During the First Industrial Revolution (FIR), business enterprise identified as ‘the factory’. Europe struggled, just as Britain over control, social/political changes and same surges of growth as Britain.
The neoclassical view: (basic assumptions): treats business behaviour in a particular slice of time.
FIR: characterised by a process named collective invention (innovations circulate freely).
The dynamic view: Firms are complex units that evolve over time and have considerable differences in their structures and internal dynamics (other dimensions are dynamism relational complexity).
Joseph Schumpeter: challenged the neoclassical approach, two features: competitive habit, disequilibrium over homogeneity.
Peter Drucker: looks at technological foundations, human effort, social impact of big businesses.
Alfred Chandler: made an analysis of relationship between strategy and structure of a firm.
Edith Tilton Penrose: firms are a satisfaction of resources and competencies.
Richard Nelson and Sidney Winter: analyzed routines: the ways in which organisations are able to remember successful behaviour to maintain their leadership positions.
Stephen Hymer: competitive advantage can be built in the domestic country and then exploited abroad.
John Dunning: International activity can be explained by developing competitive advantages at the domestic country and the advantages present in the host country.
Robin Maris: firm growth is explained by self-interest of management.
Agency theory (Jensen/Meckling): explains the need to align, either through the market or by means of legal instruments, the personal interests of the subjects who sign this contracts.
(1980) Transaction cost theories (Ronald Coase): transactions were internalised due to inefficient markets. Williamson: transaction costs are costs of searching and monitoring.
Max Weber: entrepreneur is the beholder of an instrumental rationality (this makes him able to link goals with proper means).
Werner Sombart: stressed elements of entrepreneur that might have been considered deadweight.
Friedrich Nietzsche: made difference between those who are far ahead of the conventional wisdom of their times and those who only adapt to it.
Schumpeter: (most important) (right vs. Smith on left extreme): he saw the entrepreneur as an irreplaceable engine of growth. (Entrepreneur is the hero)
Middle-ground Jean-Battiste Say: described entrepreneurship as the power to unify different elements (workers/owners/financial supporters) behind the visible goal of product creation.
(Marschall): entrepreneur was portrayed in his daily activity, embedded in the company, aiming to keep the system going.
Alertness (Kirzner): the ability to recognise the opportunities that arise in markets from a misallocation of resources.
(Mark Casson): (most relevant talent): his ability to make effective decisions regarding the coordination of scarce resources. (Entrepreneur is one of us).
Kondratieff: 3 technological waves:
(1798-1842): innovation in the textile metallurgy sectors
(1843-1897): railway innovation and closely related activities
(1897-WWII): innovation in electricity, chemicals.
Preindustrial Europe: existence of cities, but mobility and urbanisation were low > society’s purchasing power was in the hands of a very small and wealthy percentage of the population.
(Also bad weather/wars > resulted in unpredictable downturns. Next to that, economy became more dynamic and people started to innovate).
Ways of manufacturing:
The putting out system: developed by the presence of cheap/flexible workers (operations moved to countryside). Master/merchant-entrepreneur: usually coordinated network of cottage workers.
Flexible because: network of labourers could be easily in/decreased, production unit was located at a household.
Hidden cost: agency-/transaction costs, no control over quality/efficiency/reliability
Craft production: higher level of sophisticated/skilled labourers. Needed in high value added industries. (Located near the source of raw materials). Guild: master and his shop were normally part of this complex organisation > rules determined quality and quantity/ also resolved conflicts/controlled internal regulatory standards/organised training/ judged process by which workers became masters.
Disadvantage: restriction of production and demand/ inhibition of innovation by controlling the techniques of craft production/ conservative (innovation was a seen as a threat).
(1820-1879): The economy of Britain grew fastest
(1879-1914): GB, Belgium, France growing fast and at the same rate.
(Belgium/Germany/Denmark/NL/Switzerland/France > agriculture fallen to less than 50%)
Water power: remained primary source of energy, but was supplemented increasingly by the steam engine.
