Sunday, March 11, 2012

State owned - The East India Company

State owned companies have been around since commerce began.  Today:

"State-controlled companies account for 80% of the market capitalisation of the Chinese stockmarket, more than 60% of Russia’s, and 35% of Brazil’s. They make up 19 of the world’s 100 biggest multinational companies and 28 of the top 100 among emerging markets. World-class state companies can be found in almost every industry. China Mobile serves 600m customers. Saudi Arabia’s SABIC is one of the world’s most profitable chemical companies. Emirates airlines is growing at 20% a year. Thirteen of the world’s biggest oil companies are state-controlled. So is the world’s biggest natural-gas company, Gazprom."

One to learn from is The East India Company, its opportunistic creation, its transformation, its impact on government and civilian life, and finally its demise.  The article "The Company that ruled the waves" here in The Economist provides valuable insights into what can be learned from the Company, both good and not so good:

"The Company was a model of economy and austerity that modern managers would do well to emulate. For the first 20 years of its life it operated out of the home of its governor, Sir Thomas Smythe. Even when it had become the world’s greatest commercial operation it remained remarkably lean. It ruled millions of people from a tiny headquarters, staffed by 159 in 1785 and 241 in 1813. Its managers reiterated the importance of frugality, economy and simplicity with a metronomic frequency, and imposed periodic bouts of austerity: in 1816, for example, they turned Saturday from a half to a full working day and abolished the staff’s annual turtle feast."

The article highlights the management techniques of the Company:

"It forced its employees to post a large bond in case they went off the rails, and bombarded them with detailed instructions about things like the precise stiffness of packaging. But it also leavened control with freedom. Employees were allowed not only to choose how to fulfil their orders, but also to trade on their own account. This ensured that the Company was not one but two organisations: a hierarchy with its centre of gravity in London and a franchise of independent entrepreneurs with innumerable centres of gravity scattered across the east."

Yet, with growing power the company and associated action, "Adam Smith denounced the Company as a bloodstained monopoly: “burdensome”, “useless” and responsible for grotesque massacres in Bengal."

I will recap The Economist's special report "State Capitalism" on this blog in the future.

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