Business History exam questions

Preindustrial manufacturing

Question

What are the characteristics of commercial capitalism?

Answer

• Competition between countries based on the goods traded
• A wealth of a nation based on its trade
• Balance of payment as a benchmark
• Payments with gold and silver
• Venice (arsenal and port) and Netherland (sea nation) as examples

Question

What were the positive aspects of the guild system? Are there negative ones?

Answer

• Pros:
  • Increase of quality
  • Stable prices
  • More standard goods
  • Organization of work
  • Trained workers
  • Specialization of work
  • Hope to become a master
• Cons:
  • Local monopolies
  • Lack of innovation due to lack of competition

Question

What were the strengths and weaknesses of the putting-out system, compared to the craft one?

Answer

• Putting out system:
  • In rural areas
  • Labor intensive job (example: manufacturing cottage)
  • Employ flexible workforce
  • Variable wages for workers (mainly children and women)
  • Form merchant to entrepreneur (very low risk due to variable wages)
• Craft production:
  • In urban areas
  • Capital intensive (example: jewelry, hats, leather, shoes, and gold)
  • High degree of specialization of laborers
  • Piece-wage system -> reduced the master's risk
  • Laboratories were located near energy sources

First Industrial Revolution

Britain

Question

What were the factors that made Great Britain an ideal place for the birth of the First Industrial Revolution?

Answer

• Coal and water as energy suppliers -> easy to transport raw materials
• Shift from agricultural to industrial production
• Cultural climate favored transformation (patents, legal incentives)
• Application of scientific transformation
• Low cost of capital (from family or local banks)

Question

Did agriculture play a role in the early industrial revolution?

Answer

• Migration of the labor force from villages to cities
• Shift technological innovation from agriculture to industries
• Increase in population -> more goods were needed

Question

What were the main characteristics of the First Industrial Revolution?

Answer

• It started in Great Britain
• Sector involved: mining, metalworking, textile
• High wages (better opportunity costs for machinery)
• Migration of the labor force from villages to cities
• Demand for technology -> due to high wages
• Supply of technology -> high wages -> high investment in R&D
• Innovation to avoid bottlenecks -> the steam engine was a double innovation: to efficiently mine the coal and to transport it

Question

Who financed the first industrial revolution?

Answer

• Self-financing, landowners who became entrepreneurs
• Families
• Friends
• Local banks

Factory System

Question

What were the main consequences and characteristics of early factories?

Answer

• Small-medium (less than 50 employees) with an elementary bureaucratic structure of the company
• Familiar businesses
• Self-financing: more internal capital than external (only from small local banks)
• From daily to strategic decisions taken by the entrepreneur

Question

What were the social consequences of the factory system?

Answer

• Time management: workers' schedule dictated by machines
• From small entrepreneurs to employees: changes in lifestyle
• Urbanization: crowded dormitory
• Conflict between workers and entrepreneur

Solutions adopted to social consequences to factory system:

• American view: high wages
• European view: unions

Question

What problems emerged in the introduction of technological innovations during the first industrial revolution?

Answer

Despite their role as enablers of progress, technological innovations of the first industrial revolution brought to light some problems:

• workers needed to adjust their habits and rhythms imposed by new technologies, such as transportation and factory innovations, clock with a fixed amount of hours job and swift between workers to let the machinery work.
• advancements in the factory system made industries more profitable than agriculture, shifting investments from this sector to the other, and workforce from the countryside to the city. This further lead to overcrowded city districts with poor quality of life due to poor hygienic conditions, scarcity of food and heating fuel
• the cheaper price of machineries was more appealing than paying high wages to workers; this lead to a substitution of part of the workforce with machineries in some industries
• as production of goods requires coordination across multiple actors in a vertical chain, in many cases a bottleneck can arise at a certain point. Technological innovations of an actor may shift the bottleneck to another one, if they don't incurr in any technological innvation or other production improvements

Second Industrial Revolution

Railroads

Question

Why did the Railroad revolution represent an important source of development?