Innovations characterising the early face of FIR:
GB already had a strong commercial sector with capacity for distributing goods and extending credit, cultural climate generally favourable to science/innovation/etc., patents.
Foremen: responsible for organising working hours/timetables and who had to manage the worker’s behaviour inside the factory.
Lack of coordination between stages of production > cluster production in same area, advantage:
Fast flow of goods and services, a plethora of skilled workers, lower cost of information, more efficient knowledge sharing.
To manage relationships with the market, it was necessary to build efficient networks of agents/representatives/or independent but associated merchants > pushed sales beyond the limits of the local market > sales network meant an increased transaction costs and management.
Challenge when willing to create new ventures or expand: finance of the day-to-day activities (start-up funds were significant barrier; worse in SIR).
In factories: fixed capital (buildings/machines) combined with working capital (materials/labour) in order to produce large quantities of standardised goods.
Difference modern factories from previous: factory gathered huge number of workers under one roof, clear separation between units of production and consumption, specialisation of labour.
Problems due to machines: complexity (required specialised workers), training and supervision required for the use of a machine, expensive. > Much energy needed: energy had to be cheap (in FIR).
Macroeconomic level: changes in the rate of economic growth, amount/quality of international trade, relative contributions of agriculture and manufacturing to GDP.
Microeconomic level: employers confronted with several issues. Governments became involved. Employers to find solutions for organising/disciplining workers (that grew in amount).
Worker’s level: radical transformation of lifestyle and underwent dramatic/difficult process associated with urbanisation.
Paternalism: such relationships were established between entrepreneurs and worker. Turned out as a very effective method of control, led to: industrial bourgeoisie (began to institute governmental rules that were aimed at mitigating the harsh aspects of the factory system)
Many workers were offended by the paternalism and the controls of the system.
Schumpeter saw the factory system as successful innovation: one that generates profits. Whole system would benefit as the economy became more efficient.
Marxist view: (on spreading of the factory system): Entrepreneurs concentrated workforce in a single location to exert a closer control > the more means of production/control, the more machinery that could be introduced and the lower labour costs of output became > specialisation reduced the skill level of workers, lowering their wages again > working class no longer able to buy industrial goods > creation of final great crisis for the capitalist system.
(Last quarter of 19th): large corporations began appearing in some of the most advanced industrialised nations (big businesses). What led to this: advances in technology and markets that finally permitted firms to reach dimensions and complexity that were previously impossible. Large variety of processes that formed the growth of large corporations (due to changes in trans./comm.) > arrival of railways changed things significantly (railway companies: 1st big businesses)
(1844): telegraph invented.
(1877): Telephone invented (Bell) > (innovations in comm./trans. found their ways to US.)
(1910): US 10x more railroad than GB (240.000 vs 20.000 miles)
3 benefits of railroads: speed, regularity, reliability:
Companies now were able to exploit a truly national market and quickly meet the needs of customers in every corner of the country. Also, firms could increase production.
Nation’s financial institution played dominant role in the spread of the railway network.
Germany: creation of the universal banks; US: creation of specialised investment banks (J.P. Morgan)
Railway companies: involved new forms of corporate management, had to manage enormous investments, large number of employees, and coordinate their activities such for safe and efficient travel > systematic division of roles (investors/shareholders vs. salaried managers).
With increasing size and complexity, managers started to delegate more tasks to other managers and lower-level employees.
Line managers: controlled the movements of people and trains, following a hierarchy.
Staff: responsible for standards and advising the managers of the functional departments.
US: railway sector developed various cartels and price-fixing agreements in an effort to control competition. Strategic and organisational know-how rapidly transferred to other industrial sectors, thanks to managers and entrepreneurs who had started their careers in the railroad sector and then embarked manufacturing.
(2nd half 19th): department stores started to appear.
US: pioneer in 2 related sectors: mail order sales and retailing chains.
The area where the transportation and communication infrastructure made its biggest impact was in manufacturing
SIR: created a distinction between the areas where the large corporation predominated and the other sectors.
