Entrepreneurs and Indian Transnational Business

Transnational Indian Business in the Twentieth Century

By: Chinmay Tumbe (Indian Institute of Management Ahmedabad, India)

Abstract: This article argues that migration and investment from India moved in tandem to chart the evolution of transnational Indian business in the twentieth century, first toward Southeast Asia and Africa and later toward the United States, Europe, and West Asia. With a focus on the banking and diamond sectors, the overseas investment project of the Aditya Birla Group, and the transnational linkages of India’s one hundred richest business leaders, the article locates important events, policies, and actors before economic liberalization in 1991 that laid the foundation for subsequent globalization of Indian firms.

Business History Review (Forthcoming – Published online: 12 December 2017)
https://doi.org/10.1017/S0007680517001350

Review by Niall G MacKenzie (Strathclyde Business School)

Chinmay Tumbe’s article in Business History Review, ‘Transnational Indian Business
in the Twentieth Century’ is, as the title suggests, an exploration of Indian business history at home and abroad throughout the twentieth century. The article is well-written with a number of themes present throughout which go beyond simple transnational analyses, encompassing elements of kith (networks) and kin (family) in the development of Indian business over the period set against changing migration patterns within and outwith, the Indian sub-continent. A further clear theme throughout the paper is the changing role and concomitant impact of the institutional frameworks in which Indian business acted under, both in domestic and international terms. It is on these areas that this review takes its focus.

The paper compares and contrasts twentieth century Indian migration trajectories and their impact on Indian international business connections, with a particular focus on the activities of the banking and diamond industries, as well as highlighting a number of famous Indian firms and entrepreneurs including the Godrej, Birla, and Tata families, Lakshmi Mittal, and the top 100 richest Indians using a mixture of archive data, corporate histories, biographies, and secondary materials such as magazines and newspapers. In this sense, the paper is a non-traditional business history piece that combines a variety of methodological approaches to paint a picture of Indian transnational business history over the twentieth century that distinguishes itself with its attention to rigour, a clear story arc, and the creation of a historical framework for future studies. As one may expect from Business History Review, the writing is tight, the subject matter broad but detailed in its analysis, and a number of valuable insights into how Indian business developed over the period emerge as a result.

Tumbe’s work covers both Indian domestic business activities and overseas investment activities by Indian companies over the twentieth century, offering readers an interesting and illuminating analysis of these subjects which reflect a growing interest in Indian business within business history more generally, including a special issue in Business History edited by Carlo Morelli and Swapnesh Masrani on Indian Business in the Global World, publication of the Oxford History of Indian Business by Dwijendra Tripathi (2014), the developing economies initiative at Harvard Business School which focuses on (amongst other developing countries) Indian business, a 2015 conference on Indian and South East Asian business history hosted by Harvard Business School bringing together scholars from all over the world, and a number of articles published in each of the major business, economic, and accounting history journals. In this sense Tumbe’s paper is a continuation of the growing interest in Indian business history around the world and recognition that much of the history of the country has been written from the perspective of the west, and in particular Anglo-Indian viewpoints.

Work written from the perspective of indigenous Indian scholars therefore has the potential to provide counterpoints, deeper insights, and more interesting considerations of phenomena and change that are oftentimes taken for granted by Western scholars. Indeed, much theory that has been produced in business and management has been done so within Western developed countries and typically by Western scholars. This is a point that has been raised in the Family Business Review journal by its outgoing editor Pramodita Sharma (with family business stalwarts Jim Chrisman and Kelin Gersick), who in a 2012 editorial called for more testing of existing theory, and creation of new theories by looking at ‘different institutional contexts’ as ways of doing this. This is a call that applies beyond family business however and into business and management more generally – cognizance of context and its multiple forms and applications to existing and new knowledge is something that historians are perhaps naturally familiar with and indeed drawn to, but which has value beyond history also.

Arguably the most interesting aspect of the paper (to this author at least) was the focus on the role that Indian family businesses played within the constantly evolving Indian and global institutional contexts over time, engaging domestic and international business networks and deploying their capital in different ways to address their aims and aspirations. The case of AV Birla going to study at MIT is one such example – scions of large family businesses nowadays are regularly packed off to global top institutions to gain a world class education and expose them to more of the world in preparation for taking the helm of the family business. However, according to Tumbe, in the mid-1960s India was a relatively insular looking country and business environment which suggests Birla’s decision to study at MIT was one that was more than just expanding personal horizons but was in fact, at the time, a relatively novel way of preparing Birla and the helping firm’s international expansion aspirations. Birla was then an early example of what is now a relatively standard practice in terms of preparing for the future leaders within the family business, but also of preparing the business itself by accessing and leveraging the networks that come with enrolment in top global education institutions for higher education.