Answer

• They opened new markets
• Cheap, speed, regularity and reliability -> increase in production -> economies of scale and scope
• Managers were implemented (hierarchical structure) -> top-down decisions

Question

Why did the railways become the first large companies?

Answer

• They became public companies (natural monopolies)
• They can exploit economies of scale
• Their operations were broad with more phases to manage

Question

What have been the main differences in the railroad integration between America and Germany?

Answer

• America -> forward integration -> difficult to access the market
• Germany -> backward integration -> scarce raw materials

Managerial hierarchy

Question

Why can we say that in the 20th century we had a shift from the invisible to the invisible hand?

Answer

Managers market forces were replaced by managers' decisions.

Question

Wnat is the dualism of large and small companies?

Answer

The manufacturing sector, and more general the labor-intensive sectors, were mostly small-medium enterprises.

Question

What were the main characteristics of multi-unit enterprises?

Answer

• Central office
• Middle management
• New accounting methods
• Separation between ownership and management
• New department: research and development

Question

What were the main differences between American and European markets?

Answer

• The America market was larger, richer, and more homogeneous than that of any other nation, and this stimulated business executives to develop firms that could produce and sell long runs of standardized goods
• The European one was more fragmented and full of language barriers

Question

List the factors that explain the transition from personal or centralized capitalism to managerial capitalism.

Answer

TODO

National big businesses

Question

What changes enabled big business to dominate their respective industries as early as the Second lndustrial Revalutian?

Answer

Citing Schumpeter and his view, innovations occur when there is a "disruptive change" in the market.
At that time there were changes in technologies, in markets and in organizations:

• technological changes refers to the telegraph, telephone and steam engine for transport purposes
• market changes refer to the opening to foreign trade and also investment in foreign markets
• organizational changes refer to the introduction of chain production, ordering via mail and automatically packaging

With the enlargement of markets, firms tried to introduce a way to make more profits, and they accomplished this by exploiting economies of scale, firstly in American and then also in Europe.
In America they build up Corporations, single entities obtained after a merger of more entites. This occurred because American banned cartels and favored monopolies.
In Europe on the other hand, there were cartels in Germany financed by large banks.

Large companies could:

• exploit internal economies of scale by addressing mass praduction with capital-intensive technologies
• gather mare financial resaurces from big banks (and later public capital markets)
• benefit fram national subsidies in same industries
• become major producers in natural monopolies markets characterized by a large MES requirement and little competition
• enable the collaboration af various stakeholders: warkers, managers, financers, politicians
• collude with other large firms in various ways, for instance by creating lobbies or cartels where allawed

The ways to enlarge firms at that time were: mergers, vertical integration and acquisitions.
In Germany there were more frequent backward integration due to lack of raw materials, while in the US there were more forward integrations due the closeness of markets.

Question

What were the main differences between American businesses and English businesses?

Answer

• Markets: bigger in America
• Economies of scale: more in America
• Sectors involved: same more or less (heavy industries)
• Corporation in America and Commonwealth in GB
• Cartels were forbidden in America

Question

Why did banks play an important role in Germany's industrial development?

Answer

• Universal banks financed most enterprises
• They were in the board

Question

What were Japan big businesses (Zaibatsu)?

Answer

They were not so different from a corporation, the difference is that each participant owned stocks from other companies (mutual ownership) within conglomerates of firms (more or less around 80-100 differentiate companies), called Zaibatsu, managed by a central firm (mostly large family business). They conditioned the political power.

Question

Why did China evolve late respect to other nations?

Answer

During 16th century Chinese economy enjoyed all the necessary conditions for future capitalist events, but it was contrasted by the ineptitude of the Qing dynasty.

Question

Why did large corporations spread only gradually in Great Britain?

