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8/14/2019 Amy Glasmeier -The Role of Merchant Wholesalers in Industrial Agglomeration Formation
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The Role of M erchant W holesalers inIndustrial Agglomeration Formation
A m y Clasmeier
Graduate Program in Community and Regional Planning, University of Texas a t Austin,
Austin, TX 78712
Abstract. This paper explores the impor-
tanceof merchant wholesalers in he early for-
mation of industrial agglomerations. Mer-
chant wholesalers reduce the size constraintof local markets by extending an entrepre-
neur’s market reach. The merchant wholesale
function also facilitates the formation of the
division of labor by allowing greater loca l spe-
cialization. Merchant wholesalers are hypoth-
esized to be part of the complex formation
process. In the early stage of a complex’s de-
velopment, these intermediaries trade-in from
outside as local demand warrants. Over time,
local wholesale functions unfold. As a com-
plex grows, these wholesalers specialize, cre-ating a range of wholesale operations. The
process of merchant wholesaler formation i s
thought to be dialectical; prior generationsof
technology lay the basis of subsequent mer-
chant wholesale specializations. A mode l of
wholesale evolution i s presented and tested,
basedon a case study of firms in Austin, Texas.
Key Words: agglomeration, complex, distribu-tion, wholesaling, high-tech, linkages.
HE emergence of new innovative in-
dustry complexes has resulted in a
growing body of research exploring their
causes -and consequences. Three strands of
theorizing stand out in the literature. At the
interregional level, the seedbed shift hypoth-
esis suggests that product cycle forces and di-minished seedbed capacity resulted in a cu-
mulative shift of innovative industries toward
the US. Sunbelt. initial branch plant relocation
was followed by a process of “in-filling” which
nnals of the A x m i a t i o n of American Ceographwr, 80 3), 1990, pp. 394-417opyr ight 1990 by Association of American Geographers
resulted in the creation of new centers of in-
novation (Norton and Rees 1979).
At the metropolitan level, case studiesof in-
novative regions cite place-specific character-istics as the genesis of new complexes. These
factors include personal location decisions
(Saxenian1985;Rogers and Larsen 1984),selec-
tive and unduly concentrated levels of federal
research and development expenditures (Mar-
kusenet al. 1990), nd synergism among various
local factors which resulted in a new territorial
innovation complex (Stohr 1986).Using a con-
ceptual framework based on product-process
characteristics, i have previously argued that
local transactions are regulated by ownershipimperatives and corporate customs that inhibit
or encourage linkage and spinoff formation
(Glasmeier 1988).Scott and Storper (1987) on-
tend that occasionally ”windows of opportu-
nity” are opened by an initial spark of indus-
trialization. As news of an innovation spreads,
competition evolves between locations until
finally a new and dominant agglomeration
emerges (Storper and Walker 1989).
At the intrametropolitan scale, Scott asserts
a production-based explanation for the inter-nal integration of cities (1988).The divisibility
of certain labor processes makes possible ver-
tical disintegration of production. These trans-
actions are either undertaken through internal
production or obtained through market ex-
change. As firms contract out for the separable
activities which are more costly if executed
within the company, and market transactions
replace internal production, geographic “in-
filling” occurs.
This body of literature operates a t three geo-graphic levels in suggesting why industries lo-
cate proximately and in exploring the impor-
tant determinants of expansion in favored
locations. The viewpoints are welcome addi-
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Merchant Wholesalers 395
tions to our knowledge about agglomeration
formation. But with one exception, each ac-
count treats the process of city formation in
isolation (Clasmeier 1988). Thus the evolution
of a new complex has been discussed inde-pendently of other cities, and only now are we
invited to look within as opposed to outside
complexes for factors that precipitate the ex-
pansion of new agglomerations. Theoretical
treatments do not identify the locational and
organizational conditions that nurture the in-
fancy of a new formation.
In this article, I argue that new complex for-
mation must be analyzed and considered from
a perspective which, rather than treating in-
dividual cities discretely or in isolation, encom-passes what will call the city system. Regardless
of the original stimuli for a complex’s forma-
tion, it i s the interaction between i t and other
cities that leads to growth and development
over time (Pred 1977). Time and place con-
straints that regulate the material transforma-
tion and transportation of stock represent flows
in the system of goods and ultimately result in
the evolution of another participant in this city
system. Reliance on endogenous development
forces (embedded in the vertical disintegration
paradigm) ignores relationships between dis-tant markets and newly forming agglomera-
tions, particularly in a complex’s formative
stages. Frontier locations emerge and ultimate-
ly flourish through the intermetropolitan rans-
mission of growth, assisted by intermediaries
linking preexisting complexes to newly form-
ing ones.
This paper addresses a number of issues that
have been only weakly conceptualized or largely
ignored in the contemporary literature on in-
dustrial agglomeration formation. The first
concern revolves around a region’s ability to
specialize (thus innovate and grow) and i t s de-
pendence on trade. In the early stage of a com-
plex’s development, external trade allows firms
to specialize beyond what local demand sup-
ports. The flow of goodsand services is accom-
plished primarily through direct sales by pro-
ducing firms and the use of indirect market
channels. Because of the tenuous nature of new
complexes and limited local demand, indirect
channels are the more efficient mechanism to
secure needed inputs. Therefore explore the
role of market intermediaries (emphasizing
merchant wholesalers) in the expansion of trade
among regions and sketch out their locational
implications. I then turn to a model of regional
formation which i s based on the concept of
stock control, viz., one expression of how fron-
tier locations are incorporated into a national
system of cities (Meyer 1980). By reassertingtrade agent control over stock, the geographic
evolution of wholesaling within a city system
and a newly emerging agglomeration can be
outlined.
A realistic appraisal of how stock flows across
space and through time requires that we un-
derstand the motives behind firms’ choices of
distr ibution channels. Wi th the rise of the ver-
tically integrated corporation, the functions of
distribution and material acquisition are inter-
nalized within the firm. As later sections willelaborate, vertical integration best describes
industries in which there are few large sellers
and market share i s maintained by superficial
product differentiation and extensive market-
ing and sales functions. As the specific concern
i s with centers of new industrial innovation
where complexes expand through a processof
new product development, I abandon the
overly deterministic framework originally de-
tailed by Chandler (1966; see Porter and Livesay
1971).
By linking firm distribution strategies with the
geography of metropolitan development, an
evolutionary model of agglomeration forma-
tion can be articulated which incorporates
wholesale trade. The formative stages of an ag-
glomeration rely upon new product develop-
ment and entrepreneurial initiative. Over time
as the complex achieves some success, nonlocal
wholesalers trade-in to satisfy periodic and in-
creasingly specialized wants. As an agglomer-
ation grows in size and complexity, specialized
wholesalers establish a geographic presence.
While local production may be sufficient to sat-
isfy basic material input needs, wholesaling re-
mains strong, particularly for specialized goods.
Even with the introduction of large multilo-
cational firms, specific immediate needs are
often satisfied through distr ibution channels.
This model s elaborated by examining the evo-
lution of a new high-tech industrial complex,
Austin, Texas, first through a historical exami-
nation of merchant wholesale evolution in the
electronics industry and then via a firm survey
which identifies the extent that firms currently
use distributors. conclude with comments on
the importance of interregional trade in new
agglomeration formation.
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396 Glasmeier
The Role of Wholesalers andFirm Marketing Strategies
Definition of Wholesalers
Before proceeding, it i s necessary to define
wholesaling. Elsewhere I have shown that the
wholesaling function can be broken down by
scale, industry, and type of transaction (Glas-
meier 1989). Borrowing from Vance, wholesal-
ing i s usually defined as the sale of goods in
large lots. The wholesale function denotes
transattions by individuals in pursuit of a trade,
rather than simply to satisfy a personal or fam-
ily need. Further clarification indicates that
wholesaling involves the sales of one entre-
preneur to another, intended for resale by the
second. Vance concludes, the purpose rath-
er than the scale is the determinant in these
instances (1970).
This study focuses on ful l-function merchant
wholesalers who take ti tle of goods and accept
all ownership risks. They typical ly buy in large
quantities, break bulk, assemble, sort, sell, and
deliver. Merchant wholesalers are also sector-
ally specialized, and they undertake various
forms of product adjustment as goods move
between the manufacturer and the f inal cus-
tomer. These enhanced distributor functions
have many names, including ki tt ing (the assem-
bly and pretesting of complex parts), assembly,
and value-added distribution. Such services
continue to evolve as firms attempt to meet
manufacturers' ]IT (Just n Time) inventory re-
quirements. In finishing, testing, making man-
ufacturing adjustments, and packaging, distrib-
utors virtually eliminate the receiving firm'sneed for preassembly inspection. Inputs are
scheduled to arrive a t the factory in time for
immediate insertion on the assembly line
(Johnstonand Lawrence 1988; Graves 1989).