One of the principal questions posted in the paper was “How and why did Indian business operations extend beyond the boundaries of the subcontinent, and was migration a relevant factor in this process?” The short answer that Tumbe’s paper provides, is that migration was a relevant factor in the process (as one might reasonably expect), but also that Indian business operations did exist beyond the boundaries of the subcontinent and the reasons for doing so were varied. In some cases, Indian businesses were accessing existing networks of Indian diaspora for soft landings abroad, in others they were seeking to expand operations due to the constrictions that were imposed on them by an FDI-hostile Indian government that resulted in domestic industrial stagnation and a strong push factor to invest abroad, requiring Indian businesses to look outwards for international expansion and growth opportunities. Kith and kin were therefore important features of such expansion with the desire to mitigate the agential risk that naturally comes with the creation of distance between operations and control as far as possible. Consistent within this is the recognition that friends and family are important in business expansion and development; Tumbe provides a demonstrable example of this in his analysis of Birla’s expansion into Antwerp and the role Vijay Mehta, a cousin of AV Birla’s best friend based in Antwerp and Bangkok, played in Birla’s first overseas investment.

Tumbe’s article is ultimately a broad sweep analysis of Indian transnational business activities and development over the twentieth century that illustrates the changing nature of business in India, the shifting institutional context, and the opportunities and constrictions that come with doing business in a developing country. Its relevance and interest to business and economic historians is clear in its historical analysis and content, but its wider applicability to understanding contemporary business and management phenomena such as resource orchestration, transnational business, and family business is also apparent. For those familiar with Indian business history it will likely confirm a number of existing thoughts and concepts, but for those who are not as familiar it provides an enjoyable and informative overview of how Indian business changed over the course of the twenties century with an array of source material that is handled well and written in an engaging fashion.

Illusions of Control

Democracy by Mistake

Daniel Treisman (UCLA)

Abstract: How does democracy emerge from authoritarian rule? Influential theories contend that incumbents deliberately choose to share or surrender power. They do so to prevent revolution, motivate citizens to fight wars, incentivize governments to provide public goods, outbid elite rivals, or limit factional violence. Examining the history of all democratizations since 1800, I show that such deliberate choice arguments may help explain up to one third of cases. In about two thirds, democratization occurred not because incumbent elites chose it but because, in trying to prevent it, they made mistakes that weakened their hold on power. Common mistakes include: calling elections or starting military conflicts, only to lose them; ignoring popular unrest and being overthrown; initiating limited reforms that get out of hand; and selecting a covert democrat as leader. These mistakes reflect well-known cognitive biases such as overconfidence and the illusion of control.

URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:23944&r=his

Circulated by NEP-HIS on: 2017-11-05

Revised by Thales Zamberlan Pereira

In his paper “Democracy by Mistake,” Daniel Treisman attempts to provide a new answer to the important question of how democracy emerges from authoritarian rule. Different from previous theories, which attribute the fall of non-democratic regimes to calculated decisions by those in power, Treisman argues that most episodes of democratization happened because dictators – like everyone else – are in fact bad at probabilities. Like all humans, but especially so given their circumstances, dictators are prone to overconfidence and the illusion of control. Living the life of confirmation bias, therefore, non-democratic regimes start to lose their grip on power making avoidable mistakes. Mistakes, of course, are only truly avoidable in hindsight, but the strength in Treisman’s paper relies on his argument that two thirds of his recorded cases of democratization do not fit the usual interpretation that dictators deliberately choose to share or surrender power when democracies start to emerge.

Chile after Pinochet – Source: http://www.bbc.com/news/uk-scotland-24014561

In the democratization by choice category, Treisman presents six common arguments from the literature and divides them into three schools of thought – democracy by bargain, splits within ruling circles, and democracy as a peace-making device. The general argument, nonetheless, is that intentional democratization happens when the ruler weights his probabilities and concludes that if he does not reduce his personal power in the short run, he will have worse problems in the long run – e.g., the dictator will have no money to fight wars or will have people with torches at his front door.