Answer

The process of the business production was gradual, not rapid as in the US, so we had small and medium enterprises also because family and small businesses resisted. - Establish class of merchants - Segmented markets

Managerial capitalism

Question

What were the causes and characteristics of the migration from U-form to M-form?

Answer

• causes:
  • From consumerism to mass production
  • Rises of transaction costs
  • Different lines of production -> more coordination needed
  • Diversification
• characteristics:
  • Clear separation between ownership and management
  • More than one division and a general manager for each
  • Largely self-financed
  • The central office had the goal of allocate financing and planning strategic plans

Question

What were the improvements and weaknesses of the M-form?

Answer

• Pros:
  • The central office received weekly and monthly production reports from each group and division
  • The central office received every 10 days reports from dealers
  • Usage of indexes such as ROI to understand better the division who create more value
• Cons:
  • Too many layers of management create inefficiency
  • Companies ossified and reacted only sluggishly to market changes
  • Involved tremendous dependence on reports
  • Led companies to place too much emphasis on short-term financial objectives at the expense of longer-term goals
  • Too few top-level managers understood operational management

Question

Why did the M-form do well in the United States and less well in Europe?

Answer

M-form management, characterized by a clear separation between ownership and management, self-financed corporate divisions and separate strategic planning in the head quarter thrived in the US but not in the old continent.

The main reason for that is the complex structure it requires, suited for large corporations typical of the US, where the national market was bigger and less fragmented than the European one.

In Europe instead the H-form was more common, as it only required a holding company originated from M&A and a set of subsidiaries. Cartels were also common in Germany, while they were forbidden in the US.

SME in the continent also keep covering an important role, as they were often family businesses targeting niche markets. For these, a hierarchical bureaucratic shape like the U-form was better suited.

In the US companies were more decentralized and the separation between ownership and management was stronger than in Europe. Also, managers moved more among firms than in Europe, and this was an effect of the better institution of American business schools.

Europe between the two wars

Question

What were the main differences between American and European markets between the two wars?

Answer

• Size of the markets: bigger in US
• Size of firms: bigger in US
• Market fragmentation: bigger in Europe
• Sectors: chemical and electricity in Germany, heavy sectors and textile in UK
• Coordination of enterprises: M-form in America and U-form in Europe
• More unions in Europe, higher wages in America
• More opportunities in America than in Europe

Question

Why did families continue to play an important role inside big businesses in Great Britain?

Answer

Although, many British companies remained largely "personal". Families sought to retain their role in business. Different from M form. The separation of ownership and control had not progressed far enough to displace founding or family directors from company boards many families were present as an important minority. They remain because they played a crucial role in financing enterprises.

A consequence of this is that the second generation of business owners were: sons of businessmen, sons of farmers, children of public officials and children of blue-collar employees.

Question

What were the characteristics of German industry after the WWI?

Answer

• Diversification
• Vertical integration
• Cartels
• Technological innovation with patents

Asia between the two wars

Question

What are the differences between the new and old Zaibatsu in Japan?

Answer

• Features
  • New Zaibatsu tried to finance themselves by a stock exchange
  • Less diversified than the older Zaibatsu
  • Not all the Zaibatsu were owned by families
  • Before the management coincided with the family, now we had the appearance of new management
• Sector involved:
  • Steel
  • Chemical
  • Engineering
  • Electrical machinery
  • Automobiles

Question

What are the main characteristics of the Japanese Management?

Answer

• Job rotation
• Act in the best interest of the company
• Three pillars: lifetime employment, seniority-based wage system, enterprise unionism

Question

What has been the role of Confucianism in Japan?

Answer

• Strength values, such as: courage, benevolence, politeness, veracity, sincerity, honor, loyalty and self-control
• The decision making power was distributed among families
• Ethical values: lifelong membership, wisdom is related with age and collective behavior

Question

Why did China not industrialize in 19th century?

