Chapter 6: Multinational Trading Companies
6.1 INTRODUCTION Prior to the Industrial Revolution described in Chapter 4, there was a Commercial Revolution, involving a dramatic expansion of domestic and international trade in Western European countries. From the seventeenth century onwards chartered trading companies, such as the East India Company, grew in importance (Carlos and Nicholas, 1988). Trading companies from different countries competed with each other to discover and develop new sources of supply of luxury goods in East Asia, Africa, the Caribbean and America. Tobacco, tea, coffee, sugar, spices and animal skins were all prized commodities. In the late nineteenth and early twentieth century large diversiﬁed trading companies rose to prominence in Japan – the sogo shosha – exerting a major inﬂuence on Asian trade (Jones, 1996). These trading companies defy analysis by the conventional neoclassical approach to the ﬁrm, since they are not engaged in conventional production at all. By contrast, the information cost approach set out in Chapter 3 provides a direct way of understanding their activities. The companies were specialized intermediaries, co-ordinating a transport and distribution channel that procured goods through agents from independent local producers overseas, stored, transported, where necessary trans-shipping them, and delivered them to a metropolis – like London or Amsterdam – where they were sold at auction to local wholesale merchants. Pure trading companies are less common today, although some still exist. Several modern multinationals have their origins in trading companies, however. Because these companies are now also engaged in production, they resemble the more conventional producer ﬁrm. Yet it is...
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