Tag Archives: business history

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.

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Computers and Business History: Mira Wilkins Prize Winner

IBM Rebuilds Europe: The Curious Case of the Transnational Typewriter
By Petri Paju (Turku) and Thomas Haigh (Wisconsin, Milwaukee).

Abstract: In the decade after the Second World War IBM rebuilt its European operations as integrated, wholly owned subsidiaries of its World Trade Corporation, chartered in 1949. Long before the European common market eliminated trade barriers, IBM created its own internal networks of trade, allocating the production of different components and products between its new subsidiaries. Their exchange relationships were managed centrally to ensure that no European subsidiary was a consistent net importer. At the heart of this system were eight national electric typewriter plants, each assembling parts produced by other European countries. IBM promoted these transnational typewriters as symbols of a new and peaceful Europe and its leader, Thomas J. Watson, Sr., was an enthusiastic supporter of early European moves toward economic integration. We argue that IBM’s humble typewriter and its innovative system of distributed manufacturing laid the groundwork for its later domination of the European computer business and provided a model for the development of transnational European institutions.

Enterprise & Society 17(2, June 2016): 265-300

DOI: https://doi.org/10.1017/eso.2015.64

URL: https://www.cambridge.org/core/journals/enterprise-and-society/article/ibm-rebuilds-europe-the-curious-case-of-the-transnational-typewriter/35D5A3FD95F5948F12754DBE07E9D89F

Free download (for limited time): https://www.cambridge.org/core/services/aop-file-manager/file/59e769bb60a7c0f73791cd84

Review by James W. Cortada (Charles Babbage Institute, Minnesota)

Prizes are awarded all the time for “best article” in a particular field, calling our attention to a well-executed, thoughtful one. But, occasionally, a prize winning article signals bigger shifts in a discipline than might otherwise be noticed. With this year’s award of the Business History Conference’s “Mira Wilkins Prize,” for the best article published in Enterprise & Society, we have such a signal.

Petri Paju and Thomas Haigh wrote “IBM Rebuilds Europe: The Curious Case of the Transnational Typewriter,” published in June 2016. They were recognized for “the best article on international business history,” the objective of this prize, but it is far more than good international business history.

The article chronicles how IBM created an internal network across eight national electric typewriter plants in post-World War II Europe to manufacture parts and to assembly these products. While electric typewriters were in great demand and IBM made what many considered to be the best one, the company created an internal network for their manufacture and distribution that transcended international borders in the decade after the war, presaging what would happen for some European products after the establishment of the European Union. But that was never solely the point—to create a European-wide market by governments—rather, it was to drive down production costs, increase demand for and the ability to deliver enough machines, while promoting IBM management’s belief that “World Peace through World Trade” could be a global objective for nations and companies. The authors trace how parts were made in one country, shipped to another, put together then sold, called the “Interchange Plan.” This experience taught IBM management how to create a more formal pan-European wide, later worldwide organization in 1949 that could manufacture, sell, and support its products called IBM World Trade. Within a half generation, World Trade did as much business as the American side of IBM.

Lessons learned in forming a pan-European typewriter business made it possible for IBM to develop a pan-European computer business that quickly dominated the mainframe business in Western Europe and in other parts of the world. Just as important, when IBM moved into the computer business, it already had factories, sales offices, and experienced employees in those countries that would become its best customers. These include Great Britain, France, West Germany, the Nordics, Italy, Spain, and a sprinkling presence in every country that eventually became part of the EU. The authors explain how the company created and learned from its “Interchange Plan,” operationally and strategically. They explored the accounting level to explain how money and budgets were exchanged across borders when governments had yet to sort out those issues, let alone even allow such exchanges.

The benefits to IBM were both obvious and extraordinary. Obvious ones included reduced operating costs for the manufacture and increased sale of typewriters. Less obvious, but ultimately more important, “this system would also foster interdependence among the various national [IBM] firms,” while spreading capabilities across multiple countries so that if one nation were to nationalize or block local IBM production, as occurred during World War II, another plant could pick up the slack. The company used its system in its public relations campaign to promote international trade through American managerial leadership and “to meet the challenges of communism” in the Cold War. Other American corporations—all of them with close ties to IBM’s management—took note of what IBM was learning and applied those lessons as well. IBM’s country organizations could also claim to be local, since each employed nationals, Fins in Finland, French in France, and so forth.

The lesson urged by these two young historians is an appropriate one at the moment: “think more carefully about the assumption that postwar globalization of European trade can be reduced to ‘Americanization’,” because IBM’s experience reflected a “hybridization of U.S. technology and management in postwar Europe.” Apply their suggestion worldwide. IBM was also prepared to experiment and operate in ways that valued expansion into new markets even at the costs of profits. That is one reason why it came to dominate the mainframe market so fast and for so many decades. The wisdom of today’s corporate fixation on shareholder value is challenged by this study of how IBM ran its typewriter business.

Perhaps the greater lesson, the more significant observation for why this prize this year is so important, lies elsewhere. For the past two decades, a month has barely gone by without an historian or economist publishing on the interactions of computing technology and business management. E&S is not alone in doing so; Technology & Culture has published some two-dozen similar articles in the new century, and Information & Culture is rapidly becoming another journal with a mix of business/information technology conversations. Petri Paju and Thomas Haigh are more than two gifted prolific article writers, they are teaching a new generation of scholars how to understand the role of information technologies and of management, business operations, and corporate strategy in a world filled with computers. Simply put, this article is seminal, worthy of being studied across multiple disciplines. The Mira Wilkes Prize Committee is to be congratulated for not letting this paper slip through the cracks.