1st objective of large manufacturing corporations: reach high levels of production and keep it stable.
Two considerations determining costs and profits:
nature of the manufacturing capacity that was installed
quantity of raw material put into the manufacturing operations in a given amount of time.
Volumes produced by one single plant in some industries were significant enough to meet national/global demand due to new technologies in SIR > these industries became oligopolies
SIR: no longer possible to control the complete workforce. Workers were paid higher salaries
Necessary investment to be made in distribution: high level of vertical integration is important. During SIR products became more diversified and personalised.
US: first to integrate into the distribution system were the sewing machine manufacturers, they relied on independent agents who were in charge of marketing: 2 limitations:
vendors had limited skills in operating sewing machines(could not explain how it worked)
vendors could not offer special payment terms to potential buyers
Changes because big business became very complex
Managers had the POSDCORB-group activities
Conclusions: New firms became big, set up vertically integrated distribution systems and managerial hierarchies.
US/EU fist to experience the coming of big business, the revolution of existing sectors and the development of new industries. EU nations lower global industrial production because they were smaller, had less abundant resources, and their markets were narrower.
Factors that are pertinent to a comparison of entrepreneurial actions:
market characteristics
governmental regulation of economic competition
social attitudes toward big business
cultural resources available to corporations
In the US, in the period of 1820-1929 big businesses arose, where the US market was large and extremely dynamic > the population grew and the power of consumers increased.
American paradox: Political forces that were intent on limiting the growth of large corporations. In reality > the prohibition of price arrangement and cartels brought a new wave of mergers.
In Great Britain, new technologies of mass production and increasing international competition had the biggest impact. However, GB did have challenges regarding characteristics of their markets, attitude of the public, positions taken by their legislators as regards large corporations and the education system.
Germany was quite similar to the US in terms of the public opinion being favourable towards large corporations. German banks played a significant role in the early 20th.
France was the midway between US/Germany/GB and Russia/Japan/Italy. It was lagging behind due to the French Revolution. Firms started to grow in the beginning of the 1900s, due to investments in technologies.
In Russia corporations emerged after the 1917 October Revolution. Government had a critical role in this.
In Japan the government actively supported industrialisation and created/managed companies itself. Limitations on the market and the inability to develop adequate technological competencies is what kept firms lagging behind.
Italy had mixed elements from FIR with SIR > limits of internal demand hindered growth.
The large firms in the US were the result of internal growth or mergers. Signs of success of a merger: Drop in costs per unit and significant growth in market share > firms had U-Form (unitary) > difficult to implement > Multidivisional corporation arose (M-Form) (First to adapt: DuPont/General Motors).
General Motors: objective of the merger: to restructure the organisation in order to further increase production.
Shareholder DuPont and Sloan replaced Durant and transformed GM in a multidivisional firm, where each division had its own organisation for both production and distribution.
M-Form had some draw backs for GM: top managers wanted to include the divisional managers more, whereas the owners definitely wanted to exclude them. Also, top managers started to fight the ownership’s right to veto in new investments.
Two factors that impeded owners from realising their version of M-Form they longed for:
The government’s antitrust policy
The success of GM
(Berle/Means): Ownership of shares was easily transferable > changed relationships between a corporation and its owners.
Walter Rathenau: had similar ideas of what the modern corporation should look like. Identified 2 types of shareholders:
Permanent Investors
Speculative Investors (was in conflict with management)
Both theorists were struggling with two fundamental problems:
they wanted to establish society’s role in control of the great corporations emerging from SIR
they sought to implement a stakeholder concept of corporate governance.
Difference between EU and USA
EU Evolution lagging behind. Because of market structures and by industrial public policies adopted by each country, crises/chaos, national protection of economies (no foreign investments).
Different in the role of workers. In a lot of countries (EU): workers were involved in decision making.
Management differed: US: institutions for training managers, EU: no training.
