Class 4

Question 1

jardine-matheson
what where the main challenges of operating the opium trade, and how did they overcome them to achieve a competitive advantage?

Answer 1

1. Long distance:
   - “clanishness” (strong closed network)
   - faster ships
2. Geopolitical context:
   - reliance on UK military and diplomatic support
   - possibility of camouflaging
   - explotation of EIC advantage until 1834
3. Competition:
   - product and technology diversification
   - initially very oligopolistic competition (50% of China trade)

Question 2

Penrosian perspective:
resource approach vs opportunities approach

how does it link to the Jardine-Matheson case?

Answer 2

A) for any particular firm, the environment determines its opportunities, but should we treat the environment or resources as the most important?

1. resource view: if we want to see why some firms grow and some don’t, or why some firms see / experience environments differently
2. opportunities view: if we want to explain a particular firm or group of firms with specified resources grow the way they do

B) the case highlights the company’s ability to ACQUIRE, ELABORATE, TRASFORM knowledge according to management’s perception of opportunities.

Question 3

how did Jardine-Matheson build a competitive advantage? (4)

Answer 3

1. Architecture: a dense network of affiliative and cooperative relationships
2. Innovation: faster ships, technological advancements, insurance mechanisms
3. Reputation: seen as a trusted partner and a financially sound organization
4. Strategic flexibility: continuous resource development and managerial learning

Question 4

Characteristics of the second industrial revolution

Answer 4

Advancements in communication, transport&infrastructure, availability of materials (think of rubber)

this led to the following consequences:
1. connected markets
information flow, prices aligned, incentive for scale intensive activities

2. reduction of transaction costs:
   increasing volumes and lower freight rates
3. development of financial markets:
   development of financial instruments and financial institutions
4. new organizational structures
   the rise of BIG BUSINESSES (oil, steel, chemicals…) who reached such high production capacity that expanded into global markets

vertical integration and the creation of complex managerial hierarchies and organizational structures followed
5. many new entrepreneurial opportunities

Question 5

the U-form, pros and cons

Answer 5

unitary or unidivisional organizational forms emerged

Pros:
- specialization in departments
- clear authority (centralized decision making)
- efficiency
- simplicity: easy to understand and implement

Cons:
- limited flexibility for different products/environments
- inter-department coordination challenges
- information bottlenecks (slow response)
- “overburdened” leadership

the U-firm works best for organizations with a single product line or focused goals, but as companies diversify, alternative structures like the “M-form” (multidivisional) might be more suitable.

Question 6

what was the impact of big businesses in governance?

Answer 6

the growth in size of the firm brought significant changes to governance, since the capital of the founders was not enough to sustain long term growth.

Companies became public, characterized by a separation of GOVERNANCE (shareholders) and CONTROL (management)