Governance structures and market performance

Contractual Freedom and Corporate Governance in Britain in the Late Nineteenth and Early Twentieth Centuries

by Timothy W. Guinnane (Yale University), Ron Harris (Tel-Aviv University), and Naomi R. Lamoreaux (Yale University)

Abstract: British general incorporation law granted companies an extraordinary degree of contractual freedom. It provided companies with a default set of articles of association, but incorporators were free to reject any or all of the provisions and write their own rules instead. We study the uses to which incorporators put this flexibility by examining the articles of association filed by three random samples of companies from the late nineteenth and early twentieth centuries, as well as by a sample of companies whose securities traded publicly. Contrary to the literature, we find that most companies, regardless of size or whether their securities traded on the market, wrote articles that shifted power from shareholders to directors. We find, moreover, that there was little pressure from the government, shareholders, or the market to adopt more shareholder-friendly governance rules.

Business History Review, Volume 91 (2 – Summer 2017): 227-277.

DOI: https://doi.org/10.1017/S0007680517000733

Review by John Turner (Centre for Economic History, Queen’s University Belfast)

Tim Guinnane, Ron Harris and Naomi Lamoreaux are three scholars that every young (and old) economic historian should seek to emulate. This paper showcases once again their prodigious talent – there is careful analysis of the institutional and legal setting, a lot of archival evidence, rigorous economic analysis, and an attempt to understand how contemporaries viewed the issue at hand.

In this paper, Guinnane, Harris and Lamoreaux (GHL) examine the corporate governance of UK companies in the late nineteenth and early twentieth centuries. The UK liberalised its incorporation laws in the 1850s and introduced its first Companies Act in 1862. From a modern-day perspective, this Act enshrined very little in the way of protection for shareholders. However, the Appendix to the 1862 Companies Act contained a default set of articles of association, which was the company’s constitution. This Appendix, known as Table A, provided a high level of protection for shareholders by modern-day standards (Acheson et al., 2016). However, the majority of companies did not adopt Table A; instead they devised their own articles of association.

The aim of GHL’s paper is to analyse articles of associations in 1892, 1912 and 1927 to see the extent to which they shifted power from shareholders to directors. To do this, GHL collected three random samples of circa 50 articles of association for 1892, 1912 and 1927. Because most (if not all) of these companies did not have their securities traded on stock markets, they also collected sample of 49 commercial and industrial companies from Burdett’s Official Intelligence for 1892 that had been formed after 1888. However, only 23 of these companies had their shares listed on one of the UK’s stock exchanges.

GHL then take their samples of articles to see the extent to which they deviated from the clauses in Table A. Their main finding is that companies tended to adopt governance structures in their articles which empowered directors and practically disenfranchised shareholders. This was the case no matter if the company was small or large or public or private. They also find that this entrenchment and disenfranchisement becomes more prominent over time. However, GHL unearth a puzzle – they find shareholders and the market appeared to have been perfectly okay with poor corporate governance practices.

How do we resolve this puzzle? One possibility is that shareholders (and the market) at this time only really cared about dividends. High dividend pay-out ratios in this era kept managers on a short leash and reduced the agency costs associated with free cash flow (Campbell and Turner, 2011). Interestingly, GHL suggest that this may have made it more difficult for firms to finance productivity-enhancing investments. In addition, they suggest that the high-dividend-entrenchment trade-off may have locked in managerial practices which inhibited the ability of British firms to respond to future competitive pressures and may ultimately have ushered in Britain’s industrial decline.

Another solution to the puzzle, and one that GHL do not fully explore, is that the ownership structure of the company shaped its articles of association. The presence of a dominant owner or founding family ownership would potentially lessen the agency problem faced by small shareholders. In addition, founders may not wish to give too much power away to shareholders in return for their capital. On the other hand, firms which need to raise capital from lots of small investors on public markets may adopt more shareholder-friendly articles. The vast majority of companies in GHL’s sample do not fall into this category, which might go some way to explaining their findings.

A final potential solution is that the vast majority of firms which GHL examine may have raised capital in a totally different way than public companies, and this shaped their articles of association. These firms probably relied on family, religious and social networks for capital, and the shareholders trusted the directors because they personally knew them or were connected to them through a network. Indeed, we know precious little about how and where the multitude of private companies in the UK obtained their capital. Like all great papers, GHL have opened up a new avenue for future scholars. The interesting thing for me is what happens when private firms went public and raised capital. Did they keep their articles which entrenched directors and disenfranchised shareholders?

Unlike the focus of GHL on mainly private companies, a current Queen’s University Centre for Economic History working paper examines the protection offered to shareholders by circa 500 public companies in the four decades after the 1862 Companies Act (Acheson et al., 2016). Unlike GHL, it takes a leximetric approach to analysing articles of association. Acheson et al. (2016) have two main findings. First, the shareholder protection offered by firms in the nineteenth century was high compared to modern-day standards. Second, firms which had more diffuse ownership offered shareholders higher protection.