Adoption of public policies: shaped competition and entrepreneurial choices. Europeans were tolerant to setting up agreements > cartels were set up all over Europe. Those allowed their participants to benefit from relative stability in prices and demand. But limited growth/integration.
Governments played relevant role in the creation/support/ownership of investments, also a large consumer (in areas that served common good). Also tariffs (for protection) and provided financial aid.
(1930): outbreak financial crisis.
German chemical firms set up the IG Farben federation, which the aim was to restore German leadership in the world’s chemical industry that had been lost after the war. Its strategy was to take of foreign firms to penetrate promising markets.
Characteristics of the European interwar companies are that they were protectionist, corporatist and increasingly interventionist.
The growth of large companies was supported by the stock market, along with self-financing and an efficient banking system with many large institutions (banks were a key component of capitalism).
In Britain firms were supported by local/regional banks. Also, the dynamic stock market played an important role in supporting entrepreneurial initiatives.
In Italy in 1939 the IRI (institute for industrial reconstruction) was developed by the state. Worker’s participations took different forms: were given a little bit of a voice in order to prevent them from starting an uprising.
(Pre modern Japan): few social mobility, isolated, entire national economy based on rice production.
Meiji Revolution: Oligarchs, aristocrats, and samurai took control of Japan, and a political and military leader called ‘the shogun’ ruled the country. (Birth date of modern Japan).
Japan set out to create high quality human capital through education and they were importers of technology and knowledge.
Driving factors in Japan’s growth:
Merchant families began to occupy important roles in the economy
efficient educational system scattered over the country
strong central government
efficient network of road and irrigation systems
opportunity to build enterprises in a stable political and financial setting
(1894): Japan won conflict with China; 10 years later: took control over Korea; entered WWI (allied with Britain) > due to wars, economy grew even further. Wars offered positive effects on capital-intensive industries.
Reverse engineering: imitation of the Western technology for improving quality and efficiency.
The private sector became so successful, government decided to sell their firms to private entrepreneurs and Zaibatsu > financial group arose.
Zaibatsu: had a multi-subsidiary structure, based on holding companies that were fully controlled by each founding family.
(Different from M-form(US) and H-Form (EU) > had less central control than US but more than EU).
Zaibatsu relied on house banks and decentralised production structures.
Zaibatsu not only businesses in Japan, also some other small/medium sized firms.
Shosha: Zaibatsu’s trading company > provided trading services and financial liquidity.
Banto: a kind of general manager who did not technically belong to the Zaibatsu family but who through many years of employment was bound by close ties of loyalty to them.
(Outbreak WWII): contradictory situation:
struggling to survive Great Depression;
entrepreneurs were encouraged to take full advantage of the economic opportunities generated by the technologies of the SIR.
Big business was 1 of the major products of the SIR. 3 features stood out:
existence of complex organisational structures.
presence of often conflicting actors (entrepreneurs vs. managers vs. state vs. etc.).
increasingly strategic role played by R&D and products had to be protected by patents. (Number of employees in R&D departments increased impressively in 1920).
R&D: (WWII): imposed serious demands on manufacturing industries > budgets on R&D removed and expenditures increased. Raw material shortages made it necessary to come up with efficient substitutes.
(At the end of the war) research efforts intensified even further (especially in US due to Cold War)
SIR: chemical in nature.
Third Industrial Revolution (TIR): the creation of totally new industries, with new market opportunities and radical changes in at least 3 broad clusters of businesses: communications/transportations/physical materials.
Key factor: General Purpose Technologies (microchips/microprocessors)
led to a shrinking of space (Raymond Vernon): meant the reduction of physical distances.
imports/exports/foreign investments/level of immigration increased significantly.
Firms that already became big had to renew their strategies and get their position as first mover back. This enabled new firms to enter the market (particularly in computer industry).
TIR: enabled companies to expand their activities on larger scale than they could in the past. (Heavy investments in R&D contribute to cultures of learning and knowledge management).
America (Ch14) (WWII) had been the world’s leading economic power for many decades.
