Energy system change is now pervasive around the world. However, the issue of reorganizing the electrical industry takes on different manifestations and problems. In different countries, energy infrastructure changes are experienced at different stages of development and under different economical, technological, and political conditions. In this chapter, we place the process of energy system change in a global context beyond what California had experienced almost two decades now. Today, the broad range of power systems that are being transformed and the types of problems encountered along the way are similar to the turn of the 21st century but have many new different needs and technologies. While there is no particular approach to energy reorganization, there are clearly patterns driven in large part by developed industrial world economic ideologies and agendas tried by many countries.
Like other industrial clusters and agglomerative economies in Wenzhou or even the whole of Zhejiang, the growth of the Liushi electrical industry was inextricably linked to the role of the specialised market. Looking at how the Liushi low-voltage electrical equipment supply market has developed, we can see that it has gone through the different stages of ‘no market and no exchanges’ to ‘exchanges with no market’ to ‘exchanges with market’, and finally to ‘market but no exchanges’.
The non-market period of 1972–80 was the initial development period of low-voltage electrical equipment in Liushi town. The production and sales of low-voltage electrical equipment were not successfully developed, neither was there a specialised market. From 1980 to 1990 there were exchanges but no stable market site. During this period, low-voltage electrical production and sales in Liushi had reached a certain size, but sales and transactions were disorderly as there was no fixed, orderly trading platform (i.e. specialised market) – the popular form for production and marketing was the so-called ‘household front shop and backyard manufacturer’ based on family plants. The period of market transition was from 1990 to 1996. During this period, Liushi’s electrical industry expanded the size of its production and marketing tremendously. The establishment and opening of the Liushi electrical equipment market site in September 1990 was an important factor for the rapidly expanding agglomerative economy of specialised electrical equipment industrial clusters at that time. Subsequently, Liushi town developed the largest specialised market for low-voltage electrical equipment in China. Within a few years, more than 1,400 electrical equipment manufacturers had clustered together across 12 square kilometres in Liushi town. The volume of transactions and total value of production from this specialised market accounted for more than one-third of the nation’s electrical equipment market, and on average there were more than 100 manufacturers per square kilometre in Liushi town at that time.
From the end of 1996, a period of market without exchanges began. During this period, large-sized enterprises further expanded their market share and scale of production, doing business via their in-house sales and marketing networks. The establishment of in-house sales and marketing networks by enterprises themselves was stimulated by local governments, insofar as separated enterprises were reorganised into group entities benefiting from economies of scale. The economic scale of some giant enterprise groups was sufficient for them to establish their own nationwide marketing networks, and they no longer needed specialised markets to provide a platform for their transactions. By 1998, the bulk of electrical equipment transactions in the specialised market belonged to individual industrial and commercial householders, and transactions by business entities in the visible market declined to only 10 per cent of the total market.
The start of grouping within Liushi’s electrical industry can be traced back to the burst of horizontal expansion during 1991–92. During this period, small manufacturers and handcraft plants which had not managed to obtain the necessary permits to continue trading were acquired by large companies such as Zhengtai and Delixi. Although these smaller sites held their own property rights independently, they were used as branch plants or workshops, and relied upon the main group for product branding and licensing. Until 1994, the expansion of enterprise groups’ production scale was still dependent on the specialised market mechanism.
The period of horizontal integration had however resulted in friction between the different plant and branch property owners, increasing the costs of corporate collaboration, management and product transactions. In view of this, the electrical industrial groups in Liushi embarked upon a programme of vertical integration from 1994 to 1996; the division of enterprises started to transfer from product specialisation to division of specialised production, design, services, transportation and sales, etc., while enterprises started to shift their sales and marketing from the visible markets to the sales and network transactions of the invisible market. This shift from horizontal to vertical integration brought about the expansion of enterprises and the quick evolution of business, resulting in the development of the modern corporation. Thus, the shift from the specialised open market system to in-house sales and marketing networks is inevitable.
According to Coase’s transaction costs theory, specialised markets and in-house sales are mutually exclusive institutional arrangements for allocating resources. According to Zhang (2000: 490), the enterprise does not replace the market with a non-market, but rather, develops the market to reduce transaction costs and become more efficient. This research develops Coase’s transaction costs theory by implying the existence of a quasi-market; in other words, the specialised markets are superseded by an alternative market mechanism.
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