
 Roheisen-Verband and the Stahlwerks- 
 Verband, the aggressive and closely con- 
 nected imions of German iron and steel 
 manufacturers. The coal and iron and 
 steel combinations have fostered foreign 
 business through export bounties and 
 other means. 
 
 In France and Belgium, syndicates of 
 iron and steel, glass, and other industries 
 were strong factors in domestic and foreign 
 trade. Silk ribbon manufacturers of France 
 and Germany conducted their export trade 
 in accordance with a joint agreement. In 
 Italy, Russia, former x\ustria-Hungary, 
 Switzerland, Sweden, Greece, Argentina, 
 Chile and Ecuador, central organizations 
 unite the interests of producers in the in- 
 dustries characteristic of those countries, 
 such as coal, iron and steel, agricultural 
 machinery, oil, sulphur, superphosphates, 
 cement, matches, chocolate, embroidery, 
 silk goods, watches, cotton goods, con- 
 densed milk, canned fish, currants, que- 
 bracho, iodine, cacao, etc. 
 
 In Japan an export organization of 
 textile manufacturers has developed an 
 extensive cotton goods trade of North 
 China. The trade in tea is controlled by a 
 nationwide "tea council". One great 
 Japanese firm, which in itself combines 
 manufacturing, mining, shipping, and 
 
 1 
 
 merchandising enterprises, has been rapid- 
 ly extending Japanese trade in all lines 
 throughout the Far East, and the Japan- 
 ese Government is directly assisting the 
 development of shipping, banking, and 
 trading for foreign business. 
 
 The long established trade in British 
 products in many markets of the world, 
 due to their pioneer position, the excel- 
 lent representation afforded by British 
 export houses, and the advantage of 
 British shipping and banking facilities, 
 has enabled their manufacturers to hold 
 foreign markets in many lines without 
 such a large degree of combination as 
 characterizes German industry. But in 
 various important industries combinations 
 have grown up. Thus most of the great 
 coal exf>ort business is done by power- 
 ful organizations, combining mine oper- 
 ators, marketing companies, coal shipping 
 lines, and foreign distributing companies. 
 This gave British coal its grip on the im- 
 portant South American market. British 
 cement manufacturers united in a strong 
 and successful union for the extension of 
 their overseas trade. In 1915, a number of 
 large British manufacturers of machinery 
 of all sorts formed the Representation for 
 British Manufacturers (Ltd.), an organ- 
 ization to handle their business in certain 
 important foreign markets and to carry 
 on an aggressive campaign for its exten- 
 sion. Similiar organizations for foreign 
 trade are in progress of formation among 
 other British manufacturers. In the electri- 
 cal, cotton-textile, pottery, tobacco, wall- 
 paper, iron and steel, and various other 
 industries strong associations and com- 
 binations are important factors in foreign 
 and domestic business. 
 
 It is against such organizations as these, 
 uniting powerful groups of foreign con- 
 cerns, backed by great banks, aided by 
 railway and ship lines, and assisted by 
 foreign governments that hundreds of 
 comparatively small American manu- 
 facturers and producers have had to cora- 
 14] 
 
t 
 
 Globe Shipping 
 Co. 
 
 f Taff vale 
 I Railway Co. 
 
 f^portlalbot "^ 
 (RailwayAOocksCal 
 
 Z' Cle.des N (ItissonSteanh 
 
 Chargeurs Navigation 
 
 l ^ Franfais J j ^ CQ^.Ltd. J 
 
 LYSBER6, 
 LTD. 
 
 CAMBRIAN COAL COMBINE 
 
 (Great Britain) 
 
 R.MartcnsftCo. 
 Inc. (New York) 
 
 Houltonjhomp- 
 son«rCo.,Ltd. 
 
 Plisson & 
 
 Lysberg 
 
 Irvsurance 
 
 Status 
 Investment 
 Trust Ltd. 
 
 Anglo Argentine 
 Coal Comp. Ltd 
 
 LEGEND 
 
 O Coat Mining Companies 
 Coal Distributing Companies 
 
 Transportation Companies 
 pn other Companies 
 
 — Conncctionthrough common 
 directors, stock ownership or 
 other relations. All lines from 
 Lord Rhondda inrlicate 
 •Directorates. 
 
