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Merchants to Multinationals: British Trading Companies in the Nineteenth and Twentieth Centuries
Published by EH.NET (August 2000)
Geoffrey Jones, Merchants to Multinationals: British Trading Companies in
the Nineteenth and Twentieth Centuries. Oxford: Oxford University Press,
2000. x +404 pp. ISBN 0-19-829450-6.
Reviewed for EH.NET by Mira Wilkins, Department of Economics, Florida
International University, Miami, Florida.
Geoffrey Jones's book is on British merchant houses in the nineteenth and
especially, the twentieth centuries, trading firms that had foreign direct
investment (FDI) outside the United Kingdom. Jones is an authority on the
history of multinational enterprise; he has written extensively on
manufacturers that became multinationals and on banks that expanded
internationally; his Evolution of International Business (published in
1996) was a general history. In the present volume, he turns his attention to
British traders. And, what a rich subject this turns out to be. This is an
archive-based work that provides information not available elsewhere.
Many studies have been made of British international trade; Jones's concern is
with the companies that made this trade a reality. He is interested in how
these firms functioned and how they performed (whether these family firms
reflected a "decline" in Britain's global role). He pays attention to both
substance and form. Thus, he finds that when a number of these companies moved
from partnerships to incorporation this did little to change the pattern of
ownership and control; often incorporation was designed to perpetuate rather
than to end family dominance (p. 97).
After a brief introductory discussion on theories of multinational enterprise,
Jones tells his reader about the complex origins of the nineteenth and
twentieth century British merchant houses. He writes of the foreign merchant
houses in Britain that evolved into merchant bankers (Rothschild and Schroeder
for example) and suggests that the great majority of the leading British
merchant banks were set up by emigrant merchants. By contrast, the trading
companies as distinct from the merchant bankers tended overwhelmingly to have
British roots (p. 24), although the roots could be established by expatriates.
For example, Wilson, Sons & Co. was set up in Bahia, Brazil, in 1837 by two
brothers of British birth; the firm subsequently opened a London head office in
1845 (p. 28). Yet, frequently the distinctions between merchants and merchant
bankers was muddy (p. 42, on 1870). Interlocking partnerships, separate houses
(set up by family members and associates), new locales and shut-downs of older
ones made for a webbed network with continuities and discontinuities.
British merchants were clearly in the vanguard of the creation of the
international economy that had emerged by 1914. Their activities went with
(followed) the expansion of British imperial frontiers; yet, they also went
beyond "empire," playing a major role in Latin America. The traders were
closely connected with the expansion of British shipping. There were also
associated with the growth of overseas banks.
At home, three centers for the mercantile developments emerged: Liverpool,
London, and Glasgow (the principal trading companies, as of 1870, were
identified with each center, see p. 43). Jones shows how each group of
merchants arose and how the three centers interacted with one another. He is
careful to document the particular British exports and imports that the firms
handled and how rapidly the merchant houses engaged in trade that involved far
more than two countries.
The story that Jones unravels is global. Traders did not confine themselves to
commerce; they became involved in storage facilities (from warehouses to timber
yards), in manufacturing abroad (from jute mills to sugar mills, from silk
filatures to cotton spinning and weaving, from flour mills to breweries), as
well as in producing primary products (sugar, fruits, tea, rubber, nitrates,
coal, oil). Typically, the traders participated in banking activities,
providing credit to customers and suppliers, financing trade, and by necessity
dealing in foreign exchange; they also became active in "investment banking,"
aiding and prompting company flotations. In addition, the traders became agents
for British insurance companies. handling not only trade-related insurance but
far more extensive insurance transactions. The developments took on a jagged
and uneven process. The degree of backward integration varied substantially
from firm to firm and from one host country to another. Many of the firms
engaged in labor intensive operations and had in less developed countries huge
numbers of employees (after Bird & Co.'s merger with F.W. Heilger in 1917, the
new firm employed over 100,000 individuals in India; in 1930 Jardine Matheson
employed about 113,000 in China; in 1945, James Finlay's total work force
principally in India, Ceylon, and Kenya came to 160,000); "local" employees in
each case were supervised by relatively small expatriate staffs.