How do we reconcile GHL and Acheson et al. (2016)? The first thing to note is that most of Acheson et al’s sample is before 1892. The second thing to note is that in a companion paper, Acheson et al. (2015) identify a major shift in corporate governance and ownership which started in the 1890s – companies formed in that decade had greater capital and voting concentration than those formed in earlier decades. In addition, unlike companies formed prior to the 1890s, the insiders in these companies were able to maintain their voting rights and entrench themselves. This corporate governance turn in the 1890s is where future scholars should focus their attention.

References

Acheson, Graeme G., Gareth Campbell, John D. Turner and Nadia Vanteeva. 2015. “Corporate Ownership and Control in Victorian Britain.” Economic History Review 68: 911-36.

Acheson, Graeme G., Gareth Campbell, John D. Turner. 2016. “Common Law and the Origin of Shareholder Protection.” QUCEH Working Paper no. 2016-04.

Campbell, Gareth and John D. Turner. 2011. “Substitutes for Legal Protection: Corporate Governance and Dividends in Victorian Britain.” Economic History Review 64: 571-97.

No man can serve two masters

Rogue Trading at Lloyds Bank International, 1974: Operational Risk in Volatile Markets

By Catherine Schenk (Glasgow)

Abstract Rogue trading has been a persistent feature of international financial markets over the past thirty years, but there is remarkably little historical treatment of this phenomenon. To begin to fill this gap, evidence from company and official archives is used to expose the anatomy of a rogue trading scandal at Lloyds Bank International in 1974. The rush to internationalize, the conflict between rules and norms, and the failure of internal and external checks all contributed to the largest single loss of any British bank to that time. The analysis highlights the dangers of inconsistent norms and rules even when personal financial gain is not the main motive for fraud, and shows the important links between operational and market risk. This scandal had an important role in alerting the Bank of England and U.K. Treasury to gaps in prudential supervision at the end of the Bretton Woods pegged exchange-rate system.

Business History Review, Volume 91 (1 – April 2017): 105-128.

DOI: https://doi.org/10.1017/S0007680517000381

Review by Adrian E. Tschoegl (The Wharton School of the University of Pennsylvania)

Since the 1974 rogue trading scandal at Lloyds’s Lugano branch we have seen more spectacular sums lost in rogue trading scandals. What Dr Catherine Schenk brings to our understanding of these recurrent events is the insight that only drawing on archives, both at Lloyds and at the Bank of England, can bring. In particular, the archives illuminate the decision processes at both institutions as the crisis unfolded. I have little to add to her thorough exposition of the detail so below I will limit myself to imprecise generalities.

Marc Colombo, the rogue trader at Lloyds Lugano, was a peripheral individual in a peripheral product line, in a peripheral location. As Schenk finds, this peripherality has two consequences, the rogue trader’s quest for respect, and the problem of supervision. Lloyds Lugano is not an anomaly. An examination of several other cases (e.g. Allied Irish, Barings, Daiwa, and Sumitomo Trading), finds the same thing (Tschoegl 2004).

In firms, respect and power come from being a revenue center. Being a cost center is the worst position, but being a profit center with a mandate to do very little is not much better. The rogue traders that have garnered the most attention, in large part because of the scale of their losses were not malevolent. They wanted to be valued. They were able to get away with their trading for long enough to do serious damage because of a lack of supervision, a lack that existed because of the traders’ peripherality.

In several cases, Colombo’s amongst them, the trader was head of essentially a one-person operation that was independent of the rest of the local organization. That meant that the trader’s immediate local supervisor had little or no experience with trading. Heads of branches in a commercial bank come from commercial banking, especially commercial lending. Commercial lending is a slow feedback environment (it may take a long time for a bad decision to manifest itself), and so uses a system of multiple approvals. Trading is a fast feedback environment. The two environments draw different personality types and have quite different procedures, with the trading environment giving traders a great deal of autonomy within set parameters, an issue Schenk addresses and that we will discuss shortly.

Commonly, traders will report to a remote head of trading and to the local branch manager, with the primary line being to the head of trading, and the secondary line being to the local branch manager. This matrix management developed to address the problem of the need to manage and coordinate centrally but also respond locally, but matrix management has its limitations too. As Mathew points out in the New Testament, “No man can serve two masters, for either he will hate the one, and love the other; or else he will hold to the one, and despise the other” (Matthew (6:24). Even short of this, the issue that can arise, as it did at Lloyds Luggano, is that the trader is remote from both managers, one because of distance (and often time zone), and the other because of unfamiliarity with the product line. A number of software developments have improved the situation since 1974, but as some recent scandals have shown, they are fallible. Furthermore, the issue still remains that at some point the heads of many product lines will report to someone who rose in a different product line, which brings up the spectre of “too complex to manage”.

