Since the late 19 century, British economic relatively declined and its growth rates first fell behind its foreign competitors, such as US and Germany. On the other hand, US became the world’s leading industrial nation before the World War I. It is a fascinating topic that many authors has been trying to unlock this secret. Chandler (1990) has provided his framework of analysis, and he tries to prove that it is the large-scale, managerial enterprises provide countries like US, Germany with international competitive organisational capabilities. From US’s case, managerial enterprise has contributed to the success of leading economics; however, only to a small extent it can be applied in differing national circumstances. There are enormous lacks in Chandler’s analyse. Moreover, different countries have different situation and management characteristics. Managerial enterprises can be applied successfully in US, but it probably can’t be applied successful in nations with different circumstances. In this essay, Chandler’s (1990) study on managerial enterprise will be introduced, and also critically analysed by considering the enterprises and industries in UK, US, Germany and Japan. Firstly, this essay is going to introduce Chandler’s framework of analyse on managerial enterprise, and present how it contribute to German and US’s economic success by referring cases in different industries. This is followed by discussions on the weakness of Chandler’s analysis by referring to other authors’ view, so as to show to what extent managerial enterprises can be applied in corporations worldwide.

In Chandler’s (1990) book scale and scope, he has analysed the largest 200 firms in manufacturing industry from each of the countries: UK, US and Germany, in order to prove that managerial enterprise has contributed to the firms’ economic success. Managerial enterprise has been defined as “those industrial concerns where decisions as to current production and distribution and those involving investment in facilities and personnel for future production and distribution are made by hierarchy of lower, middle and top salaried managers” (Chandler, 1995: 13). While the agriculture decreased, the industrial transformation increased dramatically. In the mid-nineteen century, as the development of railways exploited economics of scale, managerial enterprises appeared in commerce and industry (Schmitz, 1993). After that, managerial enterprises have grown rapidly in the capital-intensive industry for the past century, because firms enjoyed the cost advantages of economies of scale and scope. Chandler (1995) has makes the clear definition of inventors, pioneers, and first movers, also he states that in order to maintain this advantage, it is important for organisations to make his “three-pronged investment” in order to “exploit fully the economies of scale and scope quickly dominated their industries”(Chandler, 1995: 16),

In Chandler’s (1995) view, the success of US and Germany’s economic was because their major industrial organisations did well in make “three pronged investment” in production, distribution and management. Some examples of enterprises’ growth in Britain, US and Germany have been given by analysing different industries. British Dye industry is one of the best examples. Man-made dye was new capital-intensive industry at the late nineteenth century, and British entrepreneurs were pioneers in this industry. Englishman William Perkin invented the first man-made dyes, also at that time Britain had almost every comparative advantage in the new dye industry and can dominate the world. However, they failed to make the three pronged investments; instead German enterprises include Bayer, BASF, Hoesch and three smaller enterprises had exploited economics of scope, developed new dyes, and created the largest managerial hierarchies in the world man-made dye industry before World War I. In 1913, 140,000 tons of dye was made by German, whereas British produced only 4400 tons (Chandler, 1995). Consequently, as Chandler (1995) says that British were not lacking of markets or technology, but were lacking enterprise, and this is the reason Britain fell behind US and Germany before World War I.

Moreover, the stories in steel, electrical equipment, metal and machinery industry were nearly the same. After the World War I, the main source of economic growth was quickly taken by the automobile industry. Ford Motor and General Motors were the world’s leading car manufactures, and they both make the three pronged investments. However, when Henry Ford fired some helpful managers, Ford’s market share has dropped significantly from 55 percent to 19 percent. After Henry Ford died, Ford only started to regain profits by hiring a group of managers from GM to reinstate itself (Chandler, 1995). After World War II, the main source of economic growth was computer industry, American enterprises was the leaders of this industry as well, such as IBM, as it made the three pronged investment as well as invested in R&D (Chandler, 1990).

All the above, managerial enterprise did contribute to the success of leading economics for countries like US and Germany. Because in many industries their firms made the three pronged investment, Germany and US’s economic has become the powerful industrial nations in the world. Nonetheless, Chandler’s analyse is not perfect. In Chandler’s argument there are many weaknesses. This paper is going to analyse about these in the following part.

Hannah (1991) has identified some drawbacks of Chandler’s analytical method. Firstly, a bias has been introduced into Chandler’s argument when he chose to compare the largest 200 firms in the manufactory industry in UK, US and Germany, as he didn’t consider the absolute size of the firms. Because the US economy is much larger than the Germany or UK economies, obviously the 200 firms in US is bigger and more sophisticated then those in UK or Germany (Hannah, 1991). Secondly, Chandler has employed the “survivor technique” in his analyse, so his judgement of a firms success is based on its lasting time and marke share (Hannah, 1991: 298). However, Chandler forgets to consider UK is a narrower and slow market, also in the days he considered, the cartels and government policies were more important in central Europe, consequently, European countries such as UK and German wouldn’t have a vast and free operate market as US (Hannah, 1991). Thirdly, Chandler has presumed that managerial hierarchy model is the best choice organisation for all countries, and ignored the successful models in other countries. It is not fair to use American’s successful model to analyse other countries enterprises (Hannah, 1991).

Moreover, Chandler failed to analyse Britain. Firstly, in Chandler’s (1990) view, British economy relatively declined since late 19 century was because its companies failed to make the “three pronged investment”. However, as Hannah (1991) criticized, Chandler forgets to consider British firms such as Guinness, Lever, who did share some of US’s first movers’ characteristics in their fields.