Distributor Usage in Manufacturing
While this article highlights high-tech indus-
tries (considered footloose and therefore most
likely to use the services of market interme-
diaries), wholesale distribution channels are
commonly used in all manufacturing industry.
Industrial distributors comprise approximately
30 percent of the nation's 338,000 merchant
wholesalers. In a survey of industrial manufac-
turing firms (ordered by broad SIC [Standard
Industrial Classification] categories), 54 percent
reported they useda combination of marketing
channels which included both their own sales
forces and distributors to sell their productsand services ( Industry Markets through . . .1985). Instrument manufacturers have the
highest percentage of direct sales to industry
(final market) (39 percent), while in electrical
and electronics equipment industries, only 13
percent used factory-direct sales (Fig. 1 .Of firms
which used only one channel, 24 percent in-
dicated they bought factory-direct; 23 percent
used distributors. Thus, on a purely numerical
basis, it i s clear that firms use a variety of chan-
nels to distribute their goods and to acquirematerial inputs. Given costs, time, and service
requirements, the use of intermediaries i s ex-
pected to increase in the 1990s (Crespedes
1988a).
The key to distribution i s the provision of
place and time utility. Place utili ty refers to the
satisfaction of demand in i t s immediate loca-
tion. Time utility measures the satisfaction of
wants immediately. Distributors move goods
from locations of surplus to areas with deficits.
By either anticipating demand and maintaining
stock to satisfy immediate unscheduled wants,
or by estimating an apparent demand and mak-
ing provisions to fu lfill it, the merchant whole-
saler ensures both place and time utility.
Modern Channel Strategies
In the business literature the selection of a
marketing strategy i s termed channeling.
Most marketing literature approaches channel
selection from the standpoint of how a firm
can best distribute i t s products. For our pur-
poses, this approach i s turned slightly on end
to be viewed through the lens of geography
and regional development concerns. Thus we
are able to answer questions about when and
under what circumstances firms use market in-
termediaries to distribute goods and, by im-
plication, determine what kinds of goods and
inputs firms purchase through distributors.
Reasons for Using Indirect Channels
It has often been said that firms can eliminate
the middleman, but not the functions per-
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M erc ha nt Who lesa le rs 397
Chemical & Allied Products
Stone, Clay & Glass Products
Primary Metal Industries
Fabricated Metal Products
Machinery, excep t Electrical
Electrical& Electronic Equipment
Transportation Equipment
Instruments& Related Products
Misc. Manufacturing ndustries
Figure 1. Percentage of manufacturers using various channe ls of distribution.
80 0
f o r m ed (Druc ker 1962). Thus wh i l e a f i rm may
choose to d is t r i bu te i t s o w n g o o d s a nd c i r c u m -
ven t t he ne ed fo r i nd i rec t channels , it must s t i l l
b reak bulk, sort, transport, f inance, service, and
m arke t i t s pro du cts (Cox 1965; B owersox e t a l.
1968).
Compa nies use distributors in l ieu o f d i r ec t
sales for ma ny reasons. These inc lu de t he cost
o f o therw ise ma in ta in ing an i n te rna l sa les f o rce
(Crespedes 1988b); th e ro le of ad jus tmen t and
mar ke t access requ i red to im p le m en t ]IT (G iu -
ni pe ro an d O’Neal 1987; Socolovsky 1985); the
increasing use of com pu t e r i zed l in ks be t w een
m a nu f a c t u re rs , w ho l esa le r s , an d f i na l cus -
to m er s (Kastiel 1987; Russell 1985); th e increa s-
ing segmentat ion of markets which span nu-
me rou s ge og rap hic locat ions (Rayner 1986); the
e f fec t of f o re i gn co m p e t i t i on i nvad ing dom es-
t i c marke ts (Ker r 1987); an d th e n ee d fo r prod-
uc t - re la ted ad jus tments to sat isfy customer
needs (Be rt ran d 1986; T em in 1985). In add i t i on
t o th e established r o le of wholesalers, these
ent i t ies a re i ncreas ing l y cons ide red t he most
ef f i c i en t and p ro f i t ab le means by wh ich spe-
c ia l i zed pro du cer s can gain access to g r o w i n g
markets.
Channel Strategy Depends on Product
Transaction cost analysis is i m po r t an t in de-
scr ib ing th e use of ver t i ca ll y in teg rate d versus
in te rmed ia ry ma rke t i ng channe ls (W i ll iamson
1981a, b). In this instance, th e ke y i s “asset spec-
i f ic i t y ” w h i c h descr ibes the spec ia l ized kno w l -
edge built up by agen ts d i s t ri bu t ing a p rodu c t
a n d t h e t y p e o f s e rv ic e p r o v i d e d b y m a r k e t
i n te r m e d i a r ie s w h o d i s t r ib u t e g o od s . T h e
cho i ce of chan nel s t ra tegy i s a cr i t ica l dec is ion
usually based on t he t o ta l cos t o f execu t i ng a
t ransac ti on and the com pet i t i ve cond i t i ons in
t he marke t (Ma gra th and Hardy 1987).
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398 Clasmeier
Channel strategy has traditionally depended
on the type of product-specialized versus
mass-produced (Crespedes 1988a). Intensive
distribution (product placed in as many loca-
tions as possible) usually occurs with consumergoods. Selective channels cover the goods cus-
tomers actively seek for specific purposes (e.g.,
electronic products). Exclusive distribution oc-
curs when a good i s in short supply or requires
high levels of service and is marketed from a
single location. A firm adopts a sales strategy
when a good is new and has few readily iden-
tifiable customers. As a product matures and
users increase, channel adjustments, although
costly, are made (Magrath and Hardy 1987). The
choice to alter or augment distribution chan-nels depends on the extensiveness of users, the
prospect for future market segmentation, in-
creasing market competition, expanding geo-
graphic dispersion, and the prerequisite ser-
vices needed to support a sale.
Channel strategy for new products depends
on certain imperatives associated wi th the spe-
cific good. The entrepreneur most familiar wi th
the good often markets it to firms which have
some likelihood of needing the innovation
(Abratt 1986). Later, periodic adjustments inchannel strategy are tied to market success. If
the market expands rapidly or if many com-
petitors arise, the producer must seek avenues
of distribution beyond the capacity of a single
salesperson (Butaney and Wortzel 1988; Vance
1970; Lamont 1972). The most convenient, least
costly, and most immediately realized means to
market a product i s through the use of man-
ufacturers’ representatives, viz., an external sales
force distributing the good along with a num-
ber of complementary product lines (Lamont
1972). Alternatively, the entrepreneur may
choose to establish an internal sales force by
absorbing the costs of developing specialized
knowledge of existing markets and competi-
tors.
Channel strategies require continual adjust-
ment as markets expand geographically, andlarge single-customer sales become significant.
A critical juncture i s reached when firms must
decide whether to maintain an in-house sales
force or to expand market-reach through in-
termediaries. This choice usually depends on a
firm’s cash posit ion (its ability to employ and
reasons for employing i t s own sales force), the
product (need for special service), and the ex-
tent that the market i s growing geographically
(Crespedes 1988b).This is particularly true when
the cost of maintaining an internal sales force
is weighed against other pressing demands on
capital such as research and development. Firms
often adopt a mixed channel strategy, handlinglarge and steady customers with an internal sales
force while less explicit, more variable, and small
markets are turned over to distributors.
Geography playsa critical role in channel de-
cisions. When markets are expanding geo-
graphically (given the preexistence of estab-
lished wholesale networks), producers place a
portion of their output with market interme-
diaries to meet the needs of newly emerging
centers of demand (Davis 1989). Because inter-
mediaries have asset-specific knowledge of in-dividual geographic and sectoral markets, they
are the most effective means of addressing the
needs of new users and distant markets. Per-
sistence of wholesale links derives not only from
product characteristics but also from the com-
bined benefits of future sales of new product
introductions. Having out lined aspects of firm
marketing strategies, I now discuss the role of
market intermediaries in the development of
regions.
