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Corporate Growth Through Spatial Decentralization: Triumph's Expansion Path

Günter Krumme

University of Washington, USA

(http://faculty.washington.edu/krumme/papers/triumph.html)
(complete reference)


Table of Contents:

Economic geographers interested in regional development problems have become increasingly engaged in research concerned with relationships between mutual impacts of industrial firms and their economic and social environments, particularly in rural, depressed areas. Due to the limitations of environments with small population potentials, a relatively homogeneous, low-skill labour force, and a basic lack of external advantages in the form of linkages and infrastructure, industrial plants are not likely to be very balanced in their local employment structure. Instead of the integrated one-plant production unit requiring a diversity of employment categories, it typically will be the branch plant of a multi-plant, interregional corporation which is attracted to a relatively small community or rural 'growth village.' The lack of accessible external economies then tends to be overcome by any one or a combination of the following strategies:

  1. the massive injection of internal scale economies,
  2. the internalized provision of infrastructure services,
  3. the rigidly discriminatory selection of functions and their delicate tuning to the specific environment,
  4. the efficient organization of spatial ties with the corporate system.

The growing complexity and economic significance of large multi-regional and multi-industrial corporations increasingly attract attention to the 'inner-workings' and internal determinants of such 'states within states' and their locational policies. The last few years have witnessed the emergence of what may be called the 'geography of corporate organization' or 'geography of enterprise' which draws upon ideas and concepts from organization, investment-, and decision theory as well as from the literature in regional development, spatial organization and more traditional industrial geography (cf. McNee 1960; Krumme 1966; Steed 1968; Fleming 1968; Townroe 1969; Dicken 1971). This new research focus admittedly has not yet advanced beyond the formulation of a few basic conceptual frameworks and the rudimentary description of the phenomenon 'spatial corporation.' Empirical analysis suffers not only from the lack of frameworks but also from the lack of identifiable 'internal' characteristics of the object of analysis: the visible part of the corporation's internal mechanisms is small, and even information about that is difficult to collect. Large-scale statistical analysis is hindered by the lack of disclosed, spatially concrete data and the heterogeneity of industrial corporations.

This paper reports on an attempt to piece together some of the major elements of the spatial expansion path of a German firm (manufacturing women's foundation garments, lingerie, and leisure wear) based entirely on externally collected information. The conceptual framework underlying this case study focuses upon the temporal implications of locational investment decisions, more particularly the spatial flexibility of locational commitments within a multi-regional corporate system (Krumme 1969). A relatively short-run, noncommittal spatial expansion policy is one alternative which might help to overcome initial frictions and the uncertainty of being located in an industrial no man's land. A corporation locating several small, mobile, and functionally highly dependent 'extended work benches' at potentially favourable locations will later have the accumulated locational experience, extensive action space, and spatial flexibility as well as bargaining strength to make successive, spatially selective, longer-term investment commitments.

The original location of the corporation ('Triumph International') is in eastern Württemberg, where it remained from 1886 until about 1955 without any significant spatial shifts in its production pattern. In 1955, the establishment of the first branch plant across the state boundary in Bavaria signaled the beginning of an avalanche of plants which cascaded eastwards along the Danube River up to the Czechoslovakian and Austrian borders. [See Map] For ten years, the firm's Bavarian operations experienced rapid expansion, successively absorbing -- in a diffusion-like process -- predominantly female, formerly agricultural workers underutilized because of poor agricultural conditions, or set free by mechanization.

Relocating or branching into the rural countryside was initially not very popular among entrepreneurs who had become accustomed to comfortable labour surpluses and sufficient long-distance commuters in postwar German urban areas. Later, relocation may have lacked social acceptance, and seemed overshadowed by unfavourable experiences of many refugee entrepreneurs immediately following the War, and was also affected by the lack of information and organizational know-how necessary for decentralization. Clearly, Triumph pioneered the extreme, large-scale decentralization of production undertaken by a single corporation in response to a severe labour shortage in industrial and urban areas in general, and in labour-intensive, low-productivity industries in particular. (Krumme 1966, 67 and 242f.)


Summary of Findings

1. Spatial investment policy: Triumph attempted to avoid or limit initial investments in plant buildings at newly selected locations in order to save capital for further expansion and to avoid firm commitments to uncertain consumer markets as well as uncertain locations. Most of the more than forty establishments began operations in rented ballrooms or defunct movie theatres with investments being largely restricted to sewing machines. The firm cooperated closely with the not overly enthusiastic labour offices in securing its almost 100 per cent female labour force (LAA, 1961, 96). Whereas at some locations production was terminated again after a few months because the projected employment level could not be attained, decisions for many other locations subsequently were confirmed by the construction of permanent buildings (Triumph 1963, and LAA 1955, 64).



2. Plant size and size of community: The diffusion of plants had slight hierarchical characteristics. Apart from the West-East directional spread, it was found that larger towns tended to be occupied first with smaller plants then spreading to surrounding smaller communities. However, this pattern tended to be counteracted to some extent by the 'better' labour situation in less accessible, smaller towns and villages. Parallel to the decreasing community size, the average size of newly established plants also decreased (by employment) as shown in the table.

3. Reasons: Triumph's predominant reason for establishing its branch plants in each of the specific locations in Bavaria between 1955 and 1964 was, without exception, the 'available labour force' (LAA 1955, 64). According to public statements made by management, 'available labour force' referred to the ability of a community to supply an initial minimum of female labour necessary to sustain production in the short run, as well as the potential ability to generate successive e mployment increments in order to attain the planned plant size.

