Search

(1990). Shipping in the Port of Sunderland 1815–45: A Counter-Cyclical Trend. Business History: Vol. 32, No. 1, pp. 32-51.

Institutions are the rules of the game that help to shape the long-term historical development of societies. They mediate human interaction and can be more or less formal (or tangible) in nature ranging from systems of government to common modes of behaviour. Most formal institutions can be distinguished as economic, social, political or cultural in nature although such distinctions are more difficult to make for informal institutions. What is certain is the pervasive impact of all types of institutions on a country’s multifaceted development. Thus, economic performance may be shaped as much by a nation’s legal system as by its trade policy.

In a series of articles written over many years, Ian W. McLean has addressed the dual questions of how Australia attained high levels of prosperity less than a century after European settlement and why it has since remained amongst the wealthiest of nations. Although this book is not a comprehensive study of Australian economic history, it builds on this earlier body of work and brings together his answers to these questions. It is engagingly written, helped by the minimal use of technical material and the creation of counterfactual scenarios in several places. Most important of all is McLean's impressive use of the comparative approach. While arguing that Australia's path of development has been strongly shaped by international influencesimmigration, investment, trade, and political institutionshe interrogates closely its performance relative to that of other specific nations to tease out national differences as well. These are appropriately selected in most cases: the role of differences in land ownership patterns and political institutions with Argentina, or the greater connection of Canada's timber and grain industries to manufacturing than Australia's wool and mining. However, New Zealand might have featured more strongly in the comparative story.

In chapter two we used a range of aggregated time series and pooled cross-sectional data on the economy and firms to present a broad picture of the growth of big business in the Australian economy, and drew parallels with the experience of other nations. We were able to identify in which sectors our largest firms have been located, how this changed over the course of the twentieth century, and who these firms were. This provides the basis for a closer investigation of some of these firms in this and the subsequent chapters. Thus, in the current chapter, we develop the concept of the corporate leader, design a methodology for identifying corporate leaders in Australia, and then examine who these firms actually were. This enables us in chapters four and five to investigate the pattern of their development using the methodological schema outlined in chapter one, notably the methods, resources, directions, and structure of development. From this we seek to identify any typical patterns. In chapter six we then assess what sort of role corporate leaders played in the evolution of individual industries, the business sector, and the economy as a whole. Disciplines Business | Social and Behavioral Sciences Publication Details Ville, S. (2002). Identifying the Corporate Leaders. Corporate Leadership in the Australia Conference, 5-6 September 2002 (pp. 1-26). University of Wollongong. This conference paper is available at Research Online: http://ro.uow.edu.au/commpapers/743 Identifying the Corporate Leaders Simon Ville University ofWollongong In chapter two we used a range of aggregated time series and pooled cross-sectional data on the economy and firms to present a broad picture of the growth of big business in the Australian economy, and drew parallels with the experience of other nations. We were able to identify in which sectors our largest firms have been located, how this changed over the course of the twentieth century, and who these firms were. This provides the basis for a closer investigation of some of these firms in this and the subsequent chapters. Thus, in the current chapter, we develop the concept of the corporate leader, design a methodology for identifying corporate leaders in Australia, and then examine who these firms actually were. This enables us in chapters four and five to investigate the pattern of their development using the methodological schema outlined in chapter one, notably the methods, resources, directions, and structure of development. From this we seek to identify any typical patterns. In chapter six we then assess what sort of role corporate leaders played in the evolution of individual industries, the business sector, and the economy as a whole. Prime movers and challengers The notion of the first or prime mover examines the existence of firms that have played a leadership role in developing a new industry or transforming an existing one. Successful prime movers earn a quasi-rent in the process of being first, but will soon encounter challengers that seek to share in these gains. Where a first mover is able to resist such challenges to retain its dominant position it is said to possess first mover advantages. As Grant has noted, 'The idea of first-mover advantage is that the initial occupant of a strategic position or niche gains access to resources and capabilities that a follower cannot match'. I The first mover is able to sustain its leadership of the industry by erecting barriers to entry or, at least, establishing forms of competitive advantage over new entrants. There is a broad conceptual literature on the nature and extent of first mover advantages. The benefits can be divided into the initial pre-emption of scarce resources by the first mover, and its subsequent attempts to pursue corporate strategies and develop firm competences (tangible and intangible assets) designed to perpetuate the initial leadership? Porter has described how firms sustain competitive advantages through such strategies as cost leadership, product differentiation, and market segmentation. The first mover has the benefits of being further along the learning curve and can use the profits of the initial monopoly period to extend its product knowledge and develop appropriate competences. Mueller has linked first mover advantages with the path dependency principle to show why it is often difficult to catch up irrespective of the strategies of the first mover. He cites a series of demand-related inertial advantages benefiting the first mover. These include buyer inertia due to uncertainty over the new competing product and habit formation, both of which will emphasise loyalty to the first mover. The buyer may also face switching costs in R. M. Grant, Contemporary Analysis (Oxford, 3 edn, 1998), p. 184. M. B. Leiberman and D. B. Montgomery, 'First mover (dis)advantages: retrospective and link with the resource-based view', Strategic Management Journal 19, 1998, p. 1113. M. Porter, Competitive Advantage ofNations changing to the challenger's product. On the supply side, the challenger faces high set-up costs in order to match the first mover who may have defrayed these costs across a longer period of time. The challenger also faces greater difficulties raising finance through the capital market, where investors have to be convinced of the challenger's ability to overcome these hurdles and wrest market share from the first mover. While the theoretical literature largely deals with efficiency properties, applied and historical studies additionally draw attention to the predatory actions of first movers in erecting entry barriers and the vagaries of public policy. There are also disadvantages of being first, which may lead to rapid dissipation of the initial leadership in some cases. Late entrants may free ride on the development costs incurred by the pioneer, entering at a lower part of the falling cost function. First movers in rapidly developing technologically driven industries are particularly vulnerable to being superseded by new entrants who can orient their set up costs to a changing infrastructure. Technological, resource, or market shifts may make it expensive for the pioneer to refocus and write off sunk costs, but easy for the challenger to get started. Where several of these shifts occur simultaneously, sometimes known as a punctuated equilibrium, the first mover's dominance is particularly vulnerable. First mover inertia borne of leadership dominance can also weaken the firm's ability to respond to such challenges. Contrariwise, much depends upon the strength of the challengers. Empirical research suggests that successful challengers are rarely new firms attempting to mimic the success of the first mover. Most successful challengers are either the product of mergers yielding synergies from among competing firms in the industry, or they are existing firms diversifying from other sectors or geographical areas and bringing with them established corporate competences. The ability of first movers to establish sustainable advantages is, thus, highly contingent; the magnitude ofadvantage varies over product categories, geographic areas, time periods, the degree of initial leadership, and the respective competences of first mover and challenger. Leiberman and Montgomery have expressed concern that, 'as a focus for empirical research, the concept of first mover advantage may be too general and definitionally elusive to be useful'. 7 However, it is only through such investigations that we can more accurately understand the sources and broader consequences of corporate leadership. Historical studies of American business have provided us with the most extensive evidence of how firms can convert first mover status into sustained corporate leadership. Alfred Chandler argued that environmental changes occurring in the American economy in the nineteenth century, particularly the introduction of fast, regular railway transport, bringing with it wider markets and easier access to raw materials, created new opportunities in many industries. 8 Chandler suggests that first movers, particularly in capital-intensive industries, were able to sustain their leadership by making a three-pronged set of core investments in production, marketing, and management. The effect of these investments was to build up corporate competences by developing low cost production technologies, marketing facilities that supported complex products, and management teams D. C. Mueller, 'First mover advantages and path dependence', International Journal ofIndustrial Organisation 15, 1997, pp. 831-40. For example, see D. Gabel, 'Competition in a network industry: the telephone industry, 1894-1910', Journal ofEconomic History 54, 3, 1994. A. Chandler, Scale and Scope. The Dynamics ofIndustrial Ca[italism (Camb, MA, 1990), p. 599. M. B. Leiberman and D. B. Montgomery, 'First-mover advantages', Strategic Management Journal summer special issue 9, 1988, p. 52. Chandler, Scale and Scope, ch. 3.

