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The adaptive strategies of Spanish cotton industry companies, 1939–1970

2006; Taylor & Francis; Volume: 49; Issue: 1 Linguagem: Inglês

10.1080/00076790601063022

1743-7938

Francisco Javier Fernández Roca,

Migration, Ethnicity, and Economy

Abstract This article explores the strategies carried out by the Spanish cotton industry, drawing the distinction between dynastic and non-dynastic companies, and the business strategies to preserve the family firm, to keep the control of management in the hands of the founder's family, and to maintain long-term living standards. To achieve this, companies showed a remarkable capacity to adapt to the changing institutional, political and economic context in Spain during the second half of the twentieth century. Finally, we measure the degree of success by looking at profits, profitability and ability of dynastic and non-dynastic companies to survive. Keywords: Cotton IndustryBusiness StrategiesSpainFamily FirmEconomic AutarchyFranco Acknowledgements I would like to thank the staff of the Arxiu Historic de Catalulnya and the Arxiu Comarcal del Bages (Manresa) for letting me consult their archives. Jordi Torner in particular helped locate documentation that had not been classified. I am grateful for comments made on previous versions of this article; those by James Simpson, Lina Galvez and Juan Luis Sánchez Casado were particularly useful. I am especially indebted for the constructive and detailed comments by the two anonymous referees. The usual disclaimer applies. Funding was provided by the Spanish government (BEC2003-06481) and the Fundación Empresa Pública. Notes 1 See Chandler, The Visible Hand and Scale and Scope. 2 Lazonick, “Competition, Specialization and Industrial Decline”; idem, “Industrial Organization and Technological Change”; Mass and Lazonick, “The British Cotton Industry and International Competitive Advantage.” 3 Casson, “The Economics of the Family Firm.” 4 Jones, “Transaction Costs and the Theory of the Firm,” 10; Colli, The History of Family Business; Rose, Family Business; idem, Firms, Networks and Business Values. 5 Colli et al., “National Determinants of Family Firm Development?” 6 See Sharma, “An Overview of the Field of Family Business Studies,” 3–5; Handler, “Methodological Issues and Considerations in Studying family Business”; Westhead and Cowling, “Family Firm Research.” 7 Astrachan and Shanker, “Family Businesses' Contribution to the U.S. Economy,” quoted by Sharma, “An Overview of the Field of Family Business Studies,” 3–5. 8 Westhead and Cowling, “Family Firm Research”, 34. 9 Church, “The Family Firm in Industrial Capitalism,” considers the impact on the founders and their heirs of recruiting salaried managers but continuing to be influential shareholders, holding executive managerial positions, and exercising decisive influence on company policy but he does not give any percentages of familyies' equity. 10 Channon, The Strategy and Structure of British Enterprise, 161, quoted by Fernández Pérez, “La empresa familiar y el ‘síndrome de Buddenbrooks’ en la España contemporánea”; Colli and Rose, “Families and Firms”; Colli et al., “National Determinants of Family Firm Development?” The percentage of ordinary voting shares change among researchers, see Westhead and Cowling, “Family Firm Research,” 40. 11 Rose, “Investment in Human Capital and British Manufacturing Industry”; Casson, “The Economics of the Family Firm.” 12 Casson, “The Economics of the Family Firm,” introduces the dynastic element after adjusting the peripheral neoclassical assumptions. There are always transaction costs when we must appeal to the legal system; information is difficult to acquire, communicate and memorize and the employer is an agent whose mission is collecting and synthesizing the information in order to make decisions, and, therefore, both emotional and material rewards reinforce trust and trust reduces transaction costs. 13 See application of the theory in Rose “Beyond Buddenbrooks.” 14 Colli et al., “National Determinants of Family Firm Development?,” argue for attachment to institutional framework since there was a strong relationship with the behaviour and capabilities of family business. 15 Catalán, La economía española y la segunda guerra mundial. 