Mercantilism as a Model ofRegional Development
There i s limi ted geographic literature on the
role of wholesaling in the formation of indus-
trial agglomerations (see Vance 1970; Muller
1977; Fredriksson and Lindmark 1979; Meyer
1980; and Lord 1984 for exceptions). Sparse
mention stems from two views of industrialcomplex organization. The first evolves from a
historic model of industrialization which pre-
sumed that because transportation and com-
munication costs inhib ited long distance link-
ages, producers found jointly in space
exchanged goods among themselves (Marshall
1898).’ The second view focuses on vertically
integrated corporations’ effect on the distri-
bution of material goods. This institutional and
organizational development overshadowed n-
terest in the process of material exchange as aseparate subject of study; it was simply sub-
sumed within the vertically integrated corpo-
ration. Additional geographic inquiries focused
on transportation costs and agglomeration
economies as explanations for spatial cluster-
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Merchant Wholesalers 399
ing. But the former sidestepped the precise
transactional nature of the acquisition process,
and the latter assumed exchange was between
two producers (Weber 1929; Hoover 1948). Be-
cause much of geographic inquiry over the lasttwenty years has been oriented toward under-
standing the behavior of large multilocational
corporations, it i s important that we examine
how wholesalers fi t in to this greater organiza-
tional development (Collins and Walker 1974).
The Rise of th e Managerial Corporation
Elsewhere I have writ ten of the historic roleof merchants as traders, producers, and con-
veyors of goods (Glasmeier 1989).* While once
dominant in goods production and distribu-
tion, the wholesalers’ role became more cir-
cumscribed as new institutions absorbed many
of the merchant’s traditional functions (Porter
and Livesay 1971).
The diminished importance of wholesaling s
frequently tied to the emergence of the ver-
tically integrated corporation and mass mar-
kets. With advancements in communicationsand transportation, corporations could profit-
ably internalize the full range of functions, in-
cluding distribution. Firms systematized both
the acquisition of needed inputs and the dis-
tribution of final product. Product and market
factors led to a contraction in wholesaler func-
tions (Chandler 1962; 1966). Wholesalers were
bypassed when they were unable to distribute
the volume of goods produced by manufac-
turers, they could not move goods swiftly
enough from producer to final market, or they
were unable to provide product advertising.
Neither were wholesalers used when special-
ized handling or services were required or when
a product’s distribution necessitated specific
capital investments o ensure quality at the point
of consumption. Finally, wholesalers were often
less important in nstances when the final prod-
uct required demonstrable technical knowl-
edge and support both during and after the
sales transaction (Porter and Livesay 1971).
Chandler‘s analysis emphasized both supply
and demand conditions which encouraged
manufacturers to internalize distribution. He
noted that internalization was most prevalent
in oligopolistic and concentrated industries. In
this instance producers were price setters, and
barriers to entry were high. Therefore market
shares were relatively stable. But Chandler’s
model of firm evolution has been overgener-
alized which led to the assumption that al l firms
grow large and vertically integrate. Also as used,the model i s inflexible and ultimately static, un-
able to account for the mixed distribution strat-
egies of many firms. Most importantly, it rules
out new industry and firm creation. Chandler
correctly described the rise of oligopolistic
corporations, but his analysis overlooked the
emergence of new industries and centers of
innovation (Jorde and Teece 1989).
I f the role of mass producers had eclipsed
the need for wholesalers, then their numbers
would have surely dwindled. But during thetwentieth century, as the national economy has
become more specialized, wholesaling units
have grown more rapidly than manufacturing
establishments (Vance 1970; U.S. Department
of Commerce 1982).’ Even industries most em-
blematic of mass production and distribution
often maintain two sales networks: one to sat-
isfy preexisting concentrations of demand and
another to deal with newly emerging markets
(Chandler1966). Finally, in high-tech ndustries,
distributors routinely account for half of all sales
(“Does the Country Really Need . .” 1985).
Mercantilism as a Counterpoint to
Central Place Theory
The dominance of central place theory as a
model of urban settlement overpowered early
geographic contributions on the subject of
wholesaling.* A noted exception is Vance‘s
monograph on the merchant in U.S. regional
development 1970). His mercantile model was
a critique of central place theory’s reliance on
endogenous change leading to higher levels of
regional specialization. Central place theory
could not account for instances where local
production was insufficient t o satisfy local de-
mand. Nor could it contend with the implica-
tions of local specialization and production vol-
umes exceeding local markets. As soon as self-
sufficiency was exceeded, labor specialization
expanded, leading to growth of trading areas.
Industrial specialization was dependent upon
trade. By extending demand through geo-
graphic expansion, specialization could occur,
thus verifying Adam Smith’s seminal dictum.
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400 Glasmeier
Time and th e Impulse t o Trade
Ignoring the constraints of t ime and place in
modeling demand and immediate fulfillment
through supply, a mercantile model of regionaldevelopment makes explicit the notion of time
of demand fulfillment. The wholesaler is re-
sponsible for moving goods from a location of
abundance to one of scarcity. Thus once trade
i s established, demand may accumulate while
an agent gauges i t s periodic ityand matches this
wi th supply from a variety of sources. The geo-
graphic extent of wholesaling depends on the
composition of demand which varies by sector,
time, and place. A wholesaler can satisfy wants
in a small locality by generalizing the goodstraded or by specializing in traded goods and
expanding hi dher market area. Unlike central
place theory, which argues that the range of
geographic distribution of a good is a function
of i t s local population, wholesaling dramatically
increasesa product's range by delivering a good
to the customer. In concentrating on service
quality, wholesalers benefit customers by spe-
cializing in products and satisfying demand on
a more infrequent basis. Therefore, trade oc-
curs across long distances when a customer is
willing to satisfy need periodically.
The impulse to trade regulates thegeograph-
ic extent of wholesalers. A strong impulse re-
sults in either long-distance trade or frequent
transactions; a weak impulse is characterized
either by short linkages or infrequent trade in-
tervals. This matrix of possibilities knits togeth-
er place and time utili ty and suggests why and
for what types of goods firms use wholesalers
(Vance 1970).
Internalization
The evolution of the space economy based
on trade is a steady process of internalization.
As regions and cities expand, wholesalers com-
pete based on market access and service deliv-
ery. At a certain point it becomes necessary for
wholesalers to extend their geographic pres-
ence into growing markets or risk losing market
share to competitors with better service. While
original wholesale centers persist, new loca-
tions emerge as density of demand warrants.
At first the wholesaler may simply establish a
sales office to respond to firms' information
needs. But eventually i f demand expands ap-
preciably, firms establish a stocking location to
service critical and/or large customers, to ac-
commodate immediate demand fulfillment, and
to make final adjustments in products.
Wholesalers specialize to establish and main-tain high levels of market control. This i s an
interactive process between the evolution of
the complex and the variety of goods available.
As a complex strengthens i t s dominance in a
single sector, specialized wholesalers are at-
tracted. In very small cities, there i s also oc-
casion for local wholesale stocking t o occur.
This type of trade is usually more industry spe-
c i f ic and transcends issues of scale. Even the
sum of many very small transactions may war-
rant general stocking of goods.Vance's mercantile model draws consider-
able validation from historical literature on the
settlement of the United States. By rejecting
central place theory as rigid, scale-dependent,
and economically deterministic, Vance sug-
gests that intermetropoli tan rade i s a necessary
prerequisite for regional specialization. But his
model i s sketched broadly and does not suffi-
ciently elaborate the ways in which frontier lo
cations are integrated in to a system of cities.
Frontier City Integration
Using a framework that focuses on control
of exchange and physical distribution, Meyer
makes explicit frontier city integration into a
national system of cities (1980).Control of ex-
change i s presumed to have three properties.
First, per-unit costs to exert control are modest
beyond a certain distance. Second, because an
entrepreneur can accumulate demand and pe-
riodically fill it, considerable economies of scale
exist in the purchase of material goods. To se-
cure continued patronage, savings are passed
on to customers. Finally, as the space economy
evolves, entrepreneurs must either specialize
further and extend their geographic trade area
or carry a broader range of goods and operate
wi thin the same territory. Based on control of
exchange, Meyer suggests that trading into
frontier locations (as opposed to relocation of
the entrepreneur to a region) occurs unti l sav-
ings in transaction cost/unit gained by prox-
imity exceeds the higher cost/unit of local
stocking/production (1980, 123). Thus, ini-
tially, entrepreneurs operate from outside a
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Merchant Wholesalers 401
frontier location, only relocating when local
demand warrants a stocking lo ca t i ~ n. ~
Control of stock originates in the metropol-
itan agglomeration closest to the front ier and
operates over a large area.6 As demand a t thefrontier location grows, local generalized
stocking (by an outside distributor or a local
entrepreneur-distributor) occurs. Meyer notes,
“more specialized entrepreneurs of the origi-
nal stocking location will maintain control of
the fron tier at a higher level of specialization”
(1980,125). As entrepreneurs seek contro l over
stocking in specific geographic areas, the goods
traded must become more generalized and ap-
peal to a broad set of markets. I n this instance,
stocking of general purpose items may be doneby a local wholesaler, and more specialized
goods may be stocked outside and sold into
the region by a specialized wholesaler.