Through time, the merchants increased their diversification, in product lines
and including substantial intra-regional trade (particularly in Asia). Here,
there is, of course, the problem of defining a region. While the British
trading companies did not take part in intra-regional Latin American trade,
they did participate in intra-regional Western Hemisphere trade, thus bringing
Latin American commodities to US markets. Over the decades, on most continents,
their role in host economies deepened, with added FDIs. By 1914, Jones suggests
that the traders "functioned in part as venture capitalists, identifying
opportunities and placing potential British investors in touch with them" (pp.
50-51). This was done in the main by their assisting in floating separate "free
standing firms," that, in turn, made the overseas investments. The merchant
houses often had managing agency arrangements with the free-standing firms;
they might handle the trade of these firms; they were a critical part of the
cluster associated with the free-standing firms. Jones's work adds to the
existing literature on free-standing firms, confirming the validity of the
concept. The trading firms that Jones studies operated within business groups.
Jones is superb in showing the variety; he not only discusses the traders but
also their long-standing and complex external business relationships.
Jones knows well the stories of individual traders and reveals the differences
between and among trading houses. For 1913-1914, he ranks major firms by
estimated size of capital, by major host regions, and by "outposts," that is,
areas where the firms had a presence although not a large one (pp. 54-55).
Interestingly, of the ten "multi-regional business groups" in 1914 that he
documents, seven had a US presence, while four had Indian business (the next
highest ranking country). Typically the largest British trading companies
required a US office. However, the really sizable activities of most of these
firms was in the East, where regional trading companies were of immense
importance and also in Latin America, where the firms were crucial in
developing international trade. Only one of the multi-regional groups had
African trade; indeed, the trade with Africa seems to have been differently
constituted (pp. 75-80).
Jones is excellent in tracing the multiple problems British trading companies
faced in the years of the First World War, the 1920s, the 1930s, and of the
Second World War. It was not a happy time for companies that lived through
international commerce. As the world economy was torn asunder, these firms felt
the consequences. Jones writes that the entrepreneurial dynamism of the
pre-1914 era "looked decidedly weaker subsequently...." (p. 114). The sharp
post World War One downturn more than the War itself was the turning point.
Nonetheless, he finds that "it is robustness of the traders and their ability
to sustain 'reinvention' strategies which is so striking" (p. 350). By 1945,
the roster of British traders still closely resembled the list in 1914. In the
post-Second World War period, the companies - many of which operated within the
British Empire - now faced new uncertainties with decolonization, as the
"umbrella of British colonial rule" was removed.
The "corporate landscape" for the British trading houses changed dramatically
in the 1950s, 1960s, and 1970s. In 1958, Inchape was floated on the London
Stock Exchange, a holding company with 17 subsidiaries, based mainly in Britain
and India; beginning that year, Inchape acquired full ownership of a large
group of family trading companies with long histories in East and South East
Asia. It was in the post Second World War years that Lonrho assumed importance
as a trading company; it had its origins in 1909 as a London-based mining
enterprise in Rhodesia (now Zimbabwe); it took the name Lonrho in 1963;
meanwhile, beginning in the early 1960s, it acquired substantial trading
interests along with other investments (it remained, however, involved in
mining); in the late 1960s and in 1975, it took over the trading firms John
Holt and part of Balfour Williamson. But, finally, in the late 1990s Lonrho
divested its non-mining interests to return to its origins and concentrate on
mining. Booker McConnell (as the firm--the successor to the 1900 merger of
Booker Brothers & Co., founded in 1834, and John McConnell & Co.--was known
after 1968) diversified from a sugar trader and producer in British Guiana (the
largest property owner there in the 1920s) to a vast international business.
Jones traces the complex story of the many trading company mergers and
acquisitions. In the 1960s and 1970s, several British overseas banks bought
trading companies, but they soon sold off their non-financial assets. In the
changed post-World War II world, in the 1950s, 1960s, and 1970s, host country
groups or governments frequently acquired (often through nationalizations)
British trading companies that had important roles in their particular
economies, or alternatively, took over major parts of their international
business. It became harder for the trading companies to recruit personnel, as
the risks of retention of the very business itself multiplied.