 Amaral.Suther- 
 land,a^ Co.,Ltd. 
 
 L.eUERET^ 
 LTD. 
 
 Gueret. Gait 
 and Co., Ltd. 
 
 Soclete Genera- 
 
 led'Hoyiileset 
 
 Agglomerps.Pari! 
 
 Societa Britanni 
 CO.ItaiianaGueretl 
 
 Deljnas 
 Freres. 
 
 ) 
 
 CHART 3 
 
 •SM • SOCOaMiMM. HM . «a»«Hi«t*« e. C. 
 
 RSPOirr OF THE FCOCRAL TRAOK COMMItllON ON COOPERATION IN AMERICAN EXPORT TRAOI 
 
pete in export trade. Moreover, in some 
 industries such manufacturers have also 
 competed abroad with great American 
 companies having most eflScient world- 
 wide selling organizations. 
 
 In various manufacturing industries, 
 higher manufacturing costs and compara- 
 tive inexperience m export trade make it 
 extremely diflBcult at best for Americans 
 to compete with foreigners for trade 
 abroad. Therefore, meeting severe com- 
 petition from powerful foreign combina- 
 tions, and through dependence on foreign 
 cable and telegraph companies, foreign 
 banks and ships, forced to risk exposure 
 of the secrets of their overseas business 
 to their foreign competitors and to risk 
 effective discrimination against their trade, 
 American manufacturers, and especially 
 the smaller producers, have been at a 
 decisive disadvantage in export trade. 
 
 Foreign Buying Combinations Which 
 Have Depressed American Export Prices 
 
 In various markets American manufac- 
 turers and producers must deal with high- 
 ly effective combinations of foreign buy- 
 ers. Thus, exporters of lumber find such 
 combinations in Australia and on the con- 
 tinent of Europ)e. Cottonseed products 
 are handled by combinations of buyers in 
 Holland, Denmark, and Germany; and 
 Austrian cotton-textile manufacturers 
 have a buying combination to import 
 their raw cotton. The Cooperative Whole- 
 sale Society (Ltd.), an astonishingly 
 comprehensive wholesale buying organi- 
 zation maintained by 1,400 cooperative 
 societies in Great Britain, has one buyer 
 in New York who annually purchases 
 millions of dollars* worth of American 
 products. Four London firms, known as 
 the Fixing Board, daily set the price of 
 silver for the world until March, 1919, 
 and American mining companies had to 
 sell their silver for either the English or 
 the great Indian market to one of these 
 
 four houses. For years the copper trade 
 of the world was ruled by a vast German 
 metal-buying organization centering in 
 the Metallbank und Metallurgische 
 Gesellschaft, (A. G.) of Frankfort-on-the- 
 Main. This combination had sub- 
 sidiary and affiliated companies in Ger- 
 many, England, France, Spain, Switzer- 
 land, Belgium, Africa, and Australia, con- 
 trolled copper and lead mines and smelters 
 in the United States, Mexico, and other 
 countries, and worked in agreement with 
 other German metal-buying concerns. 
 
 These combinations naturally made in- 
 dividual American producers bid against 
 each other, and were able to buy at com- 
 paratively low prices. According to the 
 president of one of the largest American 
 copper companies, the German metal- 
 buying combinations, by such tactics as 
 these and by the manipulation of the 
 foreign future markets, bought millions 
 of tons of American copper at prices 
 averaging, over a series of years, nearly 
 a cent a pound below the prices paid by 
 American consumers. This condition has 
 changed, since American producers, now 
 combined, control about 80% of the 
 world's supply of copper. 
 
 Those who attended the International 
 Trade Conference in Atlantic City in 
 October, 1919, must have learned, through 
 the foreign representatives, of the tendency 
 to develop large buying syndicates in 
 Europe. It is obvious that the only way 
 in which to meet collective buying effecti- 
 vely is by collective selling. 
 
 Diagrams facing pages 10, 12 and 14 — 
 for the use of which we are indebted to the 
 Federal Trade Commission and to the 
 General Electric Company of New York 
 — will afford an idea of the extent of some 
 of the European syndicates and selling 
 combinations against which American 
 manufacturers have had to compete — 
 and will have to compete again when nor- 
 mal conditions return. 
 
 
 [15] 
 
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END OF 
 TITLE