From Tesla to Microsoft, companies are going vertical again

Political turmoil and the rise of 'super-companies' are pushing this trend.

- Adrian Wooldridge

Much of the history of the modern corporation could be written in terms of two slogans: Ford's "From mine to finished car: one organisation", and Apple's "Designed in California, assembled in China". And much of its history in the coming years will be determined by the fading of the second of these slogans and the reassertion of the first.

In the century after 1870, corporations were shaped by vertical integration—the desire to bring as much of the production process as possible under the same umbrella. John D. Rockefeller not only owned a barrel-making factory (which, in 1888, saved him US$1.25 a barrel at a time when he was using 3.5 million barrels a year) but also owned the forest that provided the wood. Ford's giant River Rouge plant in Dearborn, Michigan, was designed to take raw materials at one end and churn out Model Ts at the other end. Ford even built a town in Brazil, modestly named Fordlandia, to provide him with a secure source of rubber for its tyres.

All this began to change in the 1970s with the cult of "focus" and "core competences". Apple got its business model from Nike, which designed its shoes in Oregon and contracted everything else out to cheap workers in the emerging world. Management gurus sang the praises of "virtual corporations" that owned nothing and relied entirely on contract workers.

The pendulum is swinging back to vertical integration once again. If Nike was the poster company of the 1980s, China's BYD, a battery maker that now controls lithium mines, owns carrier ships and manufactures electric cars, is the poster child of the coming era.

The obvious reason for this is political turmoil. The World Uncertainty Index shows that baseline uncertainty has more than doubled since 1990, and that "high uncertainty" events are getting more frequent and "uncertainty spikes" getting higher.