4. Spatial organization: As was expected, size and spacing of plants was closely related to functional dependencies between plants. Apart from the need to carve out independent and sufficient labour sheds for individual plants, distances between locations were kept small to facilitate the efficient routing for pick-up, delivery, and repair services and the sharing of administrative and management functions among plants. Thus, most of the small and medium-sized production units could be supervised by a low-level management, female 'Directrice.'

5. Spatial reorientation: The period of heavy concentration of the firm's expansion potential in rural Bavaria ended with a corporate 'consolidation period' in 1965, reinforced by the subsequent economic recession (Braun 1967). There were also strong indications of a re-concentration of new investments in the corporation's original stomping grounds in Württemberg after the firm had sold a considerable amount of real estate in Bavaria. The realization of plans for another corporate production complex (another 'Triumph-Strasse') in the Saarland and the continuing investments in other Common Market countries will re-attribute a central location to Württemberg pushing the Bavarian operations into the corporate periphery.

6. Consolidation and diversification of strategies: Triumph's particular expansion strategy had been successful during a period when the firm's dominant position on the garment market and the low wage levels at rural locations allowed this simple, spatially highly repetitive approach. However, due to changing labour and product markets and generally lower profit margins, the firm was not able to sustain this explosive 'growth from within,' even after the 1966/67 recession had been overcome. Following a brief period of further rapid corporate expansion (1967-69), quickly diminishing profits enforced a wide variety of consolidating and diversifying adjustment actions, described by management officials as a period of introspection, and a reduction in the number of superfluous employees (FAZ 1970; Welt 1971).


Footnotes:

Financial assistance by the US National Science Foundation is gratefully acknowledged.

1 throughout the paper, 'the corporation' or 'the firm' refers to the entire Triumph International Group, a holding consisting of individual production and investment firms set up for legal and tax purposes. In 1966, the firm operated 44 production plants in Germany with 11,200 employees and 19 plants abroad with 5,300 employees. (Triumph, 1968)

2 During the recession, so-called "Wirtshaussaalbetriebe" (ballroom plants) proved particularly vulnerable to closure.(BMA, 1968, 56). The German Government expressed a general displeasure by maintaining that plants with "low-order production stages" established during boom periods in rural areas tend to perpetuate the already existing "qualitative erosion".(BWM, 1969, 21).

3 Certain plants served as production centers for the main product groups of the firm, others served other region-wide or corporation-wide functions as e.g. training center, warehousing etc.

4 In 1969, Triumph sold a large piece of land in Munich which had been earmarked as the site for the corporate headquarters (which had been moved to Munich in 1964). In the same year, Triumph's largest Bavarian plant (Ingolstadt, planned for 1200 employees) was sold to a local car manufacturing firm (FAZ, 1970).


References

Braun, H. (Chairman of the Board of Management), 1967, Report at the Meeting of the Shareho1ders, Triumph International.

Bundesministerium für Arbeit und Sozialordnung (BMA, 1968), Die Standortwahl der Industriebetriebe in der Bundesrepublik Deutsch1and 1966 und 1967, Bonn.

Bundesministerium für Wirtschaft (BWM 1969). Intensivierung und Koordinierung der Regionalen Strukturpolitik, Bonn.

Dicken, P., 1971. Some Aspects of the Decision Making Behavior of Business Organizations, Economic Geography, Vol.47, p.426-437.

Fleming, D.K. and G.Krumme, 1968. The Royal Hoesch Union: Case Analysis of Adjustment Patterns in the European Steel Industry, Tijdschrift voor Econ. en Soc Geog. Vol.59, p.177-199.

Frankfurter Allgemeine Zeitung (FAZ 1970), "Triumph verwirklicht ein hartes Sparprogramm," July 17.

Krumme,G., "Theoretical and Empirical Analyses of Patterns or Industrial Change and Entrepreneurial Adjustments," Unpublished Ph.D. Diss. University of Washington, 1966.

Krumme, G., 1969. Notes on Locational Adjustment Patterns in Industrial Geography, Geografiska Annaler, Vol.51 B, p.15-19.

Landesarbeitsamt Südbayern (LAA, 1961). Arbeit und Wirtschaft in Südbayern, München.

Landesarbeitsamt. Südbayern (LAA 1955/64). "Uebersichten über Industriebetriebe die sich von 1.1.1955 bis 31.12.1964 in den einzelnen Arbeitsamtsbezirken angesiedelt haben," unpublished, typewritten, München.

McNee, R.B., 1960. Toward a More Humanistic Economic Geography: The Geography of Enterprise, Tijdschrift voor Econ.en Soc.Geografie, Vol.51, p.201-206.

Steed, G.P.F.,1968. The Changing Milieu of a Firm: A Case Study of a Shipbuilding Concern, Annals. Association of American Geographers, Vol.58, p.506-525.

Süddeutsche Zeitung München (SZ 1964) Triumph Interdress dehnt sich weiter aus," December 15.

Townroe, P.M., 1969. Locational Choice and the Individual Firm, Regional Studies Vol.3, p.15-24.

Triumph International AG, München (Triumph 1963) Geschäftsbericht

Triumph International AG, München (Triumph 1968) Geschäftsbericht

Die Welt, Hamburg (Welt 1971), "Triumph läßt den Mieder eng geschnürt," August 24.


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