The issue of precautionary or governance rules, and their non-enforcement, is a clear theme in Schenk’s paper. Like the problem of supervision, this too is an issue where one can only do better or worse, but not solve. All rules have their cost. The largest may be an opportunity cost. Governance rules exist to reduce variance, but that means the price of reducing bad outcomes is the lower occurrence of good outcomes. While it is true, as one of Schenk’s interviewees points out, that one does not hear of successful rogue traders being fired, that does not mean that firms do not respond negatively to success. I happened to be working for SBCI, an investment banking arm of Swiss Bank Corporation (SBC), at the time of SBC’s acquisition in 1992 of O’Connor Partners, a Chicago-based derivatives trading house. I had the opportunity to speak with O’Conner’s head of training when O’Connor stationed a team of traders at SBCI in Tokyo. He said that the firm examined too large wins as intently as they examined too large losses: in either case an unexpectedly large outcome meant that either the firm had mis-modelled the trade, or the trader had gone outside their limits. Furthermore, what they looked for in traders was the ability to walk away from a losing bet.

But even small costs can be a problem for a small operation. When I started to work for Security Pacific National Bank in 1976, my supervisor explained my employment benefits to me. I was authorized two weeks of paid leave per annum. When I asked if I could split up the time he replied that Federal Reserve regulations required that the two weeks be continuous so that someone would have to fill in for the absent employee. Even though most of the major rogue trading scandals arose and collapsed within a calendar year, the shadow of the future might well have discouraged the traders, or led them to reveal the problem earlier. Still, for a one-person operation, management might (and in some rogue trading scandals did), take the position that finding someone to fill in and bring them in on temporary duty was unnecessarily cumbersome and expensive. After all, the trader to be replaced was a dedicated, conscientious employee, witness his willingness to forego any vacation.

Lastly, there is the issue of Chesterton’s Paradox (Chesterton 1929). When a rule has been in place for some time, there may be no one who remembers why it is there. Reformers will point out that the rule or practice is inconvenient or costly, and that it has never in living memory had any visible effect. But as Chesterton puts it, “This paradox rests on the most elementary common sense. The gate or fence did not grow there. It was not set up by somnambulists who built it in their sleep. It is highly improbable that it was put there by escaped lunatics who were for some reason loose in the street. Some person had some reason for thinking it would be a good thing for somebody. And until we know what the reason was, we really cannot judge whether the reason was reasonable.”

Finally, an issue one needs to keep in mind in deciding how much to expend on prevention is that speculative trading is a zero-sum activity. A well-diversified shareholder who owns both the employer of the rogue trader and the employers of their counterparties suffers little loss. The losses to Lloyds Lugano were gains to, inter alia, Crédit Lyonnais.

There is leakage. Some of the gainers are privately held hedge funds and the like. Traders at the counterparties receive bonuses not for skill but merely for taking the opposite side of the incompetent rogue trader’s orders. Lastly, shareholders of the rogue traders firm suffer deadweight losses of bankruptcy when the firm, such as Barings, goes bankrupt. Still, as Krawiec (2000) points out, for regulators the social benefit of preventing losses to rogue traders may not exceed the cost. To the degree that costs matter to managers, but not shareholders, managers should bear the costs via reduced salaries.

References

Chesterton, G. K. (1929) ‘’The Thing: Why I Am A Catholic’’, Ch. IV: “The Drift From Domesticity”.

Krawiec, K.D. (2000): “Accounting for Greed: Unraveling the Rogue Trader Mystery”, Oregon Law Review 79 (2):301-339.

Tschoegl, A.E. (2004) “The Key to Risk Management: Management”. In Michael Frenkel, Ulrich Hommel and Markus Rudolf, eds. Risk Management: Challenge and Opportunity (Springer-Verlag), 2nd Edition;

Historicising Business Strategy

Evolving Ideas about Business Strategy

by Pankaj Ghemawat (NYU Stern, USA and IESE Business School, Spain)

Abstract

This paper updates an earlier article published in Business History Review that concluded that by the second half of the 1990s, there had been a profusion of new, purportedly practical ideas about strategy, many of which embodied some explicit dynamics. This update provides several indications of a drop-off since then in the rate of development of new ideas about strategy but also a continued focus, in the new ideas that are being developed, on dynamics. And since our stock of dynamic frameworks has, based on one enumeration, more than doubled in the last fifteen to twenty years, updating expands both the need and the empirical basis for some generalizations about the types of dynamic strategy frameworks—and strategy frameworks in general—that managers are likely to find helpful versus those that they are not.

Source: Business History Review 90, 1-23 (DOI: https://doi.org/10.1017/S0007680516000702)

Review by Kyle Bruce (Macquarie University, Australia)

Editor’s note

Ghemawat’s 2017 paper below should not be read in isolation but as part of a round table organized at Harvard Business School that brought together historians and management scholars to discuss the origins of ideas in business and management. The results of the round table were published as a special edition of the Business History Review. In this sense, Ghemawat’s contribution to the special issue and its discussion by Chris McKenna (in the same special issue) came to an independent yet similar conclusion to that expressed by Nobel laureate Robert Shiller, who suggested “that in the age of social information networks, economists need to rethink how and why information really spreads.” (See a summary of Shiller’s ideas in The Role of Narratives in Economics).

It is laudable that the executive editors of the Business History Review created a space to disseminate the results of the round table through the journal. However, as you will read below, Kyle Bruce questions whether this is the right way to engage other management scholars in business history as, strictly speaking, the contribution by Ghemawat would be found wanting as scholarly work of international standing.

A final note is that in its comments to Ghemawat, even McKenna gets it wrong by pointing to Lotus 1-2-3 as the first spreadsheet. It actually was VisiCalc.