Answer

• It was a leading producer in manufacturer production in the world
• China always looks for internal trade, due to wise area
• The government contrasted the adoption and import to new technologies, such as the steam engine

Question

What is the importance of banks and Guanxi in China?

Answer

• Banks: these interconnected banks fell into four groups. Three small groups of banks corresponded to geographic areas in China, but the majority of the banks belonged to one primary, nationwide network stretching across all the China.
• Guanxi: it means "interpersonal relationship." This relationship is established over time by continuous social interactions and mutual exchanges of favors and gifts; it is based on trust and reciprocity. This cultural aspect can be considered a source of competitive advantage, influencing the benefits and costs of the company. It is also called the “informal economy”.

Third Industrial Revolution

America towards the TIR

Question

Which new reforms were introduced in America after the WWII?

Answer

• Inject liquidity into the economic system-Bank Holiday and examination of bank conditions
• Purchase of bank stocks and bonds. Glass-Steagall Banking Act: separation of commercial and investment banks
• Securities Exchange Act (1934): greater transparency against speculation and manipulation on the stock exchange
• Securities and Exchange Commission (SEC): control of activities on the stock exchange
• Suspension of the Golden Standard and withdrawal of gold from the market. Issuance of silver coins
• Agricultural Adjustment Act (AAA): support domestic prices and insulate them from world market prices
• National Industrial Recovery Act (NIRA). Price regulation of industrial production, wage guarantees, number of hours worked, union rights
• Public Works: Tennessee Valley Authority: transform a depressed area, encouraging land use and creating infrastructure
• Public Works Administration: employment program for the jobless. Construction of roads and infrastructure

Question

Why did the government decide to institutionalize the innovations?

Answer

The real American recovery starts after the second world war.
A specific aspect was the federal government and private businesses started to collaborate to innovate. Institutionalized and linked to national and international scientific and engineering networks and there were relationships between corporate laboratories, the departments of major universities, laboratories, ad hoc agencies, military.

Question

Why do the Silicon Valley it's an important breaking point for the new industrial revolution?

Answer

External economies of scale. The reasons are:

• Proximity → communications
• Where scientists and entrepreneurs could meet informally in bars and restaurants, encouraged the spread of information among the firms
• Job-hopping workers: spread information

Question

Has the enterprise changed its organizational form in the era of the third revolution?

Answer

TODO

Europe towards the TIR

Question

What were the new sources of business growth after the WWII in the US?

Answer

• Diversification
• Conglomerates
• New managers

Question

What were the main causes and consequences of the TIR?

Answer

• Causes:
  • Political factor: opening of markets with the abolition of exchange controls and tariffs for developing countries and international financing institutions (who financed the debt, conditioning to the adoption of specific policies)a -> this led to new globalization (liberalization of their markets)
  • Technological transformation
• Consequences:
  • Switching to flexible exchange rate
  • Abolition of exchange controls and tariffs
  • Outsourcing/deverticalization
  • New business networks

Question

What are the main differences between networks and clusters?

Answer

Companies in a business network are not bound by geographical locations or sectors, and can be focused around any specific objective.

Question

What difficulties toward the TIR faced GB after the WWII?

Answer

• Merger incentivization by the government to avoid monopolies
• Ownership and management are less separate in GB
• Transparency problem
• Less financial control
• Too many layers of management and executives were trained mostly in finance
• Conservativism of management

Question

What was the role of Government and Ordoliberalism in Germany?

Answer

• Government intervention favored the increased growth in the economy after 1950s. At that time they did not use the traditional Keynesian policies.
• The State must not substitute the market, but only support the demand and the market
• Since the market itself is unable to achieve efficient functioning, the state should help the market increase efficiency (prices, wages, etc.)
• Debts should be avoided because they compromise the functioning of the market by reducing stability and trust

Question

What were the main characteristics of the dualism between private and public capitalism in Italy?