The financing decisions for our corporate leaders were influenced over time by a range of macroeconomic and firm-specific factors (for example, the institutional structure of finance markets, the size of the firm, current sources of finance, ownership structure). The availability of finance from private and public markets affects the cost of capital for the firm, and dictates the extent to which it must fund growth from internally generated sources. Financial regulations, tax regimes, the openness of the economy to international capital flows, and investor sentiment (to name a few), all influence the nature and structure of the domestic finance market. At the firm-specific level, the financing decision involves judging whether to retain earnings for growth, or to raise new capital from debt or equity. Alternatively, firms might draw on networks of relationships to fund expansion and growth. If external sources are chosen, management is required to address more complex questions associated with the maturity and seniority of finance, and the nature of future payments (for example, fixed or floating interest rates, the currency of denomination, and dividend payouts). In this chapter we examine the sources of finance utilised by Australia's corporate leaders. We begin by describing the sources of finance available to firms: retained earnings, networks, equity and debt. We then examine how each of these sources were used to finance corporate strategies and sustain competitive advantages. We conclude with an examination of the rise of financing operations in the corporate head office of two corporate leaders: Dunlop and BHP.

Organisational configuration consists of the structures, processes, relationships and boundaries through which a company operates. They are influenced by the strategic options adopted by managers, the technological features of the company and its industry, the stage of life of the company, and its external environment. Thus, we have left the analysis of organisational configurations to the end of our study in order to examine the features of design and structure that are associated with longevity and big business. Australian corporate leaders demonstrated many of the trends identified in studies of overseas developments in the corporate economy. Corporate leaders in several sectors invested in science-based technologies to exploit economies of scale, and expanded into products and markets through the use of multidivisional structures. We describe these developments in organisational configuration as companies developed core and related markets through horizontal and vertical integration. Australian corporate leaders also faced unique geographical conditions that meant they had to deal with coordination problems and information flows over large distances if they wished to achieve national coverage. Pastoral agents, banks, retailers and property companies leveraged core competencies and replicated expertise across multiple sites, leading to an ‘organic’ multidivisional organisation. The size of the local market prevented companies from establishing scale in any other way. Another point of differentiation from international experience was the position of multinational subsidiaries in providing demonstration effects to domestic firms.