Having said that, the aim in this space is to generate academic debate through a blog format. So by all means do chip in.

Bernardo Bátiz-Lazo
General Editor NEP-HIS & Editorial Board member, Business History Review.

As a historian and teacher of strategy and, moreover, as a close follower of Ghemawat’s work, I was very much looking forward to his recent update of his 2002 BHR paper on the history of the sub-discipline. I habitually invoke the decade-and-a-half old piece as background reading for my Executive MBA strategy students and hitherto have experienced little, if any, pushback from students typically cagey about the words “theory” or “history”. Regrettably, I am not so sure the updated paper under review here will escape unscathed for the simple reason that it is pretty tough to follow. Let me explain.

After briefly overviewing the 2002 paper that in essence discerned a profusion of new ideas about strategy – particularly those embodying a more dynamic approach – dating from the early to mid-80s, Ghemawat introduces his new findings. After a big peak in the mid-90s, there has been a marked drop-off in new ideas, but dynamics “is a sustained interest focus of strategic innovation rather than one of passing interest” (p. 5; emphasis added). So far, so good you might think, but I started to worry about the phraseology (“strategic innovation”?) attendant on the use of analytical tools from strategy and adjacent sub-disciplines to make sense of his findings; namely, “what should one make of the drop-off overall and the shift toward more attention to dynamics? And what, if anything, should be done?” (p. 8).

Pankaj Ghemawat

Pankaj Ghemawat

Unless the strictures concerning the dreaded “so what?” question have been lifted in history journals such as BHR, I could not discern after several reads a compelling argument as to why readers should be at all bothered by the findings presented? For students of the strategy-as-practice literature, for instance, the suggestion there’s fewer models and frameworks out there for practising managers to employ is not a concern given they probably don’t use them anyway. For my MBA students who routinely complain of framework fatigue, again, the theory drop-off is not a problem. And so, for me, the remainder of the paper was rather superfluous and unnecessarily complex. Curiously, I think Ghemawat makes it so when he concludes that while it’s certain there’s been a drop-off in the “rate of development of big new strategy ideas/frameworks, it is much harder to be definite about the welfare implications” (p. 10; emphasis added). For me, this conclusion renders redundant both the ensuing “what is to be done” question he poses, as well as the next eight-and-half pages of the article devoted to “a critical assessment of frameworks new and old” (p. 2).

After several reads of these aforementioned pages, I could not really follow or appreciate the “irreversibility” and “uncertainty” dimensions utilised to assess how dynamic current frameworks really are. However, I felt comforted when Ghemawat concludes that “quite a few” of said frameworks “seem subject to some practical limitations” (p. 19). This comfort was short-lived, though, when he finishes the paper with the frustrating and seemingly throwaway line that the way forward, as it were, “is to shift some attention away from the chronologies of frameworks to historiography that attempts to assess them in some fashion” (p. 21). I immediately asked myself: “well, why didn’t he just do this, then??”

fashion-management

For me, and I trust also BHR readers, a historiographical piece embodying intellectual history, actor-network theory, or sociology of scientific knowledge to account for the “trials of strength” in strategy theory, the tension between contributions from the academy and those from business practice, and the current fascination with dynamics, would have been an easier and more interesting read. Like much being published in business and management history journals of late, Ghemawat’s paper is short on actual history and, notwithstanding the final sentence, even short on how to DO history. I was left wondering why this paper was published in this journal and asking myself what this paper’s place tells me about BHR? I have no answers for these questions but look forward to some in due course.

References

Ghemawat, P. (2002) “Competition and Business Strategy in Historical Perspective”, Business History Review 76(1): 37-74. (DOI: https://doi.org/10.2307/4127751)

The Enigma of Chinese Business Records

Discovering Economic History in Footnotes: The Story of the Tong Taisheng Merchant Archive (1790-1850)

By Debin Ma (London School of Economics) and Weipeng Yuan (Chinese Academy of Social Sciences)

 Abstract: The Tong Taisheng (统泰升) merchant account books in Ningjin county of northern China in 1800-1850 constitute the most complete and integrated surviving archive of a family business for pre-modern China. They contain unusually detailed and high-quality statistics on exchange rates, commodity prices and other information. Utilized once in the 1950s, the archive has been left largely untouched until our recent, almost accidental rediscovery. This article introduces this unique set of archives and traces the personal history of the original owner and donor. Our story of an archive encapsulates the history of modern China and how the preservation and interpretation of evidence and records of Chinese economic statistics were profoundly impacted by the development of political ideology and in modern and contemporary China. We briefly discuss the historiographical and epistemological implication of our finding in the current Great Divergence debate.

URL: http://econpapers.repec.org/paper/ehllserod/67552.htm

Distributed by NEP-HIS on 2016-9-11

Reviewed by Joyman Lee

tongtaisheng-coverpage

Cover page of the Tong Taisheng account book

Summary

This paper is the first stage in a four-part project to set out the history of the Tong Taisheng archive, the history of the firm, the history of Ningin county, and the larger North China economy in the mid-nineteenth century on the eve of the Opium War. Tong Taisheng was a medium-sized family-owned local grocery store that sold a large variety of dry goods, and the discovery of a genealogy (1903) allows the family’s history to be traced back for 16 generations, or 491 years to 1404, when the family migrated to Ningjin and started life there as farmers. Through diligence and thrift, the family business expanded, and it came to own 300 mu of land (48 acres) before a temporary setback in the 7th and 8th generation. Afterwards, the family made a comeback through commerce, invested heavily in education (as one would expect for local elites), with the result that family wealth and business stabilized to between 300-800 m. As a sign of their social status, the family was frequently entrusted with mediating and resolving village disputes at the point the archive ended in the mid-nineteenth century.

