THE ADVANTAGES OF CAPITAL AND SIZE
Assured access to substantial capital is everywhere a source of commercial strength, and this is more pronounced in some trading activities than in others. The advantages conferred by access to supplies of capital appear to be very marked in foreign trade with tropical or subtropical countries exporting primary products, and they provide the principal explanation for the successive waves of amalgamation of firms in the West African trade and the resulting emergence of a few large predominant firms.
Although the extent of concentration in West African trade is unusually high for such a large market, a fairly high degree of concentration is a feature of the external trade of many of the so-called under-developed areas. While in some instances fortuitous circumstances have served to promote concentration (for instance, administration of certain territories in the past by chartered companies), the principal reason for the predominance of a comparatively small number of large firms seems to be the advantages offered by the possession of large capital.
The most obvious factor responsible for the heavy capital requirements is the long period over which merchants have to finance stocks in many branches of tropical trade. In the import trade there is often a long time between the placing of orders and the ultimate disposal of the merchandise, a considerable period may also elapse between the purchase of produce up-country and its eventual sale. Although bank credit is sometimes available for some of these operations, the capital requirements of the merchants are heavy.
Moreover, the capital is exposed to considerable risk, which tends to increase with the length of time over which commitments are undertaken and stocks held; this also places a premium on the possession of capital resources. The wide fluctuations in the prices of their principal exports, and the resulting variations in local purchasing power, are apt to increase the risks of trading in under-developed countries well beyond the normal commercial risks in more advanced territories. A fall in incomes is likely to bring about losses on stocks of merchandise, indeed, stocks may at times become unsaleable. Firms short of liquid resources may be unable to weather temporary adversity, or to develop stable and continuous relationships with overseas suppliers. Wide fluctuations