In the democratization by “bad choice” category, the mistakes that lead to democratization are, in a simplified way, the following: ignoring warnings and getting overthrown by popular revolt; calling a referendum or election— and losing; initiating or entering a military conflict—  and losing; enacting partial reforms to stabilize the regime— but undermining it; selecting a leader to preserve the regime— who destroys it; and using repression counterproductively.

To divide cases of democratization between intentional and non-intentional, Treisman analyses 218 episodes since 1800 using two definitions of democracy. The first one is a binary concept, called “qualitative,” which uses data from Boix, Miller, and Rosato (2013).  In their definition, democracy exists in a country when elections are free and competitive, the head of government is either directly elected or answerable to an elected parliament, and at least half the male population has the right to vote. The second definition of democratization is called “directional”, and it uses the Polity IV database, which measures countries regimes on a 21-point scale – from -10 for hereditary monarchies to +10 in the case of consolidated democracies. For a country to be considered a democracy, the Polity IV establishes that it must have a score of at least 6.

Some people just can’t let it go

With these categories, how can we interpret the empirical results of the paper? Is it the case that most episodes of democratization happened because dictators, overconfident in their position, made critical mistakes that ultimately undermined their power? The answer, it seems, depends a lot on what the author considers as a mistake. For example, among the episodes of intentional democratization, the end of the military dictatorship in Brazil in 1985 is categorized as a “great compromise.” I agree that this is a good example of intentional democratization due to political compromise, however, one could argue the opposite using the framework presented in the paper. It is known in Brazilian political history that the last military president in Brazil did not begin his term planning to be the last. In fact, his indecision in choosing/supporting a successor led to the strengthening of civil groups demanding increased access to the government (Dimenstein 1985). Therefore, the democratization of Brazil after 1985 also started with a dictator who was overconfident he could maintain the status quo (and who also overestimated his own relative competence). However, is this sufficient to defend the hypothesis that democracy was the outcome of individual mistakes? What about the institutional environment that allowed such significant transformations to happen? It seems that “critical mistakes that undermine power” cannot be restricted to the cognitive biases of “great men.” The fact that democratic reforms are not intentional does not necessarily lead us to the “democracy by mistake” camp.

Another issue of using multiple categories is that sometimes it is not clear which examples are really being used as a mistake. Take the “initiating or entering a military conflict – and losing” category, which account for 6-9 percent of democratization processes, according to the paper. Among the examples is the well-known miscalculated attack by the Argentine military government on the Falkland Islands in 1982. However, Treisman also uses as an example for this category Paraguay’s attack on Brazil in 1864, which started the War of the Triple Alliance. It is strange that these two episodes are bundled together because the death of Solano López (the Paraguayan dictator) was not followed by a democratic government. In fact, the data that Treisman uses also don’t assign this period to a democratic transition: Polity IV only assigns democracy to Paraguay in 1994, and Boix et al. data indicates that Paraguay became democratic in 2003. Moreover, one must not forget that Solano attacked Brazilian officials right after Brazil deposed his allies in Uruguay and potentially ended his access to important continental rivers and the sea. This could be considered a critical mistake, but I couldn’t understand if the author is considering any mistake that weakens authoritarian rule as a valid example, or if his examples are only for when the mistakes turn into a democracy. Does Solano’s choice count as a “leap in the dark” to democracy or not?

Policy IV authority trend for Brazil (with comments)

Treisman asserts that intentionalist theories find weak support in historical cases, but using behavioral science as a mechanism to explain democratic transitions seems insufficient to explain transformations that usually are larger than individuals. Treisman makes arguments such as: “neurological evidence suggests power can impair the ability to process the actions and emotions of others” (p. 28), and “physical and mental deterioration affect[ing] leaders in all systems, they are more likely to impair decision making in autocracies.” (p. 29). Nonetheless, it is surprising that even today dictatorships seem stable in the eyes of those outside it – until the day they are no more. Angola and Zimbabwe are recent examples of this. It seems that there is always the illusion of control, even if dictators stay in power. Isn’t it the case that our mistakes inevitably turn into naive memories that, if not for one detail, make us think that everything could have been different?

References

Boix, Carles, Michael Miller, and Sebastian Rosato. (2013) “A Complete Data Set of Political Regimes, 1800–2007,” Comparative Political Studies, 46 (12), pp. 1523–1554.

Dimenstein, Gilberto. O Complô que elegeu Tancredo (1985). Rio de Janeiro: Editora JB.