This is an impressive and ambitious project that aims to uncover the history of an extraordinary business archive in Ningjin county, Shandong province in North China. Although the data from the archive was briefly utilized by the leading Chinese economic historian at the time, Yan Zhongping, in 1955, the archive has disappeared from view until its rediscovery by the authors. Surprisingly, most of the documents were donated by a member of the lineage operating the archive (and the business) in 1935, and were simply sitting untouched in the National Library and the Institute of Economic Research of the Chinese Academy of Social Sciences, both in Beijing. According to the authors, the data amounts to ‘over 11 thousand data points of copper-silver exchange rates with transaction dates and quantities, five and six different types of silver used, loans and interest rates of clients, all in daily frequency’ (p7), as well as detailed prices of about 40 or 50 types of commodities. Moreover, it offers the opportunity to undertake an in-depth study of the Chinese accounting system, of the traditional monetary system and the impact of nineteenth-century opium trade and silver outflow, and to quantify China’s traditional marketing structure that forms the core of William Skinner’s landmark study on China’s macroeconomic regions (1964).

The authors offer a detailed description of the four categories of information available: firstly, original account books,  or journals or daily books (流水账) to record daily transactions of cash and goods in copper cash and silver, which constitute the bulk of the archive; secondly, postal account books, or general trade ledgers (交易总账), which were sorted by the name of the business house or customer; thirdly, summary account books, with information on strung coins account, profits and dividend account; and fourthly, miscellaneous account books, with details of temporary dealings and transactions, and accounts of loans, land purchases, and income from interest on loans. The entire archive was in traditional Chinese format with string-bound Chinese paper, was hand-written in classical Chinese, and requires specialized learning and expertise to decipher.

tongtaisheng

General trader ledger account from 1846, reflecting the ‘four columns’ (四柱法) system in traditional Chinese accounting

Comment

The richness of the archive should be self-evident, and it is all the more extraordinary in light of the paucity of detailed economic information on pre-imperial China. As the authors highlight, much of Robert Allen’s (2011) critique of the eighteenth-century Chinese data used by Kenneth Pomeranz (2000), centers on the data’s alleged imprecision in relation to Europe. As the authors put it, the paucity of Chinese historical data is in itself an intriguing historical question, as it invites us to question whether it is the result of poor record keeping, or whether it is more a reflection of the poor state of archival collection given China’s tumultuous modern history. Similarly, it will be valuable for scholars to consider whether China’s alleged lack of rich historical data is indeed suggestive of the lack of a high level of economic development or rationality compared to Europe.

As the authors point out, part of the need for uncovering and developing the Tong Taisheng archive is epistemological. Because of the invisibility of the type of sources that the archive represents – due partly to political manipulation – academic researchers in China have become unfamiliar with the bookkeeping and accounting methods in the documents. The disappearance from view of these documents meant that researchers came to be predisposed towards source materials that were more familiar to Western eyes. The unenviable consequence was an interpretation of the past through a “European” or colonial framework (p17).

Owing to the originality of the sources, Ma and Yuan’s ongoing study of the Tong Taisheng business archive is likely to be highly important not only for Chinese business history, but also for the business history of other non-Western regions plagued by similar problems of the paucity of data, as well as the lack of awareness among researchers of types of documents that are very different from the ones familiar to Western researchers.

Additional References

Allen, R, Bassino, J, Ma, D, Moll-Murata, C, Van Zanden, J. 2011. “Wages, Prices, and Living Standards in China, 1738-1925: In Comparison with Europe, Japan, and India”. Economic History Review 64, S1: 8-38.

Pomeranz, K. 2000. The Great Divergence: China, Europe, and the Making of the Modern World Economy. Princeton, NJ: Princeton University Press.

Skinner, W. 1964. “Marketing and Social Structure in Rural China”. Journal of Asian Studies 24: 3-43.

A Gift From Europe to the World: Globalization, Capitalist Expansionism and Professional Bicycle Road Racing

The History of Professional Road Cycling

by Jean-François Mignot

Abstract:

Why did cycling become professional as early as the late nineteenth century, while other sports (such as rugby) and other sport events (such as the Olympic Games) remained amateur until the 1980s? Why are the organizers of the most important bicycle races private companies, while in other sports such as soccer the main event organizer is a nonprofit organization? To what extent have bicycle races changed since the late nineteenth century? And how does cycling reflect long-term economic changes? The history of professional road cycling helps answer these questions and understand many related phenomena. This chapter provides a long-term, historical perspective on (1) professional road cycling’s economic agents, i.e., the public, race organizers, team sponsors and riders, and the relationships amongst them; (2) cycling’s governing body, the International Cycling Union; and (3) professional cycling’s final product, i.e., the show of bicycle races. More precisely, the chapter mostly focuses on the history of male professional road cycling in Western Europe since the late nineteenth century. It is founded on both an analysis of quantitative time series on the Grand Tours (and, to some extent, the classics) and a review of the existing literature on the history of professional cycling, whether economic history, institutional history, cultural history, or sport history.

