Owned, monitored, but not always controlled: understanding the success and failure of Scottish ...

344 Pages·2013·3.06 MB·English

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Owned, monitored, but not always controlled:
understanding the success and failure of Scottish
Free-Standing Companies, 1862-1910

Thesis submitted in accordance with the requirements of
the London School of Economics and Political Science
for the Degree of Doctor of Philosophy
By

Kevin Tennent
London School of Economics and Political Science
August 2009
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Declaration

I certify that the thesis I have presented for examination for the
MPhil/PhD degree of the London School of Economics and Political
Science is solely my own work other than where I have clearly indicated
that it is the work of others (in which case the extent of any work carried
out jointly by me and any other person is clearly identified in it).

The copyright of this thesis rests with the author. Quotation from it is
permitted, provided that full acknowledgement is made. This thesis may
not be reproduced without the prior written consent of the author.

I warrant that this authorization does not, to the best of my belief,
infringe the rights of any third party.

Signed…………………………………………………………...
Dated…………………………………………………………....
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Abstract

Mira Wilkins argues that the free-standing company was an important form of foreign
investment in the pre-1914 period, although its implications for economic development
in home and host countries remain unclear. The free-standing company, here defined as
a company that invested abroad without any domestic operations, was held to be at an
immediate disadvantage since it lacked competitive advantage and core competencies,
and had to rely on intermediaries. Scotland was home to at least 400 free-standing
companies between 1862 and 1900. A core debate around these firms has been the
extent to which they were entrepreneurial firms or merely devices for speculation. This
thesis examines five of these companies to analyse the role of their Scottish Head
Offices within the company. Two of these five companies operated in Australasia and
three operated in the USA. The thesis finds that the two firms operating in Australasia
were more effective in establishing control over their operations there by devising clear
command structures. They were more adept than the U.S.-based firms at using their
head office presence to establish marketing links in the United Kingdom, and also better
at internalising information and innovating to create new combinations. The
Australasian companies further had the advantage that the UK formed their main
marketplace, while domestic consumption was the main focus for the companies
operating in the US. The thesis concludes that the role of the principal based in the
home country was important for free-standing companies in establishing competitive
advantage in their operations in the host country. The Home Office is therefore key in
overcoming the lack of initial competitive advantage that Wilkins claimed
disadvantaged them. This can be attained either by a relationship of direct hierarchical
control or by close monitoring.
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Acknowledgements
A great number of people have been of assistance to me in researching for and writing
this dissertation. Firstly I would like to thank my supervisors: Dr Tim Leunig for his
criticism of my work from an economist’s viewpoint as well as his advice on style,
structure and general good practice and also his unending enthusiasm and
encouragement, and Dr Terry Gourvish for his excellent advice on improving this thesis
as a work of business history, as well as his presentational and detailed editorial
criticism of my work, and indeed his encouragement as well. I am also extremely
grateful to the LSE Economic History Department for all the support it has given me
over the last three years, especially Professor Janet Hunter for her encouragement, and
for providing me with funds from the Oakdene Trust without which it would have been
more difficult to undertake some of the travel to Edinburgh necessary to carry out the
research for this thesis. I would also like to thank my Grandfather, Robert Tennent, for
all his financial support and encouragement, as well as the Catherine McKichan Trust
for providing me with additional funding. The Business History Conference were very
generous in funding me to attend their colloquium in Cleveland, Ohio, in 2007 and their
conference in Sacramento, California, in 2008, and participants in both events gave me
much useful feedback and advice, particularly Professor Richard Sylla and Professor
Franco Amatori at the colloquium. Additionally the University of Leipzig’s Centre for
Advanced Studies Erasmus Mundus programme provided me with funds to visit
Australia to carry out further research for this thesis, for which I was extremely grateful.
I would like to thank the extremely patient staff of the National Archives of Scotland,
both at General Register House and at West Register House in Edinburgh for their
assistance, and Dundas and Wilson C.S. LLP for granting me permission to work with
the records of the Arizona Copper Company and the California Redwood Company
belonging to them held at NAS. The staff of the University of Dundee Archive Services
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and the Dundee City Library were of much aid in preparing Chapter 7. I would like to
thank my family and friends for their support throughout this project, especially my
parents. I would also like to thank Eileen Power for her excellent proof reading. I
would also like to thank various other people for their helpful advice, criticism,
encouragement and suggestions – particularly Professor Mira Wilkins of the
Department of Economics at Florida International University, Professor Mark Casson of
the Henley Business School at the University of Reading, Professor John Turner of the
Management School at Queen’s University Belfast, Dr Gerben Bakker and Dr Patrick
Wallis of the Economic History Department at LSE, Dr Stephanie Decker of the
University of Liverpool Management School, Dr David Higgins of the University of
York Management School, the participants in the LSE Cliometrics Group and the LSE
Economic History Department thesis workshop, Claire Swan of the History Department
at the University of Dundee, and my classmates in the Economic History Department
here at LSE. Lastly, I would like to thank my examiners Professor John Singleton of
the Victoria University of Wellington and Professor Leslie Hannah of the LSE for their
constructive criticism.
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Contents
List of Figures 7
List of Tables 8
Abbreviations 9
Chapter 1 – Historical Background 10
Chapter 2 – Literature Survey 38
Chapter 3 – Free-Standing Companies: Purpose, Lifetime and Origins 1862 – 1885 68
Chapter 4 - Ownership and Control – Free-Standing Companies in Australasia 101
Chapter 5 - Managing a Free-Standing Company in the long term: The New Zealand
and Australian Land Company 1877-1914 147
Chapter 6 - Ownership and Control – Free-Standing Companies in the United States 199
Chapter 7 - Livestock FSCs in the US: how far were the Scottish cattle companies of the
1880-1900 period Scottish controlled? 239
Chapter 8 - Comparative chapter: How did control vary between FSCs in different host
nations? 273
Chapter 9 – Conclusion 298
Appendices 309
Bibliography 328
Index 341
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List of Figures