Yet Jardine Matheson and John Swire continued on, notwithstanding Chinese
nationalizations; and Booker McConnell survived the 1976 Guyana expropriations.
In 1979, in terms of turnover, the London Times ranked Inchcape (19),
Lonrho (20) and Booker McConnell (64) among the top British "industrials." The
huge United Africa Company (UAC) was excluded from the Times list,
because it was a subsidiary of Unilever; also omitted was the sizable Jardine
Matheson, because of Hong Kong registration. Incape in 1979 operated in 44
countries and sold the products of 2,750 manufacturers.
Many of the trading companies served the automobile industry (in the first half
of the twentieth century as agencies, before sales and assembly affiliates were
established by car companies); in the post-Second World War years, as
dealerships (in the trading companies' traditional markets but also in the
United Kingdom). The British trading companies did this for American, Japanese,
German, and British car companies. Automobile industry historians have
understood this, but a scrutiny of the trading companies provides the other
side of the coin. The trading companies' experience in post-Second World War
representation beyond dealerships (i.e. as wholesalers and assembly plant
operators in their traditional markets) is explained well in Jones's volume.
In the 1960s and 1970s a number of British trading firms started to manufacture
in less developed countries in non-traditional sectors; these projects tended
not to be successful, for the trading companies had no advantage. Often these
ventures were short-lived. In search of new opportunity, companies made
investments in developed countries in a range of manufactured products; when
there was unrelated diversification, the results were frequently
As I read this book, it provoked me to ask many questions. In 1998, Jones
published an edited book, entitled the Multinational Traders, which
covered German, Dutch, Swedish, Swiss, as well as Japanese merchant houses.
That volume argued that the British were far from alone in having important
trading companies. In the present book, there are brief references to trading
companies of these other nationalities, but neither Merchants to
Multinationals nor Multinational Traders dealt systematically with
the differences by nationality in the trading in specific commodities. Why, for
example, did the large British grain traders, Sanday and Smyth, lose out to
international grain traders of other nationalities? why in the twentieth
century was Clayton more important than any British raw cotton trading house?
There are hints to the answers to these questions in Merchants to
Multinationals, but one would like to see a sequel on trading companies
involved in particular commodities that for much of the nineteenth and
twentieth centuries represented a sizable portion of world trade. These
companies participated on a large scale in intra-company commerce.
This is a splendid book. It not only delineates the trading companies'
expansion (and contraction), but also puts that story in the context of the
evolving world economy. It shows how in the first round of internationalization
before 1914, trading companies played a major role and how in the 1990s, as a
new round of globalization emerged, the trading company era was in "end game."
As the century concluded, key surviving companies were no longer "trading
companies." By the end of the 1980s, for example, Booker McConnell had become a
food distributor. Lonrho with about 190,000 and Inchape with about 50,000
employees "broke themselves up" in the mid-1990s. On the other hand, at the
close of millennium, John Swire & Sons (with 120,000 employees) and Jardine
Matheson (with 170,000) persisted. With changes in China, the trading companies
were able to return to the arena of their historical competency. Swire
participated in a variety of Chinese ventures, from Coca Cola bottling to paint
manufacture. In quite different industries, in 1996, Jardine Matheson had 70
joint-ventures in China! These multinational enterprises were, however, by the
1990s far from confined to the "China trade." Jones attributes the continuity
of these two firms to the on-going "family" control, which meant the absence of
pressure from British "capital markets," i.e. institutional investors. They
were firms that developed skills, whose management learned Chinese, and which
had "real advantages."
This book is original and subtle, careful to pick up nuances, and to delineate
properly its topic. It is a major accomplishment. Jones is ready to generalize
and to theorize, but he does not oversimplify. The book will set the reader
reflecting on British economic development and the British role in the global
economy. It is essential reading for every economic and business historian
interested in the history of multinational enterprise, in British economic
history, and also in where British business fits in the evolution of the "world
Mira Wilkins is one of the foremost authorities on multinationals and
globalisation. She wrote a two-volume study of American multinationals, as well
many other studies of this subject. On British overseas business, she coined
the phrase 'free-standing companies' to describe the large number of firms
established in Britain that operated exclusively abroad.