Dynamic Asia

Business, Trade and Economic Development in Pacific Asia

Ian G. Cook, Marcus A. Doel, Rex Y.F. Li, Yongjiang Wang

• Publisher: Taylor & Francis
• Year: 2018
• eBook ISBN: 9780429866128
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Published in 1998, this book examines the challenges and opportunities for international business and trade in the Asia-Pacific region, highlighting the dynamic and complexities of the region.

1 The Diversification of Colonial Capitalism: British Agency Houses in Southeast Asia During the 1950s and the 1960s

NICHOLAS J. WHITE

Introduction

During the 1950s and the 1960s, British commercial firms in Southeast Asia — known as agency houses — began to pursue corporate strategies which diversified their markets and investments away from traditional spheres in the region. In becoming less Southeast Asia specific they were transforming themselves into broad-based transnational corporations within the Pacific Rim as a whole. The British firms were re-aligning themselves toward emerging prospects in the Pacific Basin. In part, this was a defensive strategy and a negative response to political changes in Southeast Asia itself. As decolonization unfolded across the region, safe colonial investments were transformed into capital at risk. In addition, however, diversification was a prospective strategy and a positive response to structural changes in the international economy; the breakdown of old colonial economic systems with the economic ‘disengagement’ of metropole from periphery, and the development of what might be termed a ‘Pacific economy’. The British business houses were not completely divesting themselves of markets and investments in Southeast Asia, but in many ways were developing new commercial linkages between Southeast Asia and the rest of the Asia-Pacific region.

The global role of the agency houses as ‘investment groups’ and their promotion and management of ‘free-standing’ companies in the period of British imperial expansion to World War One has spawned a lively and scholarly historical literature (On the investment group see Chapman, 1985; Chapman, 1988; Chapman, 1992. On the free-standing company see Wilkins, 1988; Hennart, 1994; Casson, 1994; Corley, 1994; Hennart, 1994b). Few writers, however, have considered the survival and development of these firms down to the decolonization era and beyond.¹ The agency houses in Southeast Asia did not necessarily stagnate with die aid of the British empire and the contraction of British global power. Some of the firms did find it difficult to adapt to a non-colonial world and, ultimately, foiled. Others, however, through new strategies and directions transmogrified into multi-faceted Pacific Rim transnationals. The first part of this chapter examines the evolution of the agency houses from the early nineteenth century and provides examples of their diversification after World War Two. The second section surveys the changed political circumstances which proved a major factor in pushing geographical diversification. The third part of the chapter considers the structural or economic conditions which also precipitated the spatial shift in agency-house activities. These mutually reinforcing factors were: firstly, the contracting demand for commodities such as rubber and tin; secondly, die redirection of the British economy in general towards North America and Western Europe; and, thirdly, the declining competitivenesss of British manufactures in Southeast Asia which led the agency houses to seek greater links with businesses operating throughout the Pacific Basin.

The nature of the agency house

Before the chapter explores the corporate strategies of the British agency houses, this section analyses the nature of their development in the Southeast Asia region. What were the agency houses? Firstly, they were British merchant firms originating in the early nineteenth century and concentrating on purely trading activities. These firms became known as agency houses because they secured the agencies (i.e. rights) to sell the goods of metropolitan-based, western manufacturers. The existence of successful merchant firms with expert knowledge of Southeast Asia (in which the industrialized world had confidence) helped avoid the need for manufacturers to set up local sales branches, distributive networks and production units of their own. In exchange for western manufactures and capital goods, the agency houses marketed die primary products of the Southeast Asia region.

But from the mid-nineteenth century the agency houses took on new roles as promoters of fixed investments. The classic example of this phenomenon took place in fin de siecle Malaya. Following the signing of British treaties of protection with the rulers of the Malay States from 1874, the Singapore-based merchant firms expanded into the peninsula through diversification into primary production (Drabble and Drake, 1981, pp. 300–11; Stahl, 1951, pp. 81–121; Allen and Donnithome, 1957, pp. 49–66; Puthucheary, 1960; van Helten and Jones, 1989). In so doing, Straits merchants such as Guthrie & Company, Boustead & Company, and Harrisons & Crosfield evolved into ‘investment groups’: those ‘new kinds of organizational response to the boundless opportunities of the great age of imperialism’ which appeared throughout British overseas trading networks during the last quarter of the nineteenth century (Chapman, 1985, p. 231). The reputations of these family firms were ‘used to float a variety of subsidiary trading, manufacturing, mining or financial enterprises’ (Chapman, 1985, p. 231). The Malayan merchants developed close links with the City of London as their ‘expert knowledge’ of local investment opportunities was channeled back to ‘the centre of a global information network’ where new plantation and mining companies were floated (Harvey and Press, 1990).

The case of Harrisons & Crosfield is particularly instructive. From humble beginnings as an importer of Indian tea, the firm transformed itself into a Malayan rubber producer via extensive issues on the London Stock Exchange. Hence by the 1910s, and through utilizing only limited amounts of capital, Harrisons had become the leading promoter of rubber companies in the City (Pugh, 1990, pp. 28–46; Chapman, 1985, p. 236). Many of the agency houses also extended their trading and investment interests from Singapore and the Malayan peninsula into the Borneo territories— Sarawak, Brunei and North Borneo — which were brought under formal British protection from the 1880s. However, up to the 1940s, European concessions were restricted by the protectionist idiosyncracies of White rajah rule in Sarawak, Chartered Company administration in North Borneo, and a British-advised Sultan in Brunei (Kaur, 1995; Tregonning, 1958; Horton, 1986). In addition, the ‘Singapore grip’ extended into the diverse islands comprising the Netherlands East Indies assisted by Anglo-Dutch trade treaties (Allen and Donnithome, 1957; Tarling, 1993).