1950: First signs of a decline appeared. Intense competition started to show → were not prepared for this.
The wave of M&A resulted in: Conglomerates: firms that operated in a number of sectors that were unrelated. Factors that stimulated the growth of conglomerates were increasing financial pressure, global competition, developments in management science and diversification.
Strong points of conglomerates compared to other forms were the reduction in risk, the lower cost of capital and the managerial resources that could be put to better use.
1970:Economic crisis: Stagflation: high unemployment, no productivity increases, high interest rates, growing inflation decline in the amount of conglomerates
1980: The intention was to reduce the broad spectrum of as to recover some of the terrain lost from global competition: strategies of de-conglomeration were pushed.
Communism: the economic and social order created by Vladimir Lenin, following the ideas of Karl Marx and Friedrich Engels: production was going to be shared and not traded.
1924: Lenin died: 3 fractions came to forefront, namely Lev Trotsky, who stressed the importance of permanent revolution, Nikolai Bukharin, who believed that private initiative should be encouraged, and Stalin, who thought that the SU would be able to deal with the capitalistic world only if it was industrialized and had a strong army.
1925: The trusts produced 80% of GDP, and the objective was to make a profit. Two limitations of SU trusts compared to US firms were that 20% of profit was new for investment, and 80% returned to the state, and that trusts lost their marketing function over time.
The Plan (Gosplan): what and how much should be produced, which technologies should be used, location of plants, prices were determined.
1930-1950: Economy grew by double digits.
1953: Stalin died and Nikita Khrushchev attempted to limit the concentration of decision making and the supervision of economic activities. > ministries that controlled various sectors were replaced with Sovnarkhozy.
Outcomes were not favourable: the Sovnarkhozy were replaced by production associations that were the result of merging plants and integrating production functions.
Successful but still catching up. Zaibatsu slowly replaced by Keireitsu:
Principle function: assuring stability of decision-making and organisational structures (not to increase business volume or to search out opportunities).
Types if Kereitsu:
Kynyuu kereitsu
Kigyoo kereitsu
A new type of actor emerged: the large house banks that also played a dominant role in the early zaibatsu. Due to banks: groups were able to reconfigure themselves via interlinked shareholdings > vertical structure was replaced for a horizontal one.
1950-1970: shift toward M-Form (due to Americanisation): came from the Marshall Plan: was set up to provide countries with resources necessary to speed up the reconstruction of the economies.
1957: helped Europe grow: 2 pillars of Americanisation:
1. Opening markets
2. Removing trade barriers
both led to establishment: European Common Market (ECM)
Firms had to adapt their structural features to the requirements of the new market situation. > adequate managerial class had to be developed, existing structures had to be transformed.
EU firms diverted from M-From model of US as a consequence of national differences: (P.30 Joho for differences in the 4 countries)
EU managers were not comparable to US managers
EU education system was more inclined toward academic theory(not empirical evidence)
EU leaders focus on day-to-day activities, not planning in the long term
EU: little attention to marketing
EU firms remained rather small compared to American firms
European States were directly involved as corporate owners.
Nationalisation: the creation of State-controlled firms
The State-controlled enterprise had to compromise between efficiency and social goods, with the idea of boosting demand and employment back.
Begin 1980: external pressures and internal inefficiencies led to privatisation.
Noyau dure (France): stable financial and industrial investors who had to stabilise and protect management and make strategic decisions.
Heavily concentrated and based on a mixture of State, bank and personal control.
European Hybrid business system: H-Form, strong social cohesion, low transaction costs, high degree of flexibility and creativity.
Similarities of South Korea and Argentina:
Indochina wanted to support the private industry by subsidising, protecting it and grant it credits. In exchange, firms needed to strive for economies of scale.
There was strong bureaucracy.
It focused on industries with high capital intensities and well-defined technologies.
They paid special attention to the production stage and the quality of labour (lot of effort was put into training technicians/workers)
Chaebol: firms controlled by family owners who worked in tandem with their managerial hierarchies. Banks were considered to be public property.