16 Maluquer Sostres, La política algodonera del Estado, 1940–1970; Fernández-Roca, HYTASA 1937–1980; idem, “Las cooperativas algodoneras durante el franquismo”; idem, “El sector agroindustrial del algodón en España.” 17 Sindicatos Verticales were state-controlled trade unions introduced during Franco's dictatorship and characterized by the rigidity of the hierarchical structure, and by its authoritarian or paternalistic attitude- hence the term vertical. 18 Fernández Roca, HYTASA; Torres, “Comportamientos empresariales en una economía intervenida.” 19 Baumol, “Funciones Empresariales: productivas, improductivas y destructivas”; Alonso Hierro and Torres, “Funciones empresariales y desarrollo económico”; Barciela, “Franquismo y corrupción económica”; Barciela et al., La España de Franco. 20 Singleton, The World Textile Industry; Porter, Competitive Advantage of Nations. 21 The behaviour of other Spanish entrepreneurs is similar to those in cotton sector, only with some slight variations. Torres, “La empresa en la autarquía, 1939–1959.” 22 P. Gual Villalbí (1945) quoted by Casals i Couturier “‘Cupos’, reconversió i pèrdua de protagonisme.” 23 Casals i Couturier “‘Cupos’, reconversió i pèrdua de protagonisme.” 24 Fernández-Roca, “El sector agroindustrial del algodón.” 25 Singleton, “Planning for Cotton, 1945–1951”; idem, “Showing The White Flag”; idem, Lancashire on the Scrap Heap; idem, “The Decline of the British Cotton Industry”; idem, The World Textile Industry; Lazonick, “Competition, Specialization”; idem, “Industrial Organization”; Mass and Lazonick, “The British Cotton”; Dupree, “Struggling with Destiny: The Cotton Industry”; idem, “The Cotton Industry”; Higgins, “Rings, Mules, and Structural Constraints in the Lancashire Textile Industry”; idem, “Re-equipment as a Strategy for Survival in the Lancashire Spinning Industry”; Rose, “International Competition and Strategic Response in the Textile Industries since 1870”; idem, The Lancashire Cotton Industry; idem, Firms, Networks and Business Values; Vitkovitc, “The U.K. Cotton Industry.” 26 Kirby and Rose, Business Enterprise in Modern Britain, 96. The Board of Trade encouraged business mergers in order to improve competitiveness. In particular, and as in the United States, this implied the disappearance of the most inefficient firms, identified with family businesses. A second measure was to restrict competition in colonial markets and to implement price controls in Great Britain to guarantee investment. The strategy of the main cotton-producers was to pressure the government to implement controls and subsidies. Singleton, Lancashire on the Scrapheap; idem, “The Decline of British Cotton Industry”; idem, The World Textile Industry. The pressure achieved the enactment of the Cotton Industry Re-equipment Subsidy Act (1952), a desperate attempt at reorganization of the cotton-producing sector by means of replacing outdated machinery with more advanced and productive technology, which would increase productivity and stimulate business mergers in order to achieve economies of scale. 27 Lazonick, “Competition, Specialization,” argues that the business strategy was mistaken, and that the industry should have moved much more rapidly to integrated, large firms at the expense of small family businesses. However, the competition that destroyed the British textile industry was small and medium-sized Asian firms (Singleton, Lancashire on the Scrap Heap; idem, “The Decline of the British Cotton”). Dupree, “Struggling with Destiny,” maintains that there should have been price regulation and trade managed through the Cotton Board – which in the medium term proved to be inefficient – and have pushed for a greater renovation of technological. Singleton (Lancashire on the Scrap Heap; “The Decline of the British Cotton”; The World Textile Industry) argues that, in the absence of rigid controls and ‘extravagant’ subsidies, it was impossible to compete, given that the cotton textile industry was labour-intensive, and competitors could pay wages that were considerably inferior to those paid in the English labour market. Mass and Lazonick, “The British Cotton Industry,” place emphasis on the importance of labour-saving technology, such as that installed by Toyota, which achieved savings of up to 80 per cent in labour, and increased production by 150 per cent, technology which was opposed by the trade unions in Great Britain. 