URL: http://EconPapers.repec.org/RePEc:hal:journl:halshs-01326719

Distributed by NEP-HIS on 2016-10-02

Revised by: Stefano Tijerina, Ph.D.

The professionalization and commercialization of sports illustrates the forces of capitalism in action, as its culture and institutional structures transition from the local to the global in response to the demands of the market and the increasing interdependence among multiple private and public stakeholders. In his brief history of professional road cycling Jean-François Mignot demonstrates how the sport is transformed throughout the twentieth century as it transitioned from amateur to professional. Mignot argues that the professionalization of this sport anticipated many other international sports because the forces of capitalism pressured the athletes to abandon their amateur status early on in order to secure an income.[1] His research reveals the early infiltration of the private sector within the culture of cycling in Europe, the institutional transformation of the sport, the market’s impact on the institutional structure of bicycle racing, and its integration into the global system. Ultimately, his historic analysis allows the possibility of drawing parallels with the processes of transformation experienced by other goods, commodities, and services that adapted to the inevitable pressures of the expansion of capitalism.

tour

Jean-François Mignot’s research shows that the idea of organizing road race competitions around the commonly used bicycle emerged from the desire of newspapers across Europe to sell more newspapers through this new and creative marketing scheme. Newspapers in France, Belgium, Spain, and Italy began organizing races on public roads in the late 1800s to show the public that human and bicycles could cover vast distances across flat and mountainous terrain. As indicated by Mignot, early races of 25 to 70 hours in duration covering 250 to 400 kilometers became epic sporting events of duration and perseverance among extraordinary European athletes.[2] The media’s construct of these epic figures created the thirst for road cycling, but it was the fact that the spectator standing on the side of the road was only able to watch the spectacle for a few seconds and depended on the print media to recreate the rest of the race, that pushed newspapers into the sponsorship business. It was this interdependent relation between spectator, athlete, and newspapers that inspired the print media industry to organize these road races, hoping that races would become magnets for advertisement sales. As indicated by Mignot, “cycling fans demanded more information” and “pictures of the race,” and the race organizing newspapers were interested in supplying the demand by covering the races in detailed form as they watched circulations increase.[3]

The one-day races or “Classics” and the three-week “Grand Tours” became the backbone of professional road racing in Europe. By the 1930s newspapers had monopolized the sponsorship of the events, while fans filled the roadways accompanied by publicity caravans “that distributed product samples to spectators.”[4] Meanwhile bicycle and tire companies became the sponsors of teams, as individual riders were replaced by teams that worked on behalf of the stars that made up the top cycling teams in Europe.[5]

giroditalia

In the early stages of professionalization, cycling stars did not receive any wages and were therefore forced to secure their income through race earnings. The increase in the popularity of the sport was followed by the increase in riders’ income.[6] The interdependent relations necessary for the expansion of capitalism slowly developed; increasing sales motivated the newspapers to improve the quality of the spectacle by increase the race winnings, forcing the sponsors to offer better wages in order to recruit and maintain the loyalty of the top cyclists, ultimately attracting more fan-base that in turn attracted other secondary sponsors that turned the caravans into marketing spectacles as well. This became even more lucrative as other means of communication joined in, particularly radio and later on television.

Jean-François Mignot points out at the first three decades of the Cold War was a period of crisis for the sport in Europe, emphasizing that urbanization and the increasing sales of motorcycles forced bicycle manufacturers to decrease their team sponsorship funding and ultimately sending the salaries of professional riders in a downward spiral.[7] This, argued Mignot, forced the professional rider to seek sponsorships outside of the bicycle world.[8] The stars and their teams began to tap the “extra-sportif” market for sponsorship and this market segment was quick to capitalize on the opportunity.[9]

Jean-François Mignot points out that sponsoring newspapers and bicycle companies interested in protecting their own profit margins opposed the penetration of “extra-sportif” sponsors by trying to control the rules of the sport in order to impede their participation, but at the end the market forces prevailed.[10] This European crisis that unfolded between the 1950s and 1980s was in fact the initial era of global commercialization of the sport. Mignot’s Euro centrism impedes him from moving beyond the region’s Grand Tours and Classics, not recognizing that the “extra-sportif” sponsorships that challenged the status quo took professional cycling outside of Europe and introduced it to the rest of the world. For example, by the 1950s radio transmissions of the European races were common in distant places like Colombia where their own private sectors had replicated the European business model and established lucrative professional road races to supply the local demand for professional bicycle road racing. The first edition of the Colombian Grand Tour, La Vuelta a Colombia, was organized in 1951, and by then several local Classics like the Tunja-Bucaramanga and the Medellín-Sansón were already engrained in the Colombian cycling culture. As in the case of Europe, local newspapers like El Tiempo became interested in sponsoring the local Grand Classic as a means to increase sales and circulation, but contrary to the European distrust of “extra-sportif” sponsors, the Colombian organizers welcomed other private local sponsors including the national airline Avianca, the Bavaria brewery, Avisos Zeón and the Flota Mercante Grancolombiana.[11]