Could boast of extensive natural resources and was characterised by substantial political instability and significant errors in the economic policy -> result: nation’s industrial development was slow, uneven and incomplete (long-term)
Grupos: diversified business groups in the hands of immigrants
1946: Juan Domingo Peron’s power rose: government policies started to favour State-owned enterprises and small firms.
1950: State change direction: tried to create balance between neo-liberalism and nationalism. Set high tariffs which did not count for imported capital assets.
1970's: Argentina stagnated again > firms entered period of crisis > government had to change policies and objectives again.
End 1980s: Again negative signs, companies and policies failed.
1990's: Reforms that should foster efficiency and motivation. The financial services industry got transformed. State enterprises were privatised and regulated sectors were liberalised.
Mercosul was created: trade agreement between Argentina, Brazil, Paraguay and Uruguay.
The process of multinationalisation involved all the advanced industrialised economies: EU and US investors invested in foreign countries (including developing ones because of their large endowments in natural resources).
(1950-1960): EU firms were catching up, US were slowly sinking deeply into dept (due to war with Vietnam).
(Late 1970s): different types of services emerged (finance/trade/services to business) Consulting service became more popular (people needed good advice/knowledge)
Using the M-Form: the largest multinational companies could adapt easily to international expansion. (R&D usually conducted in home country, creating strong dominance of the mother company).
Incentives to go abroad: absence of big internal market.
John Dunning’s study (most influential): he described OLI framework:
Ownership advantages (advantages on which a foreign firm could rely, characteristics of the company)
Location advantages (generated by resources founding the host country)
Internationalisation (referred to level of internationalisation)
Recently, multinationals in emerging countries have been able to invest successfully abroad (because: started adapting to emerging market needs and succeeded to get access to untapped resources and markets).
Bartlett and Ghoshal’s framework of organisational models: the multinational firm, the internationalisation firm, the global firm, the transnational firm.
Now conglomerates were over > businesses wanted to improve efficiency and performance.
(1960-1980): efficiency gains and a rapid decline in transport and communication costs encouraged the expansion of large companies. FDI flows increased a lot.
TIR: made firms more decentralised. New technologies also influenced internal structures:
De-verticalisation
Outsourcing
Hollowing-out
Modularity: components assembled through standardised interfaces, where innovation takes place inside each module > modular architectures allow for mass production.
Business networks: Groups of independent subjects linked by repeated cooperative relationships aimed mutual benefit and that during this process to develop learning communities.
Drawbacks: companies moving workforces abroad left people in home country without a job.
US was once again a global leader (20th century), even outperformed Japan.
(1990): success based on intrinsic factors:
Presence of efficient institutional framework
Size of the internal market
Pressures of foreign competition
Flexible capital markets
Public efforts in policies of procurement
Support of intellectual property rights
Scientific research
Extrinsic factors:
World trade levels that were greater than they had ever been
Oil prices started to drop again (thus: energy costs fell)
End of Cold war caused no more need for federal spending in military and defence industries
Bill Clinton: embraced the 3 exogenous factors. He wanted to increase productivity and wealth by supporting creativity.
American New Economy: investments grew and were done in technology-and knowledge-intensive industries. Investments worked → labour productivity grew and created jobs.
Venture capital: an innovative financing instrument that supported and sustained initiatives in technology-intensive sectors by investing in small start-ups.
High-tech new businesses required lots of capital -> institutional investors and pension funds started to invest their huge resources in the New Economy.
Re-engineering: huge layoffs and deep changes in strategies and organisational structures. Revolutionary changes in the ownership of America’s largest companies had transformed the relationship between shareholders and managers.
Roots of success (Gates/Jobs) lied in a new form of entrepreneurship: Science and hi-tech knowledge were at the core of all business initiatives and efficient instruments were available to direct appropriate financial resources into the projects.
Pressure of performance was high: fund managers kept a close eye on the performance of enterprises in which they had invested. Management should be constantly focused. > New procedures like Total Quality Management and outsourcing practices arose in order to remain as efficient as possible and more and more attention was drawn to shareholder value.