Figure 3.1 Scatter Plot – effect of Nominal Capital on Company Lifetime 89

Figure 4.1 Canterbury and Otago Association Company Structure, c. 1865-1877 116
Figure 4.2 New Zealand and Australia Land Company Structure, c. 1866-1877 128
Figure 6.1 The Arizona Copper Company Structure, c. 1884 212

Figure 6.2 The California Redwood Company Structure, c. 1883-85 221

Figure 7.1 The Matador Land and Cattle Co. Structure, 1882-5 248
Figure 7.2 The Matador Land and Cattle Company, c. 1900 261
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List of Tables

Table 3.1 FSC numbers per five year period 73
Table 3.2 Scottish Free-Standing Companies Registered 1862-1885 by two digit SIC
Code 77
Table 3.3 Host Countries 80

Table 3.4 Host Continent 81

Table 3.5 Empire v non-Empire 82

Table 3.6 Paid-up Capital per country per annum (£’000s) 83
Table 3.7 Mean Lifetime for most frequent two digit SIC Codes 87
Table 3.8 Reasons for dissolution – most frequent SIC codes 90
Table 4.1 New Zealand and Australian Land Company and Canterbury and Otago
Association Land Holdings, 1877 135
Table 4.2 New Zealand and Australian Land Company Operating Profit Summary
1873-6 137

Table 4.3 Canterbury and Otago Association Operating Profit Summary 1873-6 138
Table 5.1 NZALC aggregate freehold land holdings 1879 and 1889. 180
Table 5.2 NZALC Sales of Freehold Land reported to Head Office, 1879-1906. 181
Table 5.3 Five yearly cattle and sheep numbers 192
Table 6.1 California Redwood Company and Arizona Copper Company Directors 209
Table 7.1 Cattle Company promotions in Scotland 1880-86 241
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Abbreviations

ACC Arizona Copper Company
Edinburgh based US hosted copper mining Free-Standing Company –
see Chapter 6.

C&O Canterbury and Otago Association – New Zealand pastoral FSC 1866-77
New Zealand hosted pastoral Free-Standing Company, 1866-77.

CRC California Redwood Company
Edinburgh based Californian hosted Free Standing Company in the
timber trade

FSC Free-Standing Company
The core concept of the thesis – a company that has its head office in one
country, but which exclusively operates overseas, usually in just one host
country.

NZALC New Zealand and Australian Land Company
Australia and New Zealand hosted pastoral Free-Standing Company,
which absorbed the Canterbury and Otago Association and went on to
pioneer frozen meat exports from New Zealand.

SIC Standard Industrial Classification
US Government system for categorising economic activity according to
sectors, now adopted internationally.

1 Note – for archive abbreviations, see bibliography.
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Chapter 1 – Historical Background

This chapter provides the background to this thesis and outlines the aims and purpose
of the thesis as well as the methodology followed in its production.

1.1 Introduction

This chapter looks firstly at the theory behind the Free-Standing Company (FSC)
concept, defining the term clearly as it is to be understood for the rest of the thesis.
Secondly it considers the intellectual justification for the study, emphasising the
distinctive nature of the thesis and the weight of its contribution to the existing
literature. This chapter sets out clearly the need for a consolidated study of this subject
and how this thesis will improve upon the inadequate literature surrounding the topic.
This thesis has created a consolidated survey using a business history style methodology
firstly to examine the origins, strategy and direction of Scottish Free-Standing
Companies in general, before looking more closely at the way these unusual businesses
were structured. This is especially the case at present, when there is great interest in the
long term impact of foreign investment on the Scottish economy and society after about
1850, yet little attempt has been made to separate the various strands of foreign
investment in the high Victorian and Edwardian periods. This thesis will also look
inside the company, (something not usually done by writers investigating the history of
foreign investment in general) to discover how these companies were actually run from
Scotland and whether the location of management was an important factor in the
success or failure of Free-Standing Companies. A further reason for this part of the
study is that case study literature to date has proved to be much too company-specific.