Summary - Business History, complexities and comparisons, Chapter 1-3, 5-11, 13-14, 16-17, 19-21, 23-24 (Course: Global Business History)
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Rijksuniversiteit Groningen (RuG)
International Business
Global Business History
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Global Business History summary
Chapter 1: Introduction
1.1 Relevant issues
The book will discuss concepts related to modern economic development, and all revolve
around one of the most important actors: business firm.
Events as recessions have made people think about firms, and how they can affect our
societies and economic opportunities. Book will also highlight evolution of firm and primary
social organization in capitalist system.
Chapters 1-3: relevant issues in history of businesses (theories on firms, concept of
entrepreneurship)
Chapters 4-6: firm between preindustrial era and First Industrial Evolution
Chapters 7-9: birth and consolidation of big business (especially US), infrastructure
(key in forming new types of production), UK Germany Russia Japan
Italy France.
Chapters 10-12: state and market between two world wars
Chapters 13-18: age of shrinking space
Chapters 19-24: globalization of today
Gain knowledge on following issues:
- Micro and macro developments: strong relationship
- Industrial revolutions = transition in terms of technological paradigms
- Entrepreneurs and managers
- Markets
- Cultures = attitude of nation towards economic activity and change
- State = guarantor of legal framework, supplier of infrastructures
- Forms of enterprises
- Varieties of capitalism
- Change and how it is unforeseeable
- Post-Chandlerism
PART 1: RELEVANT ISSUES
Chapter 2: History of business and theories of firm
2.1 Introduction
First Industrial Revolution (end of 18 th century): business enterprise has been one of most
prominent units of analysis for understanding modern economic growth. Business enterprise
has been identified with factory = British way of organizing production. Europe become
involved with this, they experienced same struggles over control, same social and political
changes, same surges of growth.
During IR1, the factory with its capital and labor concentration was not a novelty. What was
new was special combination of centralized operation with more efficient technology, which
became basic building blocks of early industrial enterprise.
Following paragraphs will discuss other theories about firms.
2.2 Neoclassical view
Treats business behavior in particular slice of time. Some basic assumptions:
- Perfect information
- Operate efficiently at lowest point of marginal cost curve
- Price-taker with few possibilities of influencing market
- Technology is exogenous
- Can be complicated by comparing with another slice in time, but how you get from 1
to 2 is not stressed
- Small-medium sized firm that performs limited number of functions.
,Neoclassical firm thus operated in highly competitive, price-oriented system, where technical
knowledge and other info could be obtained easily and at low cost.
Particular relevant around IR1: IR1 was characterized by process named collective invention
= open-source system in which usually incremental innovations circulate freely among users,
and each user contributes to increase overall knowledge.
2.3 Dynamic view
Firms studied tend to increase in size over time, due to scale economies. Given certain
technology, one expects that firms expand until point at which marginal returns start to
decrease (MO = MK). All phases of dynamic process of continuity and discontinuity,
expansion, stagnation, decline are relevant to analyses of business scholars.
Following should be considered:
- Relational complexity = organizations increasingly faced with internal and external
relationships
- Technological imperatives
- Dynamism of consumption market
- Efficiency of financial markets: have to channel resources to firm
- Presence of legal frameworks: should protect firm’s assets and facilitate trade
All these elements can force enterprise to adjust and adapt.
Cultural patterns play considerable role.
2.4 Other theories
Joseph Schumpeter
Challenged neoclassical approach. Two features:
- Competitive habit
- Disequilibrium over homogeneity
Schumpeter was interested in innovative role of firm, and how entrepreneur carried out this
innovation. Schumpeterian firms grew actively by innovating and thus strengthening
competitive position.
Large managerial corporation (50s-60s)
This kind was partly responsible for dominant position of America in period after WW2.
Understanding how large corporations became successful meant understanding economic
growth: macroeconomics (wealth of nations) were explained by microeconomics (success of
large corporations).
Peter Drucker
Big business could be best understood by looking at its technological foundations, at human
effort that went into efficient coordination of individuals, at social impact big business had in
modern capitalism.
New theoretical approaches dealt with several issues:
- Developing understanding of determinants and dynamics of firm’s growth
- Behavior policies and strategies
- Optimal architecture
Alfred Chandler
Analyzed relationship between strategy and structure (one of most important issues in
business theories). Technological regimes (scale intensity, mechanization) determine
activity, competitiveness and optimal structures of firms. Technology is an exogenous force,
whereas other theorists always saw technology as endogenous.
Edith Tilton Penrose
,Firms are a stratification of resources and competencies: modern firms first learn, then know.
Growth is explained by how firms exploit resources and human capabilities. Over time, firm
evolves and creates new knowledge and gains capabilities applicable to industry.