In Burma, similar developments took place from the 1860s. Steel Brothers & Company built up a vast commercial portfolio encompassing Burmese rice, timber, oil, cotton and tin, with ancillary interests in imports, shipping agencies, manufacturing, rubber planting, and insurance (Braund, 1975). The firm of Wallace & Company of Bombay (with its associated partnership in London, Wallace Brothers) floated the Bombay Burmah Trading Corporation in 1864 to develop forest concessions in Upper Burma (Pointon, 1964).² The teak industry, in particular, was given a fillip by the political stability consequent upon the British annexation of Upper Burma between 1885 and 1886. In the case of oil extraction from 1886, the Glasgow-based Burmah Oil Company’s local affairs were handled by the managing agents ‘on the spot’, Finlay, Fleming & Company of Rangoon.³ In nominally-independent Thailand there was also a strong British agency house presence. British formal rule was not necessarily a pre-requisite for British agency house success. The Borneo Company had developed close links with the King of Thailand from the 1850s and in the 1880s rapidly became the leading promoter of teak production in the country. During the 1880s two more British concerns, the Siam Forest Company (later styled the Anglo-Thai Corporation) and the Bombay Burmah Trading Corporation (and hence Wallaces) also became interested in exploiting Thailand’s northern forests. In the 1900s, Guthries floated southern Thai tin companies in the City of London (Falkus, 1989).

Replicated in East Asia, South Africa, South America and India, these ‘investment groups’ provided security and ‘on the spot’ management expertise for distant City investors. The Southeast Asian houses, and their associated firms and partnerships in the metropole, were thus able to ‘control’ clusters of sterling and local currency, ‘free-standing’ companies they often did not ‘own’. At the same time, however, it should be appreciated that the agency houses continued to handle huge volumes of import-export, shipping, and insurance business as the principals of European-based enterprises. So it was that the agency houses maintained their Janus-faced roles, firstly, as the agents for manufacturers and commercial service providers and, secondly, as the managing agents of fixed investments largely in primary production.⁴ The agency houses were the linchpin of colonial capitalism linking metropolitan finance and manufacture with investment and trading opportunities in the periphery, and commanded financial resources equivalent to some of the larger industrial firms in metropolitan Britain (Chapman, 1988).

Up to the 1950s, these firms remained almost exclusively concentrated in and dependent upon Southeast Asia. The Malayan agency houses, for example, continued to promote rubber and oil palm companies to the 1930s.⁵ Steel Brothers sponsored Burmese cement-making and tin-dredging firms on the eve of the war with Japan (Braund, 1975, pp. 82–4). The British agency houses in Southeast Asia were area-specific firms, and their competitive advantage hinged upon their expert knowledge of local trading and investment conditions. The need to economize on transaction costs, the frequency of transactions and the accumulation of market-specification knowledge, had propelled British multinationals such as Unilever and Imperial Chemical Industries to make the transition from contracts with agency houses to branch selling in interwar Southeast Asia (Nicholas, 1983). But the agency houses still retained their dominant position: Southeast Asian markets were generally too small to justify costly selling or manufacturing subsidiaries and the multinationals still faced severe competitive weaknesses through their lack of local expertise. Despite the termination of business between 1941 and 1945, during the Japanese occupation of the region, the agency houses quickly re-established themselves in post-war Southeast Asia. But from the 1950s significant shifts in corporate strategy were made by the majority of these firms. Immediately noticeable was a geographical diversification of both trading activities and investments. Interestingly, the general pattern of this expansion was not spatially random. Diversification was directed toward developing opportunities in the Pacific Basin. In the early 1950s, Guthries, for example, opened an Australian office (Cunnyngham-Brown, 1971, p. 308). Bousteads also posted a manager to Australia in the later 1950s to seek ‘openings in that great Continent which may provide opportunities for the Company to expand its interests’ (Boustead & Company Ltd., 1958). This led to the formation of a number of Australasian subsidiaries whose assets were finally brought under the control of Boustead Australia Ltd. in 1977 (Drabble and Drake, 1981, p. 315).

Harrisons & Crosfield — another British Malayan firm — laid the basis of its present-day manufacturing empire in North America (particularly in fine chemicals and fertilizers) in the early 1950s (Drabble and Drake, 1981, pp. 312–3; Pugh, 1990). Significantly, in 1957, the rubber baron, Sir Eric Miller, was succeeded as chairman of Harrisons & Crosfield by Sir Leonard Paton who was closely associated with the agency house’s strategy of diversification into North American secondary industry. In the 1970s, when the independent Malaysian government placed restrictions on foreign investments, Harrisons & Crosfield executives comfortably switched the concentration of their holdings and...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Figure and Tables
• Contributor
• Preface
• Abbreviations
• Introduction
• 1 The Diversification of Colonial Capitalism: British Agency Houses in Southeast Asia During the 1950s and the 1960s
• 2 Theorizing Export-Oriented Economic Development in East Asian Newly-Industrializing Countries: A Regulationist Perspective
• 3 Competing for Transnational Corporations? The Regional Operations of Foreign Firms in Hong Kong and Singapore
• 4 The Problems of Doing Business in Pacific Asia: An Overview
• 5 The Malaysian Manufacturing Industry: Key to Sustainable Economic Development
• 6 Foreign Direct Investment in China: Patterns, Processes, Prospects
• 7 Managed or Mismanaged Trade? US-Japan Trade Relations During the Clinton Presidency
• Index