28 Maluquer Sostres, La política algodonera; Fernández-Roca, “Las cooperativas algodoneras”; idem, “El sector agroindustrial.” 29 Decrees for the reorganization of the textile industry were first passed in April 1960, and subsequent ones covered the periods 1963–1967 and 1969–1972. 30 Casals i Couturier, “‘Cupos’, reconversió.” 31 It was transferred from the Guell family – founder – to the Bertrand Serra family in 1943. 32 These eight firms represented 14.41 per cent (1940) and 5.15 per cent (1969) of Spanish cotton capital. Additionally, our sample is represented by big firms, 18,600,000 ptas per capita of capital, while the sector had a 3,236,947.88 per capita, in 1940; and, in 1969 the lack was 211,440,000.00 In front of 12,475,194.70 for the Spanish sector. Furthemore, Sedó, S.A.La Espanya Industrial, Manufacturas Viladomiu, Colonia Güell and Manufacturas Valls conducted the complete cycle of cotton production. Hytasa handled the complete cycle of wool. Fabra y Coats and Hilaturas Forcada worked only cotton spinning. 33 Conservative according to Casson, “Economics of the Family Firm,” 15, “as reflected in a commitment to traditional lines of business, and to the business methods favoured by the founder”. Church, “The Family Firm,” 23, uses the term traditional when he argues it was common practice among family firms during the Industrial Revolution to appropriate a substantial proportion of net profit to reserves, i.e. to accumulate declared dividends within the company in the form of loans, paying 4 or 5 per cent interest to partners and later to shareholders. 34 Lloyd-Jones et al., “Culture as metaphor”; Colli et al., “National Determinants of Family Firm Development?” 35 The generational change difficulties and its potential conflicts are well treated in the literature. See Daunton, “Inheritance and Succession in the City of London”; Rose, “Beyond Buddenbrooks”; Scranton, “Build a Firm, Start Another”; Colli et al., “National Determinants of Family firm Development?” 36 Coll and Sudria, El carbón en España, 1770–1961; Tafunell, “Los beneficios empresariales en España.” As the recent cases of Enron, WorldCom, Xerox or BBVA suggest, board of directors continue to be economical with the truth to their shareholders. 37 The origin of the sources varies: that of La Espanya Industrial, Hilaturas Fabra and Coats and Hytasa were published in the Anuario Financiero (Bilbao) and Anuario Financiero SA (Madrid). The balance sheets of Hilaturas Forcada, Sedó SA, Manufacturas Burés, Manufacturas Valls and Manufacturas Viladomiu are in the Arxiu Historic de Catalunya. Lastly, those from Colonia Guell are kept in the Arxiu Comarcal del Bages (Manresa). 38 Catalán, La economía española; Tafunell, Los Beneficios empresariales en España (1880–1891); idem, “Los beneficios empresariales.” 39 Tafunell, ‘‘Los beneficios empresariales en España.'' 40 Debt equito ratio: cash and banks plus realizable/leviable. Acid test: liabilities/owners' equity. Financial profitability: profit*100/equity/ 41 My conclusion coincides with that of Colli, Fernandez and Rose: ‘The prolonged survival of powerful family was a feature of both Spanish and Italian business development, even in the recent past’, Colli et al., “National Determinants of Family Firm Development?,” 52. 42 Cabana, Fàbriques i empresaris; idem, La burguesía catalana; Torres, Los 100 empresarios españoles del siglo XX. 43 The exception was Hytasa, a business of late constitution (1937), founded as a public limited company and with control of only 15 per cent of capital by the business founder. 44 These firms were embedded strongly in a social network. See examples in Rose, “The Family Firm in British Business”; Colli and Rose, “Families and Firms”; Colli et al., “National Determinants of Family firm Development?” 45 Casals i Couturier, “‘Cupos’, reconversió,” 52. 46 Casals i Couturier, “‘Cupos’, reconversió”; Catalán, La economía española. 47 See Morellá, “El producto industrial de posguerra.” 48 Lloyd-Jones et al., “Culture as Metaphor.” Additional informationNotes on contributorsFrancisco Javier Fernández Roca Francisco Javier Fernández Roca is Profesor Titular Historia e Instituciones Económicas in the Dpto. Economía, Mét. Cuant e Historia Económica, Universidad Pablo de Olavide, Sevilla, Spain.