Richard Nelson and Sidney Winter
Introduced issue of routines. Routines = ways in which organizations are able to remember
successful behavior to maintain leadership positions. Firms and economic agents are
characterized by: bounded rationality, cumulative learning based on experiences, trial-and-
error processes. They typically reduce uncertainty by routines that lead to path dependence.
Stephen Hymer: competitive advantage can be built in domestic country, then exploited
abroad
John Dunning: international activity can be explained by firms developing competitive
advantages at home and advantages present in host
Robin Marris: firm growth is explained by self-interest of management. Managers want to
expand in order to gain more resources.
2.5 Agency theory and transaction cost theory
Elaborating on Marris, around the 1970s, the conflict between managers and shareholders
frequently became tense.
Agency theory (Jensen and Meckling, 1976) = need to align personal interest of subjects
(managers, principals and shareholders, agents) either through market or by means of legal
instruments.
Transaction cost theories (80s). Why firms exist and why is it necessary to internalize some
transactions inside the legal boundaries of the firm instead of leaving them to market?
Coase: transactions were internalized due to inefficient markets.
Williamson: transaction costs are costs related to searching and monitoring, higher in a
framework in which economic agents are characterized by: limited knowledge, bounded
rationality, inclined to act as free-riders. In this setting, internalizing is better.
2.6 Theories about modern firm
IR3 brought electronics and tele-communications which have big impact on firm’s structure
and dynamics. New coordination forms are becoming more important.
Langlois: new technologies made coordination process among firms easier and lowered
transaction costs and uncertainty. As result, coordination of production process by market
forces increased and role of large integrated managerial firms decreased. Single parts can
be made individual, independent producers.
Chapter 3: Ideas about entrepreneur
3.1 Different views on entrepreneurship
Seems so central to wealth and competitiveness that there is strong tendency to codify it for
instructional purposes and industrial policies.
Innovation and role culture played in fostering entrepreneurial action on social scale:
- Weber: entrepreneur as beholder of instrumental rationality which makes him capable
of linking goals with most proper means.
- Sombart: stressed elements of entrepreneur that otherwise might have been
considered deadweight. Elements can be labor or capital lingering beyond
denomination of property rights or formal position in company.
- Nietzsche: made difference between those who are far ahead of conventional wisdom
of their times, and those who only adapt to it.
, Schumpeter: entrepreneur as irreplaceable engine of growth, where innovation was
justification of entrepreneur’s profits. Innovation did not adapt to current market needs but
instead imposed its output on market, and a good entrepreneur kept an eye on opportunities
of innovation (not necessarily risk taker/owner).
Kondratieff: three technological waves and entrepreneur (sort of translator) identified them
and took advantage of these waves:
- 1798-1842: innovation in textile and metallurgy
- 1843-1897: innovation in railways etc.
- 1897-WW2: innovation in electricity, chemicals, automobiles
Schumpeter versus classical and neoclassical economics
Economic process in (neo)classical economics can be seen as spectrum, with Schumpeter
on right extreme and Adam Smith on left extreme.
(Neo)classical views:
Smith: most important function of businessman was to supply capital
Ricardo: stressed automatic nature of economic movements
Marx: claims that social relationship binds capitalists and workers
Later, entrepreneurship is even more neglected by neoclassical view based on concept of
market equilibrium.
Middle ground:
Jean-Battiste Say: entrepreneurship is power to unify different elements (workers, owners,
financial supporters) behind visible goal of product creation.
Marshall: entrepreneur was portrayed in his daily activity, embedded in the company, aiming
to keep system going.
Kirzner: underlined psychological dimension of entrepreneurial actions: alertness as
entrepreneur’s essence. Alertness = ability to recognize opportunities that arise in markets
from misallocation of resources.
Casson: most relevant talent is ability to make effective decisions regarding coordination of
scarce resources.
All of these see entrepreneur as one of us instead of hero like Schumpeter.
3.2 Entrepreneurship and organization
In first half of twentieth century, US were dominant on studies on rise of large organizations.
Taylor, Berle and Means, Burnham, Whyte: centrality of organization, long and slow decline
of entrepreneurship from nineteenth century.
Many different views on entrepreneurship. Cannot deny that entrepreneurship is vital part of
our modern economic, social, cultural, political systems. Main views:
- Entrepreneurship shapes modern economic, social, cultural, political systems
- Entrepreneurship depends on terrain in which it operates
PART 2: COMPANY BETWEEN PREINDUSTRIAL ERA AND IR1
Chapter 4: Preindustrial era
New combinations of capital, labor, and natural resources in order to provide customers with
goods and services they wanted. Pace of changes was slow, but taking place in all sectors of
European economies.
4.1 General features of preindustrial Europe
- Not homogeneous entity, although common aspects: lot of agriculture, mobility and
urbanization were low
- Economic were not static: population from 57 million in 1500 to 132 million in 1800.
Purchasing power in hands of very small, very wealthy percentage of population
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