Meyer retreats from the mercantile model
because of i t s dependence on wholesalers as
the agents of trade. Merchants‘ control over
many traditional functions associated with trade
(finance, insurance, and transportation) d imin-
ished as they evolved either as separate spe-
cializations or were absorbed within vertically
integrated manufacturing firms. Using the less
specific term, “entrepreneur,” Meyer gener-
alizes the process of integration. In this article,
Iwish to reassert the importance of wholesalers
in the specific context of an expanding space
economy within which the number of cus-
tomers i s increasing rapidly, and the level of
complex specialization is high.
Wholesaler’s Contr ibu tion to New Industrial
Complex Formation
To articulate the role of wholesalers in new
agglomeration ormation, we must consider the
opposite side of marketing’s traditional em-
phasis on sales. I start by making a series of
assumptions which begin with the very earliest
stages of new agglomeration, viz., when an en-
trepreneur invents a product which satisfies an
unfulfilled need. Demand i s nonlocal, and the
new product is specialized; few material inputs
are purchased (the majority are manufactured
in-house). Outside inputs are generally avail-
able, and demand can be satisfied by existing
wholesalers who carry a broad range of goods
and/or can acquire more complex goods by
periodically filling demand.’ Over time other
sourcesof demand develop, including new en-
trepreneurs and branch plants. Developments
in new technologies force changes in the com-
position of goods offered by wholesalers, and
information about available new inputs ex-pands local opportunities, thereby increasing
the potential for local specialization.
Modern complexes rarely expand through
entrepreneurial growth alone. Branch plants
went to Silicon Valley once the region became
known for specialized high-tech goods. Simi-
larly, branch plants were formed as locally
owned firms became acquisition targets of firms
headquartered outside the region. Branch plant
material acquisition channels depend on the
historic purchasing patterns of parent firms, in-tracorporate purchasing policies, and levels of
place and time utility. While these establish-
ments may conduct purchasing through in-
house intermediaries, satisfaction of immediate
needs and the extent of specialization of goods
demanded eventually call forth the use of dis-
tributors, particularly when a product incor-
porates new innovations or is a new innovation
itself.
In the following two sections the evolution-
ary model of industrial complex formation
through a case study of Austin, Texas i s elab-
orated. Ibegin by establishing the historical ba-
s i s of the industrial complex and the role of
wholesalers in the provision of electronic sup-
plies and equipment during a forty-year peri-
od. Thus we explore the contemporary im-
portance of wholesalers in the expanding
regional economy.
Austin, Texas-A Model ofIndustrial Complex Formation
In the mid-1970s high-tech industries be-
came the engine of growth for many southern
and western U.S. cities. Colorado Springs, Col
orado; Austin, Texas; Raleigh-Durham, North
Carolina; Boca Raton, Florida; and Phoenix, Ar-
izona are all identified with the 1980s high-tech
boom. Austin stands out among similar size cit-
ies as having grown rapidly in both population
and manufacturing jobs during the last two de-
cades. As branch plants, high-tech consortia,
and local start-ups greatly expanded the city’s
manufacturing base, Austin received national
(and eventually international) acclaim as the
successor to Silicon Valley.
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402 Glasmeier
Austin, the capital of Texas and home of the
University of Texas, i s located in the south-cen-
tral part of the state in the Hill Country. State
government offices and affiliated agencies clus-
ter in he city,forming the economic base. Manystate-sponsored public institutions such as
schools for the learning-impaired are also lo
cated in Austin; there is also a large Air Force
base approximately 15 miles south of the met-
ropolitan area.
In 1989 Austin had approximately 720,000
residents. The 1986 Census ranked the city as
the 58th largest in the nation U.S. Department
of Commerce 1986). Like t s regional neighbors,
Albuquerque, Phoenix, and Colorado Springs,
Austin‘s recent growth experience has beenspectacular. The city’s population increased 141
percent between 1960 and 1984. Between 1980
and 1984, Austin was ranked the tenth fastest
growing metropolitan area in the country and
a t one point in the 1980s was dubbed the na-
tion’s fastest growing city.
Austin’s economy i s primarily government-
and service-based. These two sectors consti-
tute 49 percent of all non-agricultural employ-
ment. Retai l and wholesale trade make up
another 22 percent, and of all jobs, manufac-turing employment constitutes only 12 per-
cent. While i t s correct that the city’s economy
is not manufacturing-based, between 1980 and
1988, manufacturing job growth was third be-
hind services and trade. Most significantly, dur-
ing the 1970s and into the early 1980s Austin
experienced an annual manufacturing growth
rate of 8.3 percent (compared with the nation’s
meager 1 o 2 percent). Between 1977 and 1982,
manufacturing job growth increased 63 per-
cent, second only to Colorado Springs which,
with a much smaller base, increasedby 86 per-
cent.
Throughout the last twenty years, high-tech
manufacturing has led Austin’s economic ex-
pansion, while the city’s economy i s based on
government and services, i t s most dynamic
component has recently been manufacturing.
High-tech industries comprise approximately
71 percent of all manufacturing jobs. In the
1980s, the largest high-tech manufacturing em-
ployers in the city added more than 20,000 jobs
(”Texas in tile 1980s” 1989). Compared with
other cities noted for rapid high-tech growth
between 1975 and 1985, Austin had the largest
high-tech base (more than 40,000 jobs) and grew
among the fastest.
With the additionof numerous branch plants
in conjunction with the creation of locally
owned firms, Austin has become one of the
largest centers for the manufacture of semi-
conductor devices outside of Silicon Valley. Al-most 15 percent of Motorola Inc.’s domestic
semiconductor employment i s now located in
Austin. Advanced Micro Devices (AMD) locat-
ed i t s largest production facility outside Silicon
Valley in the city. Cypress Semiconductor has
both a production and a design center within
the metropolitan area. As high-tech industries
were squeezed out of their original locations
in the northeastern and western U.S., Austin
became the recognized leader in attracting this
new employment.
Historyof High-Tech Manufacturing i n Austin
The origin of the Austin high-tech complex
dates to the late 1930s when two University of
Texas physics professors, Lucien LaCoste and
Arnold Romberg, developed a gravity meter
for measuring the depth of oi l wells in offshore
dril ling operations (Susbauer 1972). The U.T.
Physics Department was an early incubator ofnumerous small instrumentation firms. Pre-
vious researchers have speculated that the in-
dustry‘s connection with physics, as opposed
to engineering, partially explains why instru-
ments formed the base of Austin’s nascent high-
tech economy (Fig. 2).
Similar to a number of other high-tech lo-
cations, defense-related research provided
another early source of support for Austin’s
high-tech industry growth. The Tracor Cor-
poration, Austin‘s only home-grown Fortune500 company, began in 1954asa consulting firm
which merged with another local firm to be-
come a defense-related high-tech manufac-
turing corporation. Mapping new firm forma-
tions in early Austin underscores he ties among
companies thought to have spun off from Tra-
tor (Fig. 3).
The base of the early Austin technology com-
plex relied on small firms. Almost twenty years
passed before a branch plant of a large national
corporation ocated in the city (Susbauer 1972).
The first major branch plant siting of a large
national firm (IBM) occurred in 1968. IBM’s jus-
tification for locating a typewriter manufactur-
ing plant i n Austin was to facilitate access to
the growing southwestern market. From the
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F
msh
n
o de
y
a
e
o
gn
o
m u
v
s
yd
me
s
e
c
la
ao
e
o
o
h
Au
n
e
c
msa
es
wnwih
n
a
d
e
o
a
ows
l lu ndic le rm notncluded n he study
igr2
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oth
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1939 68.
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404 Glasmeier
Continuum (from 1969
Carbomedics
BDM
Abbott Labs
AMD Lockheed
Instruments IBM Data Corp. Motorola Data General W.L. GoreHouston Control
I I
TRACOR(Associated
Consultants andEngineers ->
Texas ResearchAssociates)
1955
I
JohkonControls
1960 1965 1970 1975 1980
Austron Texas Radian Espey Eagle Signal McNeil
Tektronix z znstruments Huston
Burroughs
1985
MCC
Martin Decker
bold type indicates “Home-grown” companies ROLM
Fisher Controls
Figure 3. Developmentof Tracor and i t s spin-outs, 1947-84.
beginning this plant was vertically integrated.