Never before had a book been published which provides such a comprehensive study of Australian corporate leadership over the past 100 years. Written by a team of economic historians The Big End of Town, first published in 2004, is a proper business history of twentieth-century Australia. This book traces the evolution of large business enterprises in Australia, from the giants of the nineteenth century - such as Dalgety's, CSR and BHP - to the contemporary leaders in Newscorp and Qantas. It delves into why the market leaders became the major players, examines what was crucial to their success, and their roles in leading the Australian economy. By investigating their evolution this book provides a useful evaluation of the factors that have led to their competitive success and provides an essential guide for all businesses in Australia and beyond.

Firms may develop in a variety of ways. The simplest type of firm conducts a single function to provide an individual product or service from one site. Thus, a firm can grow geographically (production at more than one site), by scale (horizontal integration to produce more of the same product), by scope (diversification into other products) and by function (vertical integration of sequential activities such as production and distribution). As firms grow they often develop legally (additional statutory rights through incorporation) and organisationally (new structures and procedures). Figure 1.1 indicates these various directions of growth and internal development. Growth can, of course, be multidirectional and multinational. It may also be concentrated upon fewer products, functions or sites than previously in a process known as specialisation. Growth can occur by internal initiative within the firm, by acquisition of another company, or by a cooperative venture with another business. Finally, growth can also be negative when firms decide to reduce their activities or ‘downsize’. Indeed, the majority of businesses fail and disappear (sadly the loss of most records makes it difficult to discover why). Finally, most firms begin and remain small (perhaps 80 to 90 per cent of firms in industrialised countries are classified as small or medium-sized enterprises). The principal task of the business historian, therefore, is to analyse why and how a minority of enterprises grow larger.

Governments have played a pervasive role in the economies of many nations. Such roles have periodically included that of facilitator (economic development and stabilisation, role model, information conduit), arbitrator (competition, regulation, corporations law, property rights) and participant (buyer and seller of goods and services). In a sporting analogy we can say that the state has been coach, referee and player; sometimes all three!

Our concluding chapter is divided into three parts. We begin by summarising the main arguments and conclusions of the book and follow this up with a look at how the modern history of business enterprise supports our understanding of current and prospective corporate issues. We then finish up with a look at the current state of business-history research.

Today, there is much speculation about the formidable opportunities and challenges presented by new communication technology. The internet is expected to cause national markets to become integrated into a global arena by lowering the cost and enhancing the speed of making transactions. At the same time, the ‘boundary units’ shown in Figure 1.4 are confronting a growing flood of information about environmental conditions. The need to process this data and make it accessible to decision-makers is compelling firms to invest in ‘knowledge-management’ systems and ‘intranets’. Moreover, the internet is spawning ‘virtual firms’ run by a core of entrepreneurial specialists linked by e-mail to knowledge workers who contract to perform specific tasks. What these unfolding trends reveal is that changes in communication technology have a direct impact on the institutional arrangements included in Figure 1.2. Simultaneously, they enlarge markets, increase the span of corporate control, and encourage the proliferation of cooperative structures.

The role of the entrepreneur is today regarded as crucial in the success of the business enterprise, a perception that has not always existed. How that role is fulfilled most effectively, though, remains a matter for much contention. The postwar ascendancy of many Japanese firms was particularly associated with long-term strategic planning through shared decision-making. Entrepreneurial skills were concentrated on a narrowly focused individual firm and its enterprise group within a local setting. Emphasis was placed on strategies that were market-driven, fostered close interfirm relationships, and empowered employees. The dominant Westernised, or at least American, paradigm has been somewhat different. It emphasised broad generic management skills in large diverse corporations, with decision-making concentrated in elite head offices that oversaw wide geographic empires and concentrated upon performance-monitoring and problem-solving.

Since the early 1980s, firms in the West have shown greater interest in forming cooperative ventures with other companies. Such inter-firm arrangements are nothing new, but as we suggested in the previous chapter, this development is part of the more comprehensive structural response to rapidly changing environmental conditions. (Chapter 10 below considers aspects of inter-firm cooperation in an international context.) Thus, companies are focusing on developing core capabilities and deeper knowledge bases that can be used in combination with those of other firms to pursue a common strategic objective, such as developing a new product or process or penetrating a different market. Inter-firm structures also help to mobilise the financial resources needed to meet development costs (Chapter 4), but, fundamentally, the proliferation of strategic alliances reflects the need for firms to combine their learning abilities.

Transport and industrialization road systems inland waterways the shipping industry the railways the motor vehicle industry.