Answer

Most of the enterprises were public, but public enterprises weren't inefficient. Public managers were more dynamic than private ones, e.g. Oscar Sinigaglia is recognized as the father of the Italian steel industry.

Asia towards the TIR

Question

What were the strategic factors in Japan's growth in the 1950s and 1960s?

Answer

Despite its defeat in WWII, the shortage of food, fuel, jobs and the high inflation rate, Japan saw a huge growth between the 1950s and the 1960s, often referred as "miracle”. This was mostly because of:

• availability of raw materials for oil and heavy industries
• subscription of the GATT agreement for free trade with other countries
• protectionism to limit certain foreign investments in Japanese companies and imports of foreign goods
• collaboration between the goverment and private firms, aimed at developing industries through private incentives
• "Big Push" strategy, i.e. lot of investments in supply without any guarantees on the demand side
• business reorganization from zaibatsu to keiretss
• development of automotive, television and air conditioner sectors which helped upstream suppliers, internal consumerism and population growth

Question

How did the evolution from Zaibatsu to kereitsu happened? What is the role of the subcontractors in this new organization?

Answer

Differences with Zaibatsu:

• Lacked any central headquarters or holding company owning stock in subsidiary companies (no more the joint-stock companies)
• Grouped, called Keiretsu, were more informal meetings of the heads of the various companies
• Keiretsu are networks of businesses bound by informal agreement.

The reason for the aggregation of Japanese firms comes from historical reason (tradition of Confucianism).
All large enterprises use subcontractors and many of them were specialized and provide high-quality products.
By using subcontractors, Toyota and other companies were able to expand production greatly at little cost. The use of subcontractors allowed them to keep their capital investments and labor costs lower than they would otherwise have been.

Question

What is the importance of the Ringi system?

Answer

Is a circular discussion system. A Ringi system was a proposal put forward by a manager of one department that was passed on to managers of related departments and finally to the president.

Question

What have been the main political mistakes of the Chinese government?

Answer

• Agricultural efforts were hurt by bad weather and floods in the 1950s
• The great leap forward: aimed at catching up with Great Britain in steel production, the building of backyard furnaces to make steelàpoor quality steel and unsustainable strategy, and fewer workers in agricultureà20-30 million died
• Farmers were obliged to move for other jobs
• Public investments were mainly in industries, but the consumption of goods was not favored
• Great Proletarian Cultural Revolution (1966-68): farmers were obliged to move toward other jobs, urban workers were obliged to move toward agricultural activity. Only in the 1970s the Cultural Revolution winds down, especially with Mao's death in 1976.

Question

What were the main consequences of the socialization process?

Answer

• Land reform and collectivization, wealthy peasants lost much of their land
• From small firms in agriculture to large firms in agriculture
• Large firms could benefit from economies of scale (with capital, larger firms are more productive; with more workers, small firms are more productive)àin China there were more people than capitalàso the government failed with this strategy following the soviet experience
• The state built all the railroads and a majority of steamships in China's home waters
• Industry same trend -> Soviet Union's influence -> five-years based plans
• Also the railroads, steamships and trading companies were nationalized

Question

Describe the shift from state economy to market economy in China

Answer

After the death of Mao, shift to market economy. Communist's party allowed liberalization of the market (not completely) and the building of factories in China.

• Centralized economy and liberalization of market This change was an important step to “household responsibility system” -> farm families could sell surplus agricultural production in open markets, as long as they retained a certain amount of their produce for the state. Strengthening of TVEs in light industry
• Throughout the 1980s the “iron rice bowl” gradually eroded, and in 1991 the government abolished guaranteed employment altogether.
• It was a gradual privatization not like the Soviet one (shock privatization)
• The government permitted entrepreneurs to set up private businesses, some of which grew rapidly in size and importance.

All trends in China were toward the privatization of business, although all banks remained state-owned (the influence of the government remained substantial).

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Authors: Giacomo, Edoardo, Matteo