June 6, 2004

International trade has always been a complex game with a host of players involved. However, British trading companies have for long been considered as the pinnacle of mercantile ability though they are described as the unsung heroes that nourished the empire and facilitated its expansion. On the flip-side, they have been demonized as the pressure group that actually prompted British imperial ambitions to subjugate most of the world. How British trading companies have been remembered by history is clearly subject to whose point of view one subscribes to.

One thing that probably both the most active protagonist and the harshest critic of British trading companies would agree on is that over the last three centuries no other mercantile grouping has had a greater impact on the development and direction of global trade and investment.

The roots of these companies go as far back as the industrial revolution in the 17th century. As the world’s leading economy and imperial power, Britain clearly was a good breeding ground for the development of a new mercantile class. By the year 1800, Britain was the manufacturing leader of the world, had done away with industrial protection in 1840, and 20 years later had become the world’s first free trade economy. With credentials as strong as that, it was not strange that the British trading class was leading the way in international trade management.

The growth of British trading companies over the past 200 years has been directly linked to Britain’s growing (and declining) influence in world affairs. The other major factor that has influenced the growth of these companies is the development of international trade over the years. In the 17th century and onwards, British trading companies became partners — even financiers — in the British expansionist agenda. This policy resulted in trading companies gaining negotiated monopolies on trade and investment in the colonies. While trading companies gained huge profits from British imperialism, they also incurred the wrath of the nationalist and independence movements in the colonies, which disapproved of them as cohorts in imperial cruelty. This stamp of indigenous disapproval would haunt British trading companies in the aftermath of imperial decline when former colonies formed their own governments which viewed the British trading companies with considerable disdain.

However throughout the early 19th and 20th centuries, British companies flourished in the era of Pax Britannia. With the opening of markets in the colonies the trading companies found new markets for British products. Also they realized that colonies had immense raw material and commodity production potential that could feed the British industrial base. This prompted these companies to act solely as trade intermediaries, benefiting from their earnings from fees and commissions that they derived from the large volume of trade turnover between Britain and its colonies.

However all intermediaries run the risk of being cut out eventually by their buyers and suppliers and the British trading companies were no exception to this rule. During the latter half of the 19th century, British imperial expansion in Africa, the Americas and Asia had created immense opportunities and the British trading companies entered into partnership with either the local traders or British expatriates in the colonies to go into commodity production and natural resources. Many of the big MNC names that are today common in every household like Unilever, Swire, Mackinnon and P&G grew into large-scale operations during this period. The opening of the Suez Canal and the British control over the world’s sea lanes also made British trading companies comfortable enough to move on from being just trade intermediaries to becoming the major source of foreign direct investment (FDI) from Britain into the colonies.

The advent of the 20th century was particularly harsh for these companies. As imperial influence declined, they had to contend with a series of external shocks such as the nationalization of their assets in some of their most lucrative markets, the great depression, the outbreak of two world wars and, most importantly, the imposition of international tariffs and trade barriers on the free movement of goods and services across borders. Pax Brittania also succumbed to the instability caused by the capitalist-communist tussle for the greater part of the century, which then was followed by the rise of Pax Americana.

There is no greater evidence of the resilience and durability of the British trading companies than that they continued to survive through the tumultuous 20th century by constantly re-adjusting to keep up with the challenges of the global trade scenario.

However, keeping up with such large scale change has left its mark. The British trading companies underwent a process of “reinvention” that changed nearly every distinguishing feature that had made them unique. The companies no longer could remain family-owned, under sole proprietors and had to enter into partnernership with local and other foreign companies to become true multinational corporations, replete with separation of ownership from management and control. They also moved to increasingly diversify into areas of manufacturing, natural resource production and provision of trade and commercial related services. Some large British trading companies moved away from centuries of diversified interests and became specialists in areas like shipping, retail or manufacturing.

The book is good source material replete with a lot of case studies as to how the British trading companies have evolved to make their mark over global trade and become common household names today. While one can find fault with some of the author’s methods such as the use of Return on Capital Employed (ROCE) as the benchmark for measuring the performance of different companies, these are minor details. The book is a valuable source of information and would be a good read for those interested in the subject.

Merchants to Multinationals — British Trading Companies in the Nineteenth and Twentieth Centuries
By Geoffrey Jones
OUP, UK. Available with Oxford University Press, Plot # 38, Sector 15, Korangi Industrial Area, Karachi
Tel: 111-693-673
Email: ouppak@theoffice.net
Website: www.oup.com.pk
ISBN 0199249997
404pp. £19.99

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