Almost all material inputs were either made in
the plant or received through intracorporate
purchasing agreements. Austin’s second major
branch plant siting occurred a year later when
Texas Instruments Corporation built a plant to
manufacture office products and desktop com-
puter equipment. Four years passed before a
third national corporation, Motorola, opened
i t s semiconductor wafer fabrication facility on
the east side of the city. The Ed Bluestein plant
i s Motorola’s most highly integrated fabrication
location, employing device R&D, advanced en-
gineering, and pro totype capacity.
Between 1974 and 1984, Austin received
another twelve branch plants of firms head-
quartered in other high-technology complexes
(Fig. 4). In the early 1980s, Motorola set up a
second plant in Austin for i t s microprocessor
group. During the same period, Lockheed es-
tablished a major defense research and devel-
opment facility. Other major Austin branch
plant locations include Advanced Micro De-
vices, which set up another wafer fabrication
plant. In 1985 Tandem Corporation moved a
design, engineering, and manufacturing plant
t o Austin. Finally, in 1986, the 3 M Corporation
opened a research facility, the f i rst outside i t s
Minneapolis corporate headquarters area.
By the early 1980s, Austin was perceived as
a newly emerging high-tech center. The city
boasted a considerable stable of both manu-
facturing branch plants and locally grown firms.
In 1983, with the announcement that the Mi-
croelectronics and Computer Corporation
(MCC) had selected Austin as i t s headquarters,
both the city and the state’s aspirations as cen-
ters of high-tech industry seemed assured. A
multifirm consortium, MCC s conducting col-
laborative research on computer, software, and
manufacturing process design and develop-
ments. Twelve firms working as a team created
the research facility, the first to pursue com-
mon research goals in combating international
computer and microelectronics competition.
Today seventeen firms participate in the con-
sortium.
Austin Today
The heady days of successive branch plant
announcements have passed. From 1985-90,
Austin’s electronics and computer industry ex-
perienced a slump. Although occasional whis-
pers of possible new plant sitings are s t i l l ov-
erheard, the last announcement occurred in
1986. Growth moderated considerably during
this period; in 1988 Austin added a meager 600
manufacturing jobs.
Yet the aura of the complex has been sus-
tained. With the 1988 announcement that Aus-
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406 Clasmeier
and diversification, it i s evident that firms op-
erate autonomously with the assistance of in-
formation flows in the form of catalog sales,
manufacturers representatives, and merchant
wholesalers which bring information into a na-scent complex and spread the word of local
firm offerings outside the immediate market
area.
The Spatial Evolution ofWholesaling: A n Empirical
Example
This section explores the validity of a mer-cantile model of regional formation through an
analysis of the history of wholesale electronic
development within the c i t y of Austin. A re-
statement of the theory suggests that whole-
saling beginsas a service providing generalized
inputs, sustained through sales responding to
a variety of markets. Over time, as the level of
local materials demand increases and the com-
plex evolves, wholesale specialization occurs.
Eventually wholesalers from the closest ag-
glomeration sell into the complex. Simulta-
neously, in response to this encroachment from
outside, original wholesalers broaden their
product line and serve a more general clien-
tele. Thus a pattern unfolds in which whole-
saling begins wi th local firms, followed by
regionally and eventually nationally headquar-
tered wholesalers. In the long run, local mer-
chant wholesalers may simply disappear as they
prove unable to match the service capabilities
of larger, nonlocal establishments.
The Evolution of Wholesaling in Austin
While the evolution of high-tech industry in
Austin i s relatively well recorded, there is no
documented history of wholesaling in the city.
Nonetheless, interviews with wholesalers who
have operated in Austin since the early 1960s
and analysis of phonebook entries dating back
to the late 1940s and early 1950s provide an-
ecdotal documentation to trace the evolution
of this activity within the metropolitan area.
Electronics wholesaling in Austin gradually
evolved from the sale of electrical parts for the
repair and maintenance of commercial and do-
mestic equipment to trade in electronics goods.
Prior to the early 1940s, sales of parts for elec-
trical goods were accomplished primarily
through firms which performed sales and ser-
vice. For example, Sears, Roebuck stocked spare
parts inventory in their retail outlets as well asoffering parts for home and commercial ap-
pliance repair i n their mail order catalogs.
The early formation of electronics wholesal-
ing occurred in response to the need for radio
and television repair parts. This type of general
line distributor carried a small supply of a wide
array of standard parts for hobbyists, tinkerers,
and repairpersons. The first phone listing of an
electronics wholesale firm dates to 1950. The
company provided a broad range of general
parts used for equipment sales, repair, andmaintenance. By the mid-I950s, the c i ty had
five wholesalers (Table 1 .One firm, White In-
struments, wholesaled parts for other instru-
ment manufacturers as well as for i t s own use.
And in 1957 the Motorola Corporation opened
an electronics parts and service office provid-
ing equipment and parts for television and ra-
dio electronics applications.
Prior to the 1960s electronics wholesaling was
quite general, providing parts and accessories
for equipment repair to a wide variety of in-dustries. For example, Wholesale Electronics,
which opened in 1961, stocked small quantities
of a broad variety of parts used in maintenance,
repair, and testing for commercial equipment
companies, the university, state government,
computer firms, and the entertainment indus-
try. In these early days local wholesalers kept
pace with changes in industry by broadening
their product lines rather than further special-
izing i n specific sub-industries.
By the early 1960s wholesale operations be-
gan to specialize with separate operations for
radio and television repair, electronic parts dis-
tribution, and maintenance and repair opera-
tions for commercial firms. Improvements in
air conditioning, complex building systems, and
the needs of the city, university and state gov-
ernment resulted in a small proliferation of
maintenance and repair distributors.
In the mid-1960s the ratio of manufacturers
to wholesalers was about four to one. As the
complex evolved, various wholesale submar-
kets emerged and attracted wholesalers head-
quartered outside the region (Table 2 Fig. 5).
In 1963 the first nonlocal firms listed exchange
numbers (the precursors to 1-800 toll-free
numbers) o sell wholesale electronic parts. One
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Merchant Wholesalers 407
Table 1. Number of Electronics
Wholesalers, 1950-87
Nonlocal Nonlocaldistrib- phone National
Total utors numbers firms
1950
1955
19601965
1971
1975
1980
1985
1988
1
5
615 6 5 l a
13 6 6 3’
19 13 10 1,2‘
40 15 11 5
52 20 10 9
50 18 12 7
Source: Southwestern Bell, Austin telephone directory, se-
a indicates national firm with toll-free number.
lected years 1950-88.
regional firm headquartered in Dallas listed two
offices (one in Houston and one in Garland),
while another listed a San Antonio address. Parts
purchased from these nonlocal distributors
were commonly shipped on Greyhound buses,
an early form of overnight delivery. In 1964
Hall-Mark Electronics Corporation, a large na-
tional distributor headquartered in Dallas,
opened an operation in Austin (Table 3; Fig. 6).
Through the late 1960s, the city continued
to add wholesalers, both nonlocal distributors
and local firms with warehouses in Austin. There
was also considerable merger activity as non-
local wholesalers bought up Austin companies.
As the large firms began to dominate wholesale
trade, it became increasingly dif ficult for small-
er, local firms to survive. About this time elec-
tronics manufacturing firms headquartered
outside the local area in Dallas, Houston, Cal-
ifornia, and Oregon (e.g., Hewlett-Packard and
Textronix) also began advertising in the yellow
pages. M a n y out-of-town and out-of-state firms
operated sales offices rather than manufactur-
ing products in Austin. A second top-twenty
national distributor also opened a warehouse
in 1969.
Additional locally owned distributors formed
through the mid-1970s. Nonetheless, the city’s
wholesale base was dominated by nonlocal
firms, some of whom established local ware-
houses while others simply listed toll-f ree num-
bers in the telephone book. In the late 1970s,
the city added two national chains, and local
wholesalers once again comprised more than
half of all distributors (16 of 27). By the end of
Table 2. Location of Out-of-town
Distributors Listing Toll-free Numbers in
Austin, 1965-88
1965 1971
San AntonioHouston(2)Dallas(2)
1975
Dallas(2)Plano, TX
HoustonHauppauge, NYPhiladelphia
1980
Plano, TXHouston(3)Hauppauge, NYDallas(2)Van Nuys, C A
Stafford, TXFort Worth
1985
Plano, TXDallas(2)Addison, TXShreveport, LAHouston (2)
Dayton, OHVan Nuys, C AFort WorthNew York
1988
Plano, TX 3)Brownsville, TXDallasChannel View, TX
Dayton, OHVan Nuys, C AFort Worth (2)
Plano, TX (6)Dallas 2)Stafford, TXSan AntonioVan Nuys, C AFort Worth
. .Source: Southwestern Bell, Austin telephone directory, se-
lected years 1965-1988.
the decade, seven national wholesalers had es-
tablished either a sales office or a warehouse
in Austin. Of 42 electronic wholesalers, more
than half were single location operations.
