Business Expansion and Structural Change in Pre-War China: Liu Hongsheng and His Enterprises, 1920-1937

6. Market, Monopoly, and the State: The Match-Manufacturing Enterprise

Chapter 6 In the 1920s, market competition intensifìed. Liu Hongsheng's matchmanufacturing enterprise responded by using tactics such as takeovers and mergers. However in the 1930s, while negotiations and takeovers continued, Liu formed a cartel to reduce competition, obtaining the government's support in 1936. It is not clear why he resorted to government support in resolving problems in the market; this chapter discusses the events leading to that decision in the formation of the cartel. Market competition in the early 1920s When Liu Hongsheng branched into match-manufacturing in the early 1920s, he found his enterprise，也e Hong Sung Match Company (abbreviated below as Hong Sung), in a hi 世 19 拉 h 肯 l ofs 叩 omeCαhinese historians, by the time ofHong Sung's establishment in 1920, the country already had 120 Chinese-owned and 14 foreign-owned matchmanufacturing compani口 .1 According to the same source, in Jiangsu Province alone where Hong Sung was located, there were nine Chinese-owned competitors by 1920. W亡 do not know the sales fìgures and production capacities of these match companies, but the degree of competition from the domestic sector was undoubtedly high. Considerable competition also came from foreign imports. For instance, the Chinese Maritime Customs reported a net import of 16 489941 gross (329798.8 cases) of matches in 1919 and 8 462 428 gross (169 248.6 cases) in 1920.2 We know very little about Hong Sung's competition in the early 1920s. What can be documented is that Liu at 自rst did not have a clear strategy. He was not in charge ofthe company's marketing, which was handled by one of 99 100 Business E有pansion and Structural Change in Pre-Wtzr China its shareholders who had served as a sa1es agent for severa1 other match companies before Hung Sung's establishment.3 It appears that Hong Sung relied on the distribution techniques and networks of this sales manager. With a small scale of production,4 Hong Sung's distribution network was probably limited to the loca1 market around Suzhou. The Suzhou Customs recorded in 1921 that only 7500 gross (i.e. 150 cases) of locally produced matches were exported through their offì白， part ofwhich could have been produced by Hong Sung.5 Although Hong Sung seems to have no clear marketing strateg)ιit soon faced competition. As a former worker ofHong Sung expressed it in 1961, the match company encountered strong price-cutting from Set Chong Match Company (abbreviated below as Set Chong), which opened a branch in Suzhou in February 1921.6 Hong Sung could not raise the prices ofits products ifit was to make them competitive in the market. Inste祠， it began upgrading the qua1ity ofits products. At its fìrst stage ofproduction, Hong Sung produced non-safety, poisonous matches but, shortly after becoming operational, it moved to produce safety matches.l Apart from improving quality, Hong Sung also gradually changed its marketing target. Liu Hongsheng tried to open new markets in other parts of China. In late 1924, the Xiamen sa1es agent ofLiu's Shanghai Portland Cement Works began to receive stocks of Hong Sung's products for distribution.8 In early 1925, the sales agent began to distribute the matches in other South China ports, including Shantou and Guangzhou.9 Meanwhile, Liu also attempted, though unsuccessfully, to reach the Hong Kong market.10 To deal with his major business riva1, Set Chong, Liu Hongsheng probably had four options. First, he could negotiate a price agreement with Set Chong which, however, was quite hostile to Hong Sung at the outset. 11 Second, he could co-ordinate other match manufacturers to compete in the market. Yet, in the early 192郎， the Chinese match industry did not have a trade association to discuss matters concerning the industry, such as prices. To use this option, Liu would fìrst have to organize one. The third option that Liu Hongsheng could use was to introduce costsaving measures to sustain continuing price-cutting. In the competition with Set Chong from 1921 to 1924, Hong Sung suffered some losses.12 Its balance sheet of 31 January 1925 recorded a loss of 52 112 yuan accumulated fror A卸的; Monopoly, and the State 101 This sum of280 000 yuan indicat吐， rather, that Hong Sung was preparing for expansion, which was the fourth option open to him. So Liu's fourth option took the shape of a takeover, which seems to...