Andrew Carnegie steel: All You Need to Know
Andrew Carnegie steel: All You Need to Know
Andrew Carnegie (1835-1919) was a Scottish-American businessman and one of the leading industrialists of his time. He is popularly known for having built the mighty US Steel Corporation, which became the first billion-dollar company in America and put him on par with John Rockefeller as one of the richest people in history.
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History of Andrew Carnegie
Born in Dunfermline, Scotland, on November 25, 1835, Andrew Carnegie was the son of a handloom weaver. After the death of his mother when he was just 13 and his father when he was just 14, he moved with his brother to Pittsburgh in the United States to stay with relatives.
In 1853, Carnegie became an assistant telegraph operator for the Pennsylvania Railroad Company in Pittsburgh.
Two years later, at age 19, he gained employment as a telegraph operator for the Ohio Telegraph Company. His ability to quickly and accurately transcribe telegraph messages earned him the respect of his colleagues. With the outbreak of the Civil War in 1861, he joined the Union-supplied Pennsylvania militia as an assistant to its chief telegrapher in Pittsburgh.
He also worked as treasurer of the Union Pacific Railroad and rose rapidly through the ranks before resigning in 1868. In 1872, he returned as president of Union Pacific Railroad—the position he held until 1889. In 1880, he was made a director of the Union Pacific, the first time he was given a real job as an executive by a major corporation.
As president of the Union Pacific Railroad, Carnegie became interested in steel production. Because of that interest and his desire to do more philanthropic work, he resigned on December 31, 1881. He then devoted himself to making companies involved in a steel foundry and blast furnace construction more efficient and profitable, first with his own company.
The steel industry provided international business to be conducted between the US and other countries all over the world.
How Andrew Carnegie gained control of the steel business
In 1883, Carnegie, who had long desired to get into steel production but could not because he lacked capital, organized a syndicate of investors and acquired the struggling Homestead Steel Works near Pittsburgh. In 1884, he sold his ownership of his iron and bridge work to Baird & Company. The sale marked the end of the Union Iron Mills owned by Carnegie.
He subsequently purchased other steel companies near bankruptcy until he was able to form Carnegie Bros., Ltd. (later Carnegie Steel Co. and finally Carnegie Steel Company) in 1892. That company produced steel rails and the company that made armor plates for the US Navy.
When Andrew Carnegie retired in 1901, he had amassed nearly one billion dollars in investments and was considered the richest person on earth.
Benefits of vertical integration to companies such as Carnegie steel
1. Possible to Introduce Low Pricing Strategies
Vertical integration is very good for both producing companies in the same industry and the companies producing products that are complementary to the products produced by the producers.
His company, Carnegie Steel Company, could lower its production costs by owning mills and other facilities related to its main products. This enabled him to set low prices for his produce which he sold on the open market.
2. Possible to Apply Different Pricing Strategies
Carnegie Steel Company could set different prices for its produce depending on the market conditions. This allowed him to adapt his pricing strategy to improve his profits when necessary.
3. Possible to Reduce Operating Costs and Increase Profits
The company owned many mills that produced steel, which required many workers to manage them, such as by buying the raw materials or hiring staff. But since a company owns plants and machinery, it can operate them more efficiently.
In 1892, Carnegie bought a steel mill in New York. At that time, control of the mill was not its main function, so some workers were engaged in producing steel products for sale. With the opening of the new mill, Carnegie hired all his workers to produce steel rails and other products for sale instead of rail repair work. This led to increased profitability of the company.
Carnegie Steel Company was the first billion-dollar company and one of the most profitable companies in the United States. In 1901, it merged with three other companies controlled by Carnegie to form Carnegie-Illinois Steel Company, in which he owned a majority stake.
How Andrew Carnegie change the steel industry in America
He built a steel empire over the following few decades by owning the plants, raw materials, and transportation networks necessary to make steel, maximizing revenues and minimizing inefficiencies. His work was characterized by huge scale, secrecy, and financial support for educational and charitable causes. Andrew greatly contributed to the industrial revolution in the America.
Why is Andrew Carnegie steel cheaper than its competitors
During economic distress, when building costs were low and rival businesses were forced to go out of business and reduce their prices, he exploited those profits to grow his business at a rapid pace.
One of his practices was to produce steel rails in huge volumes as long as it was cheaper than producing them in small volumes. Once he acquired the market, he produced large amounts of rails and sold them for low prices. This allowed him to create a lower-cost product than other companies using the same equipment and raw materials.
Importance of Carnegie steel company
1. it was one of the first companies to have a billion-dollar annual revenue
2. it provided opportunities for its workers to gain a higher education to progress within the company or find other jobs after graduation
3. it was a leading employer of African Americans in Pennsylvania and northern cities at the time
4. it promoted and funded many philanthropies that improved society, such as libraries, hospitals, and universities.
Result of Andrew Carnegie’s sale of Carnegie steel
In 1901, Carnegie sold Carnegie Steel Company to J.P. Morgan to get out of the steel business and devote his time to philanthropic causes. The company changed its name to US Steel in 1901 and became the world’s first billion-dollar company with an initial capitalization of $1.4 billion. In 1986, U.S. Steel acquired Marathon Oil, becoming a major producer of natural gas, oil well equipment, nuclear materials for nuclear power plants, and UF6 for fertilizers (pesticides).