The city’s base of high-tech manufacturers
and wholesalers grew in lock-step th rough the
1980s. The presence of wholesale firms head-
quartered outside the city remains strong de-
spite corporate and terri toria l reorganizations
which have led t o the closings of warehouses
and the consolidation of stock in a few regional
facilities.
An Empirical Example of
Contemporary DistributionRelationships
Based on circumstantial evidence, have sug-
gested the importance of wholesalers in the
early formation of the Austin complex. The
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to8 Clasmeier
Table 3. Regional and National Wholesale Firms with Local Branches and Parts Producers with
Sales Officesa
1964 1977 1981
Hall-mark Electronics Sterling Electronics Arrow ElectronicsHdq., Dallas Hdq., Houston Hdq., Melville, NY
1969 1978
Newark Electronics
Hdq., ChicagoCorp.
1974
Schweber Electronics
Owned by Lex Elec-
Hdq., London
1976
Inc.
tronics
Berg Electronics Div.of Dupont
Hdq., Delaware
Norvell ElectronicsHdq., Dallas
Hamilton-AvnetHdq., New York
1979
Southwest Electronics
Hdq., San Antonio
1980
AltairCo
Hdq., Richardson, TX
Pioneer ElectronicsHdq., Cleveland
a Fairchild Serni-conductors
a CTE Micro Circuits
Kent ElectronicsHdq., Dallas
1982
Kierulff ElectronicsOwned by DucomrnunHdq., Cypress, CA
1984-85
a NEC Electronics
1988
Wyle LaboratoriesHdq., irvine, CA
Time ElectronicsHdq., New York
Source: Southwest ern Bell, Austin telepho ne directory , selected years 1964-88.a Sales offices of national and mult inatio nal manufactu rers.
evolution of the complex has been traced by
examining, over a concurrent period, changes
in wholesaling and increases in high-tech man-
ufacturing(Tab1es 1and 4). The complex’s initial
requirements for electronic inputs were prob-
ably satisfied by local wholesalers catering to a
broad base of input needs. Over time this was
followed by increasing wholesale specialization
as the economy developed. Some wholesalers
evolved i n place, others established presence
via long distance toll-free numbers. This last
section explores the importance of wholesaling
in the contemporary period. Based on a survey
of firms, the importance of distributors in the
contemporary functioning of the Austin high-
tech economy i s evident.
Generalizationscan be made about the prob-
ability of distributor usage based on industrial
linkage theory, bu t results presented earlier in-
dicated that the majority of firms, regardless of
industry, used a mixed channel strategy to dis-
tribute their products. Referring to Figure 1, i t
is also obvious that firms in the electronics in-
dustry used outside distribution agents with
great frequency. Examination of the distribu-
tion trade literature and interviews with whole-
sale distributors further indicate that distribu-
tor usage i s rising. The advancing speed of
product life cycles, heightening international
competition, expanding geographic markets,
and growing importance of small firms all im-
prove the probability that firms will use dis-
tributors in lieu of direct sales forces. Given
that the concern here is with the nascent stages
of complex formation, high levels of distributor
usage would be expected (because local de-
mand remains insufficient to warrant local pro-
duction). Furthermore, it has been established
by others that high-tech product markets are
almost exclusively nonlocal. Therefore antic-
ipate that most manufactured goods are not
destined for consumption within the complex.
Accordingly, the fol lowing research results are
an initial attempt to identify the contemporary
importance of wholesalers in a newly forming
complex. In more mature complexes, the fre-
quency and scale of demand have presumably
precipitated the development of local manu-
facturing capacity of some material inputs.
Nevertheless, anecdotal evidence from nation-
al distributors indicates that even in mature
complexes, distributor usage is high.
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Merchant Wholesalers 409
Figure 5. The location of out-of-town distributors l isting toll-free numbers in Austin, 1965-88.
Sample Description
The sample of firms interviewed in this study
was drawn from the 1986-87 State Survey of
Manufacturers (published annually in the state
since the late 1950s). In addition to this refer-
ence, I cross-classified the original list of firms
with those advertising in yellow pages of the
municipal telephone directory. The use of the
phone book improved the completenessof the
local sample by adding firms which had not
participated in the state survey.
Sample Construction
This study focuses on high-tech products in
the electronics, communications, aerospace,
computers, instruments, and medical equip-
ment industries.A total of 126 firms were iden-
tif ied for interview. Seventeen were eliminated
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410 Glasmeier
Figure 6. Regional and national firms that estab-lished local branches and parts producers hat openedsales off ces.
because they did not manufacture a product
with an SIC code corresponding to a 3-digit
industry category l isted in Table 5 and another
six were excluded because their major product
was a service. Of the manufacturing firms ex-
cluded, more than half were chemical com-
panies. The remainder comprised a broad group
of general manufacturing inputs such as plast ic
parts, rubber molding, and miscellaneous metal
parts.
Table 4. Number of High-Tech
Manufacturers, 1950-87
Year Firms Year Firms
19501952
1954
1956
1958
1960
1962
1964
1966
1 1969 302 1973 37
1 1976 53
2 1978 52
5 1979 61
10 1981 82
1982 110
1983 77
21 1986 110
Source: This table combines the firms listed in the local
telephone directory with those listed in the Texas Manufac-
turers Guide, Bureau of Economic Research, University of
Texas, Austin, 1986.
The universeof firms was reduced to 103.Of
these, 62 companies completed face-to-face
interviews. Of those which did not respond, 22
were unable to complete the questionnaire
either because the appropriate respondent was
unavailable, the informationwas proprietary, or
there was some other extenuating circum-
stance. Nine firms refused to be interviewed.
Five companies were no onger in business, and
an additional six were misclassified; they didnot fal l into the prespecified industry cate-
gories.
Examination of the firms that did not answer
the survey reveals that they were on average
smaller than those that did respond.* The di-
vergence s explained by a higher response rate
with the largest firms in the city. Overall, the
study consisted of 68 percent small firms with
fewer than 100 employees; these small firms
constituted 77 percent of the total number of
firms in the population. Based on a second
measure, the percentage of firms locally owned
versus branch plants of nonlocal corporations,
there was n o significant ownership bias in the
firms that failed to respond.
General Characteristicsof Firms in th e Study
The group of firms studied i s dominated by
small, locally owned firms a t least five years old.
Companies are concentrated in three sectors:
electronics, scientific instruments, and com-
puters. Overall the firms are R&D intensive; 76
percent indicated they spent 3 percent or more
of after-sales revenues on research. Austin firms
also employ a significant number of technical
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Merchant Wholesalers 411
Table 5. Industrial Classification of Firms
Interviewed and the General Population YO)
Sample Population
SIC 28 5 4SIC 35 13 9
SIC 36 39 53
SIC 37 1 1.6
SIC 38 32 31
Source: Texas Manufacturers Guide, Bureau of EconomicResearch, University of Texas, Austin, TX, 1986.
employees. Sixty-four percent indicated that
10 percent or more of their workforce was
comprised of engineers and technicians.
As found i n studies of other high-tech in-
dustry concentrations, the market for Austin
firms' goods i s decidedly nonlocal (Oakey 1984;
Goldstein and Mal iz ia 1985; Hagey and Malecki
1986; Gordon et al. 1988; Porterfield 1988). For-
ty percent indicated their markets were locat-
ed entirely outside the local area. Another 45
percent sold less than 15 percent of their out-
put to local firms.
As part of this study I questioned the origins
of different types of inputs used by local firms.
Borrowing and modifying Hagey and Malecki's
research design, grouped inputs in to five cat-
egories: unfinished materials (suchas sheet steel,
aluminum, glass); low-tech inputs which were
either off-the-shelf or were routinely (without
special processing) produced (such as greases,
boxes, batteries); high-tech inputs (goods in
short supply which required special process-
ing, were especially pure, or required sophis-
ticated production technology, such as quartz
crystals, precision lenses, ASICs-application
specific integrated circuits); high-tech services
(software, engineering, consulting, etc.); and
production equipment (lathes, bonders, mill-
ing machines). Each respondent was prompted
about distinctions between high and low-tech
inputs and each gave an example of what con-
stituted high and low-tech inputs to hidher
firm. Whi le not clear-cut i n every instance, the
majority of firms agreed that the distinction was
important in their material input purchasing
decisions.