Secondly, Chandler (1990) outlined that British firms grew slower than US’s was because their continuing commitment to personal management. Family firm is certainly one determinant of his personal management (Hannah, 1991). Chandler (1990) has given some case studies to support his point of view; however, there is no quantitative work can prove this conclusion. Besides, some literature criticised that for family-controlled firms, because the family members recruit managerial hierarchy, and are the stockholders and senior executives in their enterprise, they would feel more responsible for their own firms. Consequently, family-controlled firms should have more competitive advantage to grow quicker comparing to others. Also, many cases and facts have shown “the continuing importance of family groups in broad areas of European and American industry” (Schmitz, 1993). Besides in UK, many leading firms in Germany were family controlled, such as Siemens (Siemens, 1957, in Schmitz, 1993). Even in American, many businesses also retained as family controlled after 1939, whereas Chandler characterised them as “seed-bed of managerial capitalism” (Chandler, 1977: 498-500, in Schmitz, 1993). The best example is Ford, which has been considered by Chandler as the leading enterprise in US’s car manufactory with managerial hierarchy. Ford has become nearly wholly family controlled since 1907 (Nevins and Hill, 1957). In addition, as Schmitz (1993) states that, there are many widespread firms like Philip Armour’s meat-packing business. They are labelled “entrepreneurial enterprises” but controlled by family groups, and “controlling family groups shared the increasingly complex administration of their enterprises with hierarchies of middle managers” (Schmitz, 1993: 19). All the arguments come to the conclusion that enterprise growth can’t be marked simply by whether it is family firms or managerial firms, and just “small-scale companies continued to survive alongside large companies” since the late nineteenth centuries (Schmitz, 1993: 20).

Thirdly, Chandler (1990) failed to consider that, in the period he analysed, more of the large British firms were in less capital-intensive industries such as natural fibre textiles, “where the advantages of scale were limited” (Hannah, 1991: 300). As Schmitz (1993) argues that there were differences between the industries in which American firms and European firms located in. Large-scale enterprises tend to emerge in industries like metals, machinery, chemicals, because in those industries companies can gain cost advantage and increase production and marketing can be noticeable by enhancing volume (Schmitz, 1993). Table below shows that British large-scale firms are particularly dominant in consumer goods industry. In 1930, only six of British top 200 firms were in the technologically important non-electrical machinery group, compared to 19 American firms and Germany firms (Chandler, 1990; 21-3, in Schmitz, 1993).

(Source: Schmitz, 1993: 29) Last but not the least; Government has impact the development of large-scale business in a variety of ways from the 1850s to 1930s, in respect of tariffs, protectionism and so forth (Schmitz, 1993). In Germany, from 1870s, protective tariffs have helped German firms’ integration and contribute to the development of large-scale business (Kocka, in Chandler and Daems, 1980). However, the situation was totally different in Britain, and British tariffs didn’t impose until 1932, which played no significant role in British business growth (Hannah, in Chandler and Daems, 1980).

Furthermore, Chandler has failed to pay attention to Japan in his analyses. Japan has become US’s strongest rival after the 1960s. However, its mainly characteristics differ from US’s. Firstly, as Mark Fruin (1994) presented that, Japanese firms are smaller and more focused than American firms, also they are more concentrate in one business in order to increase their core competence and experience. Besides, “interfirm networks are extremely widespread in Japan” and these networks play important roles when Japanese firms develop their structures (Mark Fruin, 1994: 24). All these limit the development of managerial enterprise in Japan. In addition, Japanese firms have relatively less employees than US firms; also even when its firms grow larger, the number of managers tends to stay the same. The best example is Toshiba Corporation, which is a copy of American multidivisional enterprise. It has only 70,000 employees and linked with 53 core companies, compared to US General Electric’s 300,000 plus, besides, in Oct, 1990, there were only 18 people ran the Affiliated Companies Office of Toshiba (Mark Fruin, 1994: 24). Also, Japanese firms more concentrate on R&D development, human resource management, and provide employees high job security (Kono and Clegg, 2001). These structures and characteristics Japanese firms are very different from US’s and not appropriate for managerial enterprises to apply.

In conclusion, managerial enterprises can contribute to the success of leading economics. However, only to a small extent, it can be applied in differing national circumstances, because Chandler’s frame work of analyse is only appropriate for US. In Chandler’s (1990) analyses, US and Germany became the leading industrial nation since the early twentieth century because they applied large scale managerial enterprise, and he gave many examples to show how managerial enterprises lead to a firm’s economic success, such as the dye industry. Nevertheless, there are lots of weaknesses in Chandler’s analyse. As different nations have different situation, management characteristics and success model, it is not fair to use US’s success model to analyse other countries. Also, many his of evidence can’t convincingly prove his point of view. Furthermore, Chandler failed to consider there are many firms in capital-intensive industries succeed without applying managerial enterprises, such as Toshiba, and Siemens.

REFERENCES:

Chandler, A. D. (1995) “Managerial Enterprise and Corporate Capabilities”, in G Jones and C Harvey, eds, Organisational Capability and Competitive Advantage London: Cass.

Chandler, A. D. (1990) Scope and Scale: the dynamics of industrial capitalism Cambridge, Mass; London: Harvard University Press.

Chandler, A.D. and Daems, Herman (1980) Managerial Hierarchies: Comparative Perspectives on the rise of the modern industrial enterprise. US: Harvard University Press.

Fruin, W.M. (1994) “History and Logic of Interdependence”, in The Japanese Enterprise System Oxford: Clarendon.

Hannah, L. (1991) “Scale and scope: towards a European Visible Hand?” Business History, pp.297-307

Kono, T. and Clegg, S. (2001) Trends in Japanese Management: continuing Strengths, Current Problems and Changing Priorities. Hampshire: Palgrave Macmillan.

Nevins, A. and Hill, F. E. (1957) Ford: expansion and challenge. New York: Scribner.

ADDITIONAL READING:

Porter, M. E. (1998) The competitive advantage of nations London: Macmillan.