Chapter 3- Natural Resources

The largest US foreign direct investment (FDI) in Latin America was in nitrates and copper in Chile, copper, lead, and zinc in Peru, and tin in Bolivia.

American companies were involved in mining a wide range of minerals including asbestos, chrome, coal, diamonds, gold, nickel, platinum, silver, tungsten, and vanadium.

American Smelting and Refining and Anaconda Company (1895-1980s) were two of the major US enterprises active in Latin American mining.

The US owned oil industry. The first oil well in the world was drilled in Pennsylvania in 1859.

Initially, kerosene was the primary use for petroleum, however, it was later used as fuel oil as a substitute for coal and as gasoline for internal combustion engines.

The United States remained the world's leading oil producer until 1914.

Standard Oil Company became the largest corporation in the United States and the world, due to its control over pipelines and refineries.

Standard Oil also exported oil, built refineries abroad, and made modest investments in oil production outside the United States by the early 20th Century.

European banks, like the Rothschilds and Deutsche Bank, played a significant role in shaping the early petroleum industry by investing in foreign oil producers and establishing distribution networks across Europe.

In 1886, the Paris branch of the Rothschild banking family purchased a Russian oil producer, transforming it into the largest exporter of Russian kerosene. They also established distribution networks in Western Europe.

Deutsche Bank, a prominent German bank, acquired a leading Rumanian oil producer in 1903 and developed a vertically integrated oil business, including distribution companies across Europe.

The Shell Transport & Trading Company (British) and the Royal Dutch Petroleum Company (Dutch) were two major players in the European oil industry.

Shell and Royal Dutch Petroleum formed joint ventures and other short-term partnerships, but these were often limited due to challenges, such as the sequestration of German assets during World War I and the Soviet nationalization of Russian oil in 1917.

Balfour Williamson, a prominent figure, developed the largest oil company in California in 1913.

Weetman Pearson, a key player, discovered oil in Mexico in 1908, further expanding the reach of the oil industry.

The emergence of Shell and the discovery of new oil reserves like those in California and Mexico led to the decline of some companies like Deutsche Bank and the Nobel family in the petroleum industry.

The Anglo-Persian Oil Company, initially formed by a syndicate, was later controlled by the British government, seeking to secure reliable oil supplies for its navy and reduce reliance on foreign oil.

The discovery of oil in Iran was a major turning point for the global oil industry, laying the foundations for the British government's involvement in the Middle East.

World War 1 highlighted the strategic importance of oil as a critical resource, fueling demand and leading to a global search for new reserves.

Competition for oil concessions intensified in the Middle East, where vast reserves were suspected, as global powers like Britain sought to secure their energy needs.

The discovery of oil in Iraq in 1927 marked a significant step in the development of the Middle East's role as a global energy hub.

In the 1930s, the focus shifted from oil shortage to overcapacity, exacerbated by the Great Depression, altering the dynamics of the global oil industry.

The Anglo-Persian Oil Company, later renamed British Petroleum (BP), became a key player in the global oil industry, reflecting British dominance in the early 20th century.

The involvement of governments in the oil industry, evident in the British government's stake in BP, highlighted the geopolitical significance of oil.

The increasing demand for minerals and foodstuffs from industrialized nations in Europe and the US led to a global search for new sources of supply. This fueled the expansion of mining activities in search of natural resources like nonferrous metals (e.g., aluminum, nickel) to meet the rising demand.

New discoveries of minerals and other resources in remote parts of the world prompted companies to invest directly in their extraction. These investments were facilitated by improved communication methods and cheaper transportation costs.

The expansion of global trade saw companies specializing in specific stages of production. For example, some companies focused on extraction, while others specialized in processing or marketing the resources.

Lever Brothers, later known as Unilever, invested significantly in securing palm oil supplies for their soap manufacturing. They established large plantations in the Belgian Congo, demonstrating the strategic importance of raw materials for manufacturing industries.

The growth of global trade created opportunities for companies to expand their operations and influence across the world, including the acquisition of plantations and investments in resource extraction.

The desire for control over resources and the need to secure supplies for industries led to significant investments in resource extraction. This often involved companies gaining control over plantations, securing concessions, and engaging in direct investment in remote locations.

The pursuit of resources often involved companies venturing into new markets and regions, even if they presented risks. These risks could include political instability, conflicts over ownership, and unforeseen challenges in remote locations.

The expansion of global trade and resource extraction was driven by a combination of factors including entrepreneurship, new technologies, and political considerations. Concessions, political stability, and favorable policies all played a role in shaping the global resource landscape.

A situation where one company controls multiple parts of the production process, from raw materials to finished products, to increase efficiency and reduce dependence on other companies.

The unique features of a specific asset, like a mine or factory, that make it difficult or expensive to replace or use in another industry.

The potential for one party in a transaction to take advantage of the other, due to differences in information or power.

Significant disparities in knowledge or access to information between different parties involved in a transaction.

Describes the costs associated with finding, negotiating, and monitoring transactions in a market.

The process of companies expanding their operations beyond their national borders, often through investments and acquisitions in foreign countries.

The costs associated with adapting or changing an asset to suit a new purpose or environment.

The specific and often complex factors that influence decisions about vertical integration or market transactions in various industries, including physical asset specificity, information asymmetries, and opportunistic behavior.

Information asymmetry, where one party has more information than the other, can lead to quality control problems. This encouraged vertical integration in industries like banana production, where ensuring consistent quality throughout the supply chain is crucial for success.

Companies vertically integrated in the banana industry invested heavily in specialized facilities like refrigerated ships and ripening centers to ensure the fruit arrived green at its destination and ripened properly.

Large, vertically integrated firms emerged to guarantee consistent quality and supply reliability. By controlling all stages of production, from farming to distribution, they could ensure bananas arrived at the market in optimal condition with consistent quality, reducing the risk of cheating and quality inconsistencies.

Improved quality control allowed multinational companies to introduce branded bananas, which commanded a higher price than unbranded bananas sold through arm's-length export trades. This demonstrates how strong quality control enables premium pricing and brand differentiation.

Government concessions played a significant role in the expansion of multinational corporations in the resource sector, particularly in developing countries. These concessions often involved agreements with colonial administrations, allowing companies to access land, resources, and favorable tax treatment.