The economic performance of America in the 1990s had seemed remarkable, but because the Japanese and European economies had been shrinking in the 1990s, it stood out even more. The factors related to the decline of these economies can be found in the economic systems of Europe and Japan.
The first pillar of European-style capitalism to crumble under the pressure of the cyclical slowdown was the diffuse state ownership what was very common to almost all the economies of Continental Europe. This is when privatization started to take place.
The process of privatization went hand in hand with market liberalization. Privately owned firms were now allowed to enter markets that used to be characterized by close political control over natural monopolies. Ultimately, Europe became less competitive because the European workforce was so much protected, and because the European manufacturing sector became increasingly vulnerable to the competitive challenges of newly industrialized countries.
The Japanese economy was based on four pillars:
Industrial policies
The presence of the keiretsu
A participative model of industrial relations
An efficient banking system
This model allowed businesses to create solid, long-term investments strategies, but neither the state nor the businesses were able to transform this model when there was a radical shift in the economy in the 1980s and the 1990s. The resulting problems were intensified by ongoing deregulation in the financial sector, which was intended to increase the competition inside a traditionally rigid banking system.
The decline in the banks’ support and confidence caused managers to increasingly put emphasis on cost reduction and profitability, market shares and revenues, and at the same time searching for additional resources of finance alternative to the traditional ones. Because of this, foreign capital became more normal.
A result of the crisis is that there was a large decline in cross-shareholdings among companies. Also, the leading manufacturing industries found themselves in serious difficulties due to over-production and debt. Layoffs were massive, and the crisis had started a discussion of all the fundamentals of Japanese capitalism.
Historians are very interested in China and India in the early years of the 21st century because:
For the first time since the monumental transformation brought about by the FIR, the epicenter of the world economy shifted from the usual areas to Asia.
This groundbreaking shift in international economic history brings us full circle.
The fact that there were many peasants living in the countryside posed an advantage, because for every peasant who starts to work in a factory, productivity increases sevenfold.
In China a model was created by mixing some of the keys of the Japanese ‘miracle’ with those of the other Asian ‘’Tigers’’:
Create a relationship based on a principle of reciprocity between big businesses and the state.
Target product areas where a competitive advantage could be secured.
Provide support for the big groups considered to be the best interlocutor for a policy of rapid growth.
Schumpeterian are entrepreneurs who succeed because of their ability to speak English, and were able to create very large companies. Extremely low salaries are an essential component of the Chinese ‘’miracle’’ but no less is the fact that China was open to foreign investments.
India held a net advantage over China in terms of political climate, as it is a democracy, which as its deep roots in the presence of strong social imbalances that are reinforced by its caste system. Also, because so many in India speak English, this posed a large advantage and allowed India to follow a path that used this special resource in services.
The fact that India ranks so high in immaterial industries such as software is in good part the result of specific decisions. Unrelated diversification is a common characteristic in the economies of China and the other NICs. One distinguishing characteristic of Indian entrepreneurs is that they have strong ethical ties that guide their actions. Social entrepreneurship seems to be an intrinsic part of India’s economy.
The book ‘’business history, complexities and comparisons’’ is weaved together by three elements:
The technological system
The protagonist of this book, which is the firm.
The local context, which brings three other variables forefront;
The relationship between political powers and the business world
Culture
Extremely dynamic markets
Antitrust
A culture that valued a "search for order"
Before WWII, the American economy gravitated around large industrial corporations, and the situation in Europe was a little different. Over there, there was more active family control and greater willingness to enter into agreements on market control.
Technology’s impact was global, and no one was able to avoid the big dimensions it required, even in light of local peculiarities. It was the beginning of conglomerates and management styles based on financial reports. The Third Industrial Revolution has shrunk space and communication times. It is an era of de-conglomerations, a return to core businesses and a remorseless application of new technologies of IT and communications inside firms.
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