The crisis of professional bicycle road racing in Europe described by Mignot was certainly caused by a decreasing popularity of the sport and the internal struggles over the monopoly of the sponsorship and management of the sport, but it was also the market’s response to the emergence of other professional sports in Europe as well as the professional cyclist’s ability to capitalize on the globalization of the sport. It was an illustration of how, in a capitalist system, the internal saturation of a market led to the natural expansion into other global markets, as in the case of Colombia in the 1940s and 1950s.[12]

vueltaespana1960ho-1

Such was the case of French Born, José Beyaerst, the 1948 Olympic road race champion who moved to Colombia after the Second World War, winning the second edition of the Vuelta a Colombia in 1952 and later on establishing a career as the coach for the Colombian national cycling team.[13] Beyaerst would make Colombia his home, developing the professionalization of the sport and becoming a key player in what would later become one of the cycling powers of the world. The expansionism of the sport would reach all corners of the world between the 1950s and the 1980s, it was a period of crisis for Europe as Mignot points out but it was a glorious time for global professional bicycle road racing.

Television was the game-changer, spearheading the resurgence of professional cycling in Europe in the 1980s. Taking advantage of the integration of Europe, race organizers capitalized on the magic of television to attract new European audiences, redesigning the stage circuits of the Grand Tours (Giro d’Italia, Vuelta a España, and the Tour de France) with the intention of tapping new urban centers that were outside of Spain, France, and Italy.[14] Television also globalized the European Grand Tours, introducing the cycling stars to the world, providing an opportunity for sponsors to reach a global audience, selling commercial air space, and as a result increasing revenues, salaries and profits for the whole sport.

Jean-François Mignot points out that the globalization of the sport also impacted the nature of cycling teams. By the 1980s the teams competing in the Grand Tours were no longer made up of Spanish, Italian, and French riders; their nationalities diversified and so did their sponsors.[15] Although Mignot highlights the fact that by 1986 the American Greg LeMond had won the Tour de France, Colombia’s Lucho Herrera had conquered the Vuelta a España (1987), the Russian Evgueni Berzin the Giro d’Italia (1994), and the Australian Cadel Evans the Tour de France (2011), he does not point out that these foreign cyclists also brought with them new local sponsors that then began to compete with European sponsors.[16] Mignot avoids talking about the American Lance Armstrong, leaving a large gap in the history of the globalization of the sport, considering that the American rider won seven consecutive Tour de France championships (1999-2005) before the US Anti-Doping Agency and the Union Cycliste Internationale stripped him from his titles after a doping scandal. Although LeMond popularized cycling racing in the United States it was Armstrong that converted it into a multi-billion dollar industry bringing in American brands such as RadioShack and Motorola into the world of cycling.

lucho-herrera-un-jardinero-que-fue-rey-montan-l-ey0_lr

Jean-François Mignot’s research illustrates how the sport expanded globally as the Western World exported the idea of the professionalization and commercialization of cycling, taking advantage of the expansion of Western culture across the world, the increasing leisure time and incomes of the global population, and the increasing communications technology that allowed viewers from across the world to connect with the live stage by stage action of the Grand Tours and the Classics. Nevertheless, his Euro centric approach impedes him from explaining how the professionalization of the sport evolved outside of Europe. Although Mignot clarified early on that his analysis centered on Europe, this approach weakened his argument regarding the globalization of the sport and its repercussion on the European construct, as foreigners began to conquer and dominate the sport as in the case of Americans Greg LeMond and Lance Armstrong, or the current stars South African born Christopher Froome and the Colombian climber Nairo Quintana. The incorporation of a broader global perspective would have allowed Mignot to test whether or not the professionalization of the sport in other markets was also spearheaded by other local newspapers or if on the contrary other media and non-media-based sponsors jumped on this business opportunity. It would have also been important to identify when professionalization took place in other markets to compare whether or not the influence of the European sport transcended the borders in a timely manner or even identifying political, economic, social, and cultural factors that delayed its expansion into other global markets. Moreover, it would have been important for Mignot to link the policies of the Union Cycliste Internationale to the globalization of the sport, as well as the escalation of global competition among bicycle manufacturers, and the global competition between scientists, technological designers, and pharmaceutical industries that centered on the legal and illegal preparation of the current athlete.

[1] Jean-François Mignot. “The History of Professional Road Cycling.” HAL archives-ouvertes.fr, https://halshs.archives-ouvertes.fr/halshs-01326719/document, June 5, 2016, p. 4.

[2] Ibid., 2.

[3] Ibid.

[4] Ibid., 3.

[5] Ibid.

[6] Ibid., 4.

[7] Ibid., 5.

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] “Vuelta a Colombia Historia.” Ciclismo colombiano – La Vuelta a Colombia. April 25, 2007. Accessed November 21, 2016. http://ciclismo.al-dia.info/index.php?option=com_content&task=view&id=13.

[12] Ibid.

[13] Kidnapping of Lucho Herrera (and José Beyaert’s Narrow Escape”. Alps&Andes, March 2000. Accessed November 21, 2016. http://www.alpsandes.com/posts/clinginquisition.com/2013/04/the-kidnapping-of-lucho-herrera-and.html

 

[14] Mignot, “The History of Professional Road Cycling,” 5.

[15] Ibid.

[16] Ibid., 6.