As part of the study, local linkage purchases
were identif ied (Table 6). In general, firms pur-
chased litt le in the way of material inputs from
local manufacturers. The majority of firms (56
percent) satisfied less than 20 percent of their
needs through purchases from firms manufac-
turing high-tech inputs locally. Low-tech in-
Table 6. Percentage of Inputs Purchased
from Local Manufacturing Firms
Percent-
InDut of firms
age
Raw materials 70
High-tech inputs 56
Low-tech inputs 50
High-tech services 56
Production equipment 67
Satisfied
locally
<20
<20
<20
<20
<20
puts were bought with slightly higher frequen-
cy (50 percent of local firms purchased ess than
20 percent of their low-tech inputs from local
manufacturers).This may reflect the ubiquitous
nature of such goods, their tendency to be
standardized, and their availability from a va-
riety of vendors. Only 44 percent purchased
substantial amounts of high-tech services such
as computer programming and management
consulting locally, and 67 percent purchased
20 percent or less of their production equip-
ment from local manufacturers.
These results are quite similar to a study of
high-tech manufacturing conducted in Florida
(Hagey and Malecki 1986). Low levels of link-
ages reveal there are alternative solutions for
acquiring inputs. As markets become more ex-
tensive and corporations develop increasingly
complex divisions of labor, market intermedi-
aries gain importance. Beyond acquisition of
inputs and reduction of transaction costs, firms
use them for strategic reasons. Thus pertinent
considerations include: how do distributors
operate in a local economy? what types of in-
puts do they provide? and how does knowl-
edge of distr ibution theory enhance our un-
derstanding of interfiim transactions?
Distributo r Use for Mater ial Input
Acquisitions
To determine and explore their uses of dis-
tributors, firms were asked whether and for
what inputs they used distribution channels.
Specifically we questioned whether they pur-
chased their inputs from a distributor or by
ordering factory-direct (defined as transactions
with the original equipment manufacturer as
opposed to with a market intermediary). As it
was difficult to standardize for the year of pur-
chase, survey questions pertaining to the ac-
quisition of capital equipment were eliminated.
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412 Glasmeier
Table 7. Acquisition of High-Tech Inputs
Number
DistributorFactory directTotal
35
9
44
By location of headquarters
Nonlocal Local Tota l
Distributor 7 (63.6 ) 28 (84.8 ) 35
Factory direct 4 (36.4 ) 5 (15.2 ) 9
Column 11 33 44
Chi-square 2.28148 Significance 0.1309
By size of firm
Small Large
(1 100) (101+) Total
Distributor 24 (80.0 ) 11 (78.6 ) 35
Factory direct 6 (20.0 ) 3 (21.4 ) 9
Column 30 14 44
Chi-Sauare 0.01197 Significance 0.9129
By age of firm in years
1-5 6-20 21-33 Total
Distrib-
Factory-utor 11 (84.6 ) 17 (70.8 ) 7 (100.0 ) 35
direct 2 (15.4 ) 7 (29.2 ) 9
Column 13 24 7 44Chi-square 3.12495 Significance 0.2096
Office supplies and equipment are purchased
much more regularly, so we substituted ques-
tions about these inputs. In general, firms used
distributors for unfinished materials, high-tech
inputs, office supplies, and (to a lesser extent)
low-tech inputs.
The majority of firms purchasing unfinished
materials used distributors (76 percent). There
was no significant difference based on firm size
or age, but a larger portion of locally head-
quartered and nonsubsidiary firms used dis-tributors than did their nonlocal brethren.
Although the percentages differed signifi-
cantly, the majority of firms, regardless of char-
acteristics such as size, age, or location, used
distributors to secure both high and low-tech
inputs (80 and 64 percent respectively). Dis-
tributors were used to purchase high and low-
tech inputs for both small and large firms
(Tables7 and 8). Although both locally and non-
locally headquartered firms purchased from
distributors, the locally headquartered com-
panies were more likely t o use distributors for
Table 8. Acquisition of Low-Tech Inputs
Number
DistributorFactory directTota l
23
13
36
By location of headquarters
Nonlocal Local Total
Distributor 4 (57.1 ) 19(65.5 ) 23
Factory direct 3 (42.9 ) 10 (34.5 ) 13
Column 7 29 36
Chi-square 0.17141 Significance 0.6789
By size of firm
Small Large(1 100 (101+) Total
Distributor 16 (72.7 ) 7 (50.0 ) 23
Factory direct 6 (27.3 ) 7 (50.0 ) 13
Column 22 14 36
Chi-square 0.91548 Significance 0.1664
By age of firm in years
1-5 6-20 21-33 Total
Distrib-
Factoryutor 6 (75.0 ) 12 (57.1 ) 5 (71.4 ) 23
direct 2 (25.0 ) 9 (42.9 ) 2 (28.6 ) 13
Column 8 21 7 36Chi-Sauare 1.01481 Significance 0.6021
both types of inputs than their nonlocal coun-
terparts. Also there was a suggestion of some
discrepancy accountable for by age (older and
younger firms used distributors more often).
These results, however, were not statistically
significant.
Ialso examined the use of distributors for the
purchase of high-tech versus low-tech inputs
(regardless of firm characteristics). Cross tabu-
lation of. this relationship indicates there i s a
statistically significant difference between firm
use of distributors for each type. This confirms
an earlier implied hypothesis that firms will
purchase low-tech goods locally and factory-
direct with greater frequency than they do high-
tech inputs. We also tested for differences in
the percentage of high and low-tech goods
manufactured locally. As anticipated given the
nonlocal nature of high-tech markets, there was
a stat ist ical ly significant difference between the
percentages of high and low-tech goods man-
ufactured locally. Respondents indicated that
the low-tech goods they purchased were man-
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Merchant Wholesalers 413
ufactured locally more often than were high-
tech inputs.
Certain inputs, such as office supplies and
equipment, were overwhelmingly acquired
through distributors (more than 95 percent).This finding may reflect that office supplies
consist of hundreds of discrete but standard
items (pens, pencils, paper) bought in relatively
small lots. Given the broad range of products,
nosingle producer is likely to manufacture them
all. Moreover, the vast number of markets (often
small in size) inhibit the efficient use of strictly
factory-direct sales. Instead producers rely on
distributors to reach wide-ranging markets. In
contrast, office equipment i s produced by rel-
atively few large firms. Factory-direct pur-chases are no doubt made by large corpora-
tions with national accounts, but the broad
range of this market also necessitates the use
of distributors.
These results contrast with general findings
about the spatial location of industrial linkages.
Previous studies verifying the importance of
local proximity in the purchase of high-tech
inputs may erroneously equate local purchase
via distributors with local production. Clearly
these results suggest greater precision i s nec-
essary t o establish distinctions between goods
produced locally and those purchased hrough
intermediaries.
I originally anticipated that the use of dis-
tributors would vary basedon the type of prod-
uct and the age, ownership, and size of estab-
lishment. But firms used distributors mostly
regardless of these classifying characteristics.
Further examination of the data to determine
whether increases in local purchases resulted
in more factory-direct purchasing ndicated that
regardless of the share of purchases made lo
cally, firms used distributors for the acquisition
of inputs.
A shortcoming of this analysis i s that we did
not determine the dollar value of all inputs pur-
chased through distributors. While a great vol-
ume of material may be purchased through
these intermediaries, it is st i l l possible t ha t crit-
ical (high-value) inputs are purchased factory-
direct. Respondents were asked what per-
centage of their input purchases consisted of
goods manufactured locally. For the residual
input, we asked what percentage was pur-
chased factory-direct and what percentage was
acquired through a distributor. On the basis of
the original study, we cannot definitively in-
dicate the quantitative importance of distrib-
utor linkages.
A follow-up study currently underway will
determine what percentage of inputs byvalue)
are purchased through distributors. Quantita-tive information about the percentages of in-
puts purchased locally versus factory-direct or
through distributors i s being collected. In this
second study, additional distinctions are being
made concerning the types of inputs pur-
chased through distributors and the use of dis-
tributors with stocking locations in Austin. Pre-
liminary results support the assertions of the
implied importance of distributors examined
here. As this second study i s incomplete, I can-
not make quantitative generalizations about theresults, nor can I discern purchases made be-
tween local and nonlocal distributors. None-
theless, survey results are important first indi-
cators of the use of distributors. Future findings
will help substantiate the importance of this
relationship in industrial complex formation.
Conclusions
The evolution of wholesaling in central Texas
illustrates he importance of interregional trade
in new industrial complex formation. This re-
lationship should not be surprising. Results only
confirm the suggestions of Pred, Vance, and
Meyer that complex formation rarely results
solely from endogenous forces and i s instead
importantly facilitated by trade agents origi-
nating outside a region. Because the existing
literature is dominated by the vertically inte-
grated firm presumed to internalize distribu-
tion functions (obviating the importance of ex-
ternal distribution channels), trade agents have
gone largely unnoticed. But the development
of new industries, expansion of sectoral and
geographic markets, and the growing impor-
tance of entrepreneurial firms all establish the
need to consider distribution channel structure
when analyzing industrial linkage formation.
Of equal importance is the geographic ex-
pansion of the wholesale function. These re-
sults validate insights found in both Vance's and
Meyer's early treatments of wholesaling and
regional development. In particular, the evo-
lution of wholesaling in Austin closely follows
Vance's original notion of internalization. As
the city's economic base specialized more and
more in high-tech manufacturing, Austin be-
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414 Glasmeier
came a profitable location for national whole-
salers. Eventually, by offering superior service
and variety, national and regional wholesale
firms came to dominate the area’s high-tech
wholesale market. Local firms retreated to verygeneral and mostly nontechnical product lines.
This study also confirms Meyer’s original hy-
pothesis about the progression of wholesaling
developing across regions. (Initially a whole-
saler’s reach stretches from an agglomeration
to a frontier location, in this case from San An-
tonio to Austin). His model did not adequately
address the power of national firms and their
ability to penetrate a frontier location, eroding
any geographic advantage associated with ini-
t ia l proximity.A mixed channel strategy i s the dominant
sales structure of manufacturing firms. Few en-
joy the luxury of dealing directly with original
equipment man ufac u r ers (OEMs). Both t ime
and place constraints often prohibit factory-
direct transactions. While we might correctly
assume that large incorporated firms pursue a
rational material acquisition strategy, purchas-
ing policies of small firms and newly established
enterprises often border on chaos and exhibit
limi ted premeditation. More mportantly, smallfirm order size i s simply too small and therefore
costly for OEMs to service. Consequently there
is no alternative to using distributors.
A growing body of current research focuses
on production-based explanations for indus-
trial complex development. Examination of
wholesale distributors questions this singular
explanation of complex formation and linkage
establishment. As Vance and Meyer noted, the
growth of regions i s governed by a process of
internalization. Primary stages of development
are facilitated by firms that trade-in from the
outside. After some point, local consumption
may precipitate local production for goods
which require tailoring or are standard and
therefore face far-reaching local demand. Scott
rightly identifies activities suchas mold making,
metal fabricating, etc. as following the pattern
(1988). This analysis does no t deny the impor-
tance of existing theoretical insight. Rather I
simply state that the evolution of such activity
alone does not make an industrial complex. In
particular, time and place constraints often
preclude a local production-based solution to
even the most basic material acquisition prob-
lem. The interplay of demand for goods man-
ufactured outside and those traded-in facili-
tates the demand for local production of
standardized goods. The transactions cannot
be viewed in isolation. They must be consid-
ered jointly to explain the diversity of produc-
tion experiences found i n different locations.The persistent importance of wholesalers in
the local economy simply underscores he point
that firms use mixed channels to distribute their
goods and by implication buy material inputs
from both internal and external agents. Future
linkage studies must therefore go beyond ask-
ing whether a good i s purchased ocally. As this
analysis has attempted to demonstrate, the an-
swer to this question is just as likely to lead to
the warehouse of a distributor as to the loading
dock of a manufacturer. We must acknowledgethat new production mandates call for increas-
ing use of distributors (as firms attempt to im-
plement JIT inventory practices).
It is also critical t o understand the choices of
distribution channels selected by firms over thelives of bot h he product and the firm. We must
delve further in to the workings of firms to dis-
cover how they select and then carry out their
marketing strategies. Here Ihave suggested dis-
tributors’ importance in the early formation of
a complex. I have stressed the fact that as someform of industrialization takes hold in a local
economy, wholesalers are attracted to service
new specialized needs. S t i l l unexplored i s the
role of distributors in the evolution and even-
tual integration of complexes over time. For
example, are wholesalers only important in the
absence of prior industrialization? Anecdotal
evidence from Pittsburgh, a former industrial
c i t y which aspires to become a high-tech cen-
ter, suggests initial aspirations are not being met
with the formation of local manufacturing link-
ages. Instead the c i t y i s the recipient of sales
offices and wholesale distributors of high-tech
manufactured goods. O n the basisof the results
reported here, the first stages of industrial de-
velopment may quite regularly consist only of
trading agents who would eventually be ac-
companied by local production as the complex
takes root. Thus there i s a need to examine the
transformation of complexes as they grow,
change and mature, and intraregional produc-
tion relations unfold.
New industrial complex formation i s expe-
dited by the activities of market intermediaries.
While it might be appropriate to view major
complexes and longstanding agglomerationsas
self-contained systems, some of their suste-
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Merchant Wholesalers 415
nance i s clearly determined by firms’ abilities
t o reachout to ne w econ omic centers. Th roug h
examination of the complex interplay between
existing and ne wly for mi ng agglomerations, w e
can enhance our understanding of the evolu-t ion of th e space economy.
Acknowledgments
The author would like to thank the University Policy and Research Institutes of the University of Texas
a t Austin for support of this research. Students n he
regional research seminar of the Graduate Program
of Community and Regional Planning participated in
the design, development, and implementation of the
survey. Their assistance was essential to the comple-tion of this project. The author wishes to thank Amy
K. Teran for substantive discussions and editorial as-
sistance during the various phases of the manuscript’s
life. The author would also like to thank the reviewers
who provided invaluable criticism of earlier drafts,
and whose comments greatly strengthened the the-
oretical argument. Finally, special thanks to Bennett
Harrison, FIavia Martinel li, Erica Schoenberger, Mor-
gan Thomas, William Beyers, Mary Beth Pudup, and
Barney Warf for comments on earlier versions of this
paper. As always, any and all omissions are attribut-
able to the author.
Notes
1. But as Hoare 1985) notes, these historic studies
(i.e., Wise’s examination of the Birmingham gun
and jewelry industries) were based only on visual
observation, not surveys of firms’ material input
requirements or markets. When scholars have
studied quintessential industrial quarters (e.g.,
London), they have found that less than half of al l
firms had any local linkages whatsoever.
2. Wholesale establishments increased 43 percentbetween 1972 and 1982, the last year for which
data were collected by the U.S. Department of
Commerce. Over the same time, the percentage
of manufacturing declined nationally.
3. For example, David Harvey notes the historic im-
portance of merchants in the spatial organization
of production in Paris 1985). lntrametropolitan
clusters of households producing highly divisible
goods, suchas silk flowers, came together in space
for the convenience of the merchant. Harvey ar-
gues that the merchant created the division of
labor and producers clustered near merchants to
gain access to markets and material inputs.
4. By analogy, the same can be said about local pro-
duction; as long as local consumption is less than
sufficient to support local production, then ex-
change with producers from outside is efficient.
5. The degree of specialization may be determined
by demand a t the origin of the wholesaler and not
a t the frontier location.
6. The extent that a firm relies on internal manufac-
tur ing versus off -the-shelf parts buying depends
fundamentally on product type. If the product is
a n assembly of off-the-shelf components such as
a computer, then a firm will buy the parts needed
and assemble the good. But i f the product s highlytailored for a specific end-user and requires the
manufacture of unique parts, then the firm is likely
to fabricate the inputs within the firm.
7. Developing a sample framework for conducting a
local survey of firms is a difficult endeavor. No
single source of data provides a comprehensive
list. Unlike the federal government, which draws
names and addresses from the internal Revenue
Service and Social Security systems, except for tax
purposes, no local or state government organi-
zation has power t o enforce a firm’s response to
inquiries. Thus, there is no effective mechanism
for developinga complete directory of firms. Oftenlocal and state guidebooks are based on imprecise
collection methods which resort to such sources
as word-of-mouth or new firm announcements n
the media.
The use of the phone book (while adding to the
potential capture rate of interview subjects) has
additional limitations. Firms pay a fee for listing
their businesses n the telephone directory yellow
pages. This means that some small establishments
that may not be able to afford the costs of adver-
tising or that may not have a local market either
cannot or will not purchasea directory listing. Also
firms classify themselves. Advertisers decide the
industrial categories within which they wish to be
listed. Therefore some companies could be er-
roneously classified as manufacturers when they
are in fact manufacturers’ representatives, distrib-
utors, or consultants. As partial compensation for
this potential bias, firms which do advertise in the
phonebook are more likely to sell their goods lo-
cally or a t least want to have a visible local pres-
ence.
Another problem wi th local data sources is dif-ficulty in maintaining the currency of firm lists.
Updating the database when firms are no longer
in business, have changed their form of business,
or have merged is particularly problematic, es-pecially when trying to establish a measure of the
universe of firms.
8. Contact the